interpreting ministerial directions to statutory ... · interpreting ministerial directions to...

INTERPRETING MINISTERIAL DIRECTIONS TOSTATUTORY CORPORATIONS: WHAT DOES A THEORY OF

RESPONSIBLE GOVERNMENT DELIVER?

Christos Mantziaris*

INTRODUCTION

The ability of ministers to exercise de facto control over statutory corporations presentsa significant governance problem for the Australian public sector. Parliaments haveattempted to define the degree of autonomy granted to the statutory corporation byregulating the flow of communication between ministers and boards. Reportingrequirements are one legal technique. Another is the use of legislative provisions whichgrant the minister formal powers of direction over the corporation and which imposeupon its directors obligations to disclose corporate information to the minister.1 Theseprovisions vary widely in their language; and their meaning is often a source ofconcern for corporate office holders and third parties dealing with the corporation.Statutory powers of direction raise fundamental questions of institutional design: howclosely ought statutory corporations be controlled by the Executive? And in whatmanner ought the Executive be accountable to Parliament for its activities?

Judges interpreting ministerial direction provisions have generally approached thetask through conventional techniques, such as the literal and the purposiveconstruction of the statute. But the increased judicial recognition of the system ofresponsible government prescribed by the Commonwealth Constitution2 has raised thepossibility of a broader basis for interpretation. This paper assesses the merits of rivalapproaches to the requirement of responsible government in the conduct of the affairsof statutory corporations by reference both to their constitutional underpinnings and to

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BA (Hons) (Syd), LLB (UNSW). Law Program, Research School of Social Sciences andCentre for Commercial Law (Faculty of Law), Australian National University.I would like to thank Stephen Bottomley, Peta Spender, Jane Stapleton, Leslie Zines andthe referee for their comments on an earlier version of this paper. I have also benefitedfrom a number of discussions with Mark Aronson, Keven Booker, Angus Corbett and PaulRedmond during a stay at the University of New South Wales Law School in January 1998.Despite a superficial appearance to the contrary, this paper and its author are indebted toJustice Paul Finn for his intellectual guidance and generosity of spirit. The responsibilityfor errors is entirely my own. .See below n 76 and Commonwealth Authorities and Companies- Act 1997 (Cth), ss 15-16.Lange v Australian Broadcasting Corporation (1997) 189 CLR 520, to be discussed below.

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their ability to facilitate historical changes in the Executive's accountability toParliament.

The first part of this paper places the problem of ministerial intervention instatutory corporations within the broader context of governance structures designedfor the conduct of relationships between political principals and their agents. Througha comparison between the regulation of informal principal-agent communication in theCorporations Law company and the statutory corporation,3 the source of the normativeuncertainty surrounding minister-board communications is traced to those governancefeatures necessitated by the minister's location within the political system. Attempts toregulate minister-board communications must satisfy two conflicting needs - thepolitical principal's need to delegate decision-making to an agent and the principal'sneed to preserve its capacity to intervene in the agent's decision-making. MiIlisterialdirections provisions do not resolve these difficulties, as their interpretation forcescourts to grapple with the inherent vagueness of the theory of responsible government.

The second part of this paper examines the recent Federal Court decision of Finn Jin Hughes Aircraft Systems International v Airseroices Australia.4 The decision is at triallevel and the analysis of the ministerial directions power is, strictly speaking, obiterdicta in what is otherwise a case about government tendering processes. Yet thedecision is significant for at least three reasons. First, Hughes marks the entry point intocase law of a robust theory of responsible government which seeks to identify theproper relationship between Parliament, the Executive and the statutory corporation.Secondly, it is a statement of the law issuing from the Canberra Registry of the FederalCourt, the pre-eminent venue for the litigation of issues surrounding the governance ofCommonwealth statutory corporations and from a judge whose academic scholarshipon the subject of responsible government and the statutory corporation is as extensiveas it is highly regarded.5 Thirdly, the facts of Hughes are an excellent illustration of thepervasive effect of ministerial influence in public sector decision-making and theinability of legal forms to contain such influence.

The construction of the ministerial directions power in Hughes illustrates what thethird part of this paper labels as the "strong form approach" to the use of responsiblegovernment theory in statutory interpretation. This represents a consciousinterpretative choice over more conventional alternatives. The final part of this paperassesses the merits of this choice, both in terms of its constitutional foundation, but alsoin terms of its ability to deliver a framework for the relationship between Parliament,the Executive, and the statutory corporation that is capable of facilitating Parliament'sresponse to change and evolution in the social and economic phenomena it is forced to

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These terms of analysis are defined below: see below text at nn 9-12.(1997) 146 ALR 1.Finn ]'s statements on the subject as a legal academic are numerous: P D Finn, Lau} andGovernment in Colonial Australza (1987); "Public Trust and Public Accountability" (1993)Australian Quarterly 65; "The Abuse of Public Power in Australia: Making Our GovernorsOur Servants" (1994) 5 Public Law Rev 43; "The Forgotten Trust: The People and the State"in M Cope (ed), Equity: Issues and Trends (1994) ch 5; "A Sovereign People, A Public Trust"in P D Finn (ed), Essays on Law and Government vol 1 (1995) ch 1; and P D Finn andG JLindell, "The Accountability of Statutory Authorities" in Commonwealth ParliamentSenate Standing Committee on Finance and Government Operations, Statutory Authoritiesof the Commonwealth: Fifth Report (1982), appendix 4.

1998 Interpreting Ministerial Directions to Statutory Corporations 311

address. The strong form approach is found wanting on both accounts, for it is no lessthan an attempt to constitutionalise an historically specific understanding of the theoryof responsible government.

For pragmatic reasons, the paper restricts itself to an analysis of Commonwealthstatutory corporations. Subject to variations in individual legislative provisions and thedifferences between the constitutional environment of the Commonwealth and that ofthe States and Territories, similar principles would inform an analysis of the power ofministerial direction in respect of State and Territory statutory corporations.

MINISTER-BOARD COMMUNICATION: STRUCTURAL SOURCES OFNORMATIVE UNCERTAINTY

There are certain aspects of the communication between the minister and the board of astatutory corporation which are common to most situations in which a principaldelegates the conduct of an activity to the board and management of a corporation; andthere are other features which are peculiar to the political character of the minister asprincipal. This part of the paper contrasts the regulation of prinCipal-agentcommunication in the Corporations Law company and the statutory corporation inorder to demonstrate that the normative uncertainty characterising minister-boardcommunications in the statutory corporation is a direct product of the principal'sembededness in political relations. The terms "principal" and "agent" are not used todenote the legal relationship of principal and agent as it is known in private law,6 nordo they serve as the vehicle for an "agency cost"7 or "public choice"8 analysis of publicsector governance structures. The terms are simply used to describe two functionalroles which are adopted when A (principal) delegates the conduct of an activity to B(agent). It is hoped that a functionally-oriented description of these roles may assist ineliciting the reasons behind the differences in the way two different corporategovernance structures deal with the problem of the division of authority over decisionmaking.

Comparing the statutory corporation with the incorporated companyA statutory corporation is an artificial legal person with perpetual succession createdby statute. It has the right to sue and be sued and has such other legal capacity asParliament may validly confer upon it. Beyond the possession of these basiccharacteristics, the highly variable nature of the form does not allow the statutorycorporation to be conceived as a fixed legal category, nor even an "ideal type" in the

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On the distinction between the legal and economic models of agency and its relevance tocorporate law analysis, see B R Cheffins, Company Law: Theory, Structure and Operation(1997) at 45 and L Dallas, "Two Models of Corporate Governance: Beyond Berle andMeans" (1988) 22 U Mich ] Law Reform 19 at 34-6.Cf M Palmer, "Toward an Economics of Comparative Political Organization: ExaminingMinisterial Responsibility" (1995) 11 ] of Law, Econ and Org 164. On the problem of agencycost, M Jensen and W Meckling.. "Theory of the Firm: Manag~ria~ Behaviour, Agency Costsand Ownership Structure" (1976) 3 ] ofFin Eco 305.Cf P Dunleavy, Bureaucracy and Public Choice: Economic Explanations in Political Science(1991) and, within the tradition of transaction cost economics, M Horn, The PoliticalEconomy ofPublic Administration: Institutional Choice in the Public Sector (1995).

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Weberian sense.9 Some statutory corporations are nothing more than a "corporationsole" in which legal personality is conferred upon an office in order to distinguish itfrom the natural person who is its temporal occupant.10 Other statutory corporationspresent elaborate governance structures designed for the conduct of large-scalegovernmental activities, ranging from the commercial (for example, the sale of goodsand services) to the non-commercial (for example, regulation, industry representationand research}ll The historical uses of the statutory corporation have differedenormously.1

The incorporated company presents a more unified picture. To be sure, there isgreat diversity in the nature of companies. An incorporation statute such as theCorporations Law offers the legal framework for the conduct of activities which rangefrom the conduct of an international shipping business to the tax-effective holding offamily assets. Indeed, government itself may use a Corporations Law company toconduct its activities.13 The Corporations Law takes some account of these differencesby distinguishing internally between small and large proprietary companies and publiccompanies.14 The Law also adopts a prima facie permissive stance towards themodification of a company's governance structure. It permits not only alterations to thememorandum and the articles of association, but also the use of devices such asshareholders' agreements and voting trusts. It is nevertheless possible to speak of theCorporations Law company as a distinct legal category the existence of which triggersa defined set of consequences within the system of positive law.15 For example, onceincorporated under the Corporations Law, the shipping business and the family taxshelter company will be subject to the same legal rules defining the company's legalcapacity, the authority of its officers, and the equitable restraints on its shareholders'voting power.

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E A Shills and H A Finch (eds), Max Weber on The Methodology of the Social Sciences (1949) at89ff; S J Heklnan, Max Weber and Contemporary Social Theory (1983) ch 2.McVicar v Commissioner for Railways (NSW) (1951) 83 CLR 521 at 534 and Crouch vCommissioner for Railways (Qld) (1985) 159 CLR 22 at 35. The practice has common laworigins of considerable antiquity: S J Stoljar, Groups and Entities: An Inquiry into CorporateTheory (1973) ch 9; Archbishop ofPerth v "AA" to "JC" (1995) 18 ACSR 333; E H Kantorowicz,The King's Two Bodies: A Study in Medieval Political Theology (1957); F W Maitland, "TheCorporation Sole" (1901) 17 LQR 335.The most recent (non-exhaustive) list of Commonwealth statutory corporations may befound in Senate Finance and Public Administrations Legislation Committee, List ofCommonwealth Bodies (1996).R Wettenhall; "Corporations and Corporatisation: An Administrative History Perspective(1995) 6 Public Law Rev 7; I Beckett, "Public Enterprise Boards in Australia" in J Corkery,C Q'I\Tuallain and R Wettenhall (eds), Public Enterprise Boards - What They are and Whatthey do: Reports from an International Study (1994) 172; G Sawer, "The Public Corporation inAustralia" in W Friedmann (ed), The Public Corporation: A Comparative Symposium (1954), ch1; G Sawer, "Ministerial Responsibility and Quangos" in G R Curnow and C A Saunders,Quangos: The Australian Experience (1983) 73-81. For a sample of early literature onAustralian statutory corporations see F W Eggleston, State Socialism in Victoria (1932).Note the Commonwealth Authorities and Companies Act 1997 (Cth), Pt 4. The most recent(non-exhaustive) list of Commonwealth companies limited by shares or guarantee is alsofound in Senate Finance and Public Administrations Legislation Committee, above nIl.Corporations Law, s 45A and s 9 definition of "public company".Cf H L A Hart, "Definition and Theory in Jurisprudence" (1954) 70 LQR 37 at 52-9.


Due to the wide variation in the manifestations of the statutory corporation, littlewould be gained by comparing it, in the abstract, with the legal form of theincorporated company. There is, however, more gain to be made from a morerestricted comparison of the two legal forms in those instances where they serve tofacilitate organisational activity of a similar scale. The comparison here will thereforeassume, on the one hand, a business incorporated under the Corporations Law as a"large proprietary company"16 with no government equity participation. And on theother hand, it will assume one of the larger Commonwealth statutory corporationssuch as the Commonwealth Scientific and Industrial Research Organisation (CSIRO),the Australian Broadcasting Authority (ABA), the Special Broadcasting Service (SBS),the Australian Trade Commission (AUSTRADE), or the Grain Research andDevelopment Corporation.17 These organisations conduct activities on a financial scaleand with a labour force of a size that would easily place them within the category ofthe large proprietary company had they been incorporated under the CorporationsLaw.

In what follows, a distinction is drawn first, between formal and informalcommunication and secondly, between periodic and non-periodic communication. Formalcommunication is communication which is specifically enabled by the corporation'slegal structure (for example, the processes associated with the general meeting).Informal communication is communication which is either expressly enabled orcommunication which is prohibited. The distinction between periodic and non-periodiccommunication refers to the timing of the communication. Thus, communicationbetween principal and agent may occur on a periodic basis (for example, reportingback to the principal on a quarterly or annual basis) or it may occur on a non-periodicbasis (for example, where communication is necessitated by the occurrence of anevent). Ministerial directions involve non-periodic communication from the politicalprincipal to the statutory corporation. The legal interpretation of these directions isoften occasioned by the need to determine their status (formal or informal) and theirpermissible content (valid or invalid).

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Under the Corporations Law, s 45A(3):

A proprietary company is a large proprietary company for a financial year if it satisfies atleast 2 of the folloWing paragraphs:

(a) the consolidated gross operating revenue for the financial year of the company and theentities it controls (if any) is $10 million or more;

(b) the value of the consolidated gross assets at the end of the financial year of thecompany and the entities it controls (if any) is $5 million or more;

(c) the company and the entities it controls (if any) have 50 or more employees at the endof the financial year.

A small proprietary company is a company that falls beneath this threshold: s 45A(2).Established, respectively, under the following enactments: Science And Industry ResearchAct 1949 (Cth); Broadcasting Services Act 1992 (Cth); Special Broadcasting Service Act 1991(Cth); Australian Trade Commission Act 1985 (Cth) and the Primary Industries and EnergyResearch and Development Act 1989 (Cth) in conjunction with the Grains Research andDevelopment Corporation Regulations 1990 (Cth).

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Principal- agent communicationCommencing at a relatively high level of abstraction, one may restate the trite premiseof organisational theory that all principal-agent relationships are subject toinformational asymmetry. That is to say that the agent's proximity to the activitydelegated to it by the principal allows it to be better informed about that activity andprovides it with the opportunity to withhold such information from the principal.18

The parties' relative access to information will ultimately determine the manner inwhich authority over decision-making in respect of the activity is allocated betweenagent and principal.19 Both the Corporations Law company and the statutorycorporation provide governance structures which, ex ante, allocate the responsibility forcorporate decision-making between principal and agent. Such governance structuresrespond to the problem of informational asymmetry by defining the character, as wellas the occasion and the means, by which information is to be communicated by theagent to the principal and vice-versa. These structures enable and formalise certainflows of communication, prohibit others (for example, the disclosure of confidentialinformation) and leave many more instances of informal communication in a grey zonebetween that which is specifically enabled and that which is specifically prohibited.Beyond these basic shared characteristics, there are significant divergences between themanner in which principal-agent communication is regulated in the Corporations Lawcompany and in the statutory corporation.

Principal-agent communication in the incorporated companyWithin the Anglo-Australian legal tradition, the legal form of the corporation has beenused by private actors as a vehicle for many forms of activity unrelated to profit.20 Yetthe classical form of the incorporated company, available since the Joint StockCompanies Act 1844 (UK) and present to this day, is a form designed for the principal'spursuit of wealth-maximisation.21 The incorporated company offers a number offeatures which go towards solving the problem of informational asymmetry betweenprincipal (members/shareholders) and agent (board and senior management). First,the legal model allocates authority over decision-making between the general meetingof members and the board of directors, delimiting the circumstances and the mode bywhich members may intervene in the decision-making processes of the board andmanagement.22 Incorporated companies typically vest exclusive powers of

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JW Pratt and R J Zeckhauser, "Principals and Agents: An Overview" in JW Pratt andR JZeckhauser (eds), Principals and Agents: The Structure ofBusiness (1985) ch 1 esp. at 4ff.P Aghion and JTirole, "Formal and Real Authority in Organizations" (1997) 105 J of PolEcon 1.To select but two examples: the use of the corporation as a form for associations in civilsociety (see 5 JStoljar, above n 10; L C B Gower, Gower's Principles ofModern Company LtlW(7th ed 1997) chs 1-2 and Associations Incorporation Act 1984 (NSW»; or as an expedientmeans for the recognition of groups of indigenous people (see Aboriginal Councils andAssociations Act 1976 (Cth».S Corcoran, "does a corporation have a sex?" in N Naffine and R JOwens (eds), sexing thesubject oflaw (1997) 215.For a recent exploration of the constitutional division of powers within the CorporationsLaw company, see 5 Bottomley, "From Contractualism to Constitutionalism: A Frameworkfor Corporate Governance" (1997) 19 Syd LR 277.


management in the board through an article such as Table A Art 66.23 This grant ofgeneral power is supplemented by other specific powers, such as the power to issueshares, the power to make calls on unpaid capital and the power to forfeit shares.24

Where the articles of a company confer exclusive powers of management on the board,the general meeting has no power to intervene in the exercise of that power.25

Secondly, the legal model provides a formal structure for both the periodic and thenon-periodic communication of corporate information between the board and thecompany's members. The detailed voting procedures for the general meeting and,where needed, for particular classes of shareholders, provide the proper channel forprincipal to agent communication.26 In the reverse direction, incorporation statutes,such as the Corporations Law, formalise certain flows of communication through legal

. obligations imposed on directors to provide information to the members andshareholders of the corRoration about the finances, plans and significant events in thelife of the corporation.27 These provisions are supplemented by periodic auditingrequirements and, in the case of publicly-traded companies, requirements that materialinformation about the fortunes of the company be disclosed to the market.28

In contrast to the high level of specificity regarding the structure of formalcommunication between members and shareholders and the board, corporate lawmakes little attempt to influence informal flows of communication between themember-principals and their managerial agents. Parliament has recognised that inproprietary companies (which are typically closely-held), informal communicationbetween board and shareholders predominates to the extent that the formalcommunication structures of the general meeting may have no function to serve. Therequirement of an annual general meeting has therefore been abolished for thesecompanies.29 Corporate law only intervenes to restrict the informal flow of principalagent communication when this communication threatens to undermine the corefiduciary duties owed to the company by the directors.

Directors' duties are premised on the separation of the legal personality of themember and that of the company. Though the interests of the sum of the shareholderswill often coincide with the interests of the company, the law does not accept a logical

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Corporations Law, Sch 1, Table A, Art 66 states: "Subject to the [Corporations Law] and toany other provisions of these [Articles], the business of the company shall be managed bythe directors, who may pay all expenses incurred in promoting and forming the company,and may exercise all such powers of the company as are not, by the Law or by theseregulations, required to be exercised by the company in general meeting".Corporations Law, Sch 1, Table A, Arts 2, 3, 12 and 27 respectively.Automatic Self-Cleansing Filter Syndicate Co v Cunninghame [1906] 2 Ch 34; John Shaw andSons (Salford) Ltd v Shaw [1935] 2 KB 113 at 134; Howard Smith v Ampol Ltd [1974] AC 821 at837; NRMA v Parker (1986) 11 ACLR 1 at 5; Poliwka v Helen Holdings Pty Ltd (1992) 8 ACSR747 at 787-8.For example, Corporations Law, Pt 3.3 (meetings); Pt 2.4 Div 4B (approval procedures forshare buy-backs), ss 197-8 (alteration of rights of a class of shareholders).Corporations Law, Pt 3.6 Divs 5-7.Corporations Law, Pt 3.7 Div 2 and ss IDOlA, 1001B respectively.Corporations Law, s 245(2A) inserted by First Corporations Law Simplification Act 1995(Cth), Sch 4.


identity between these formulations of interest.3D Directors owe their fiduciary dutiesto "the company as a whole" and not to any particular shareholder, whether thatshareholder is in a position to control the company or not.31 Even the board of awholly-owned subsidiary company is not bound to comply with the directions of thecontrollers of the company.32 Where a controlling member of a corporation attempts todictate informally a course of action to the board, such a communication is legallyineffective. The directors are under no duty to obey such a communication and indeedwould be in breach of their duty if they were to do so.33 Where company directorshave habitually observed such directions, the controller would be considered a"shadow director" and would be exposed to any liability that might arise as a result ofhis or her actions.34

Regulation of the reverse flow of informal communication - that is, from the boardto members of the corporation - is also restricted to that which is mandated by thefiduciary underpinnings of the company form. Directors are not free to communicate tomembers information which might detrimentally affect the company. The ambit of thisrule includes "nominee directors" who owe duties to their appointor under contractualagreements between the company and the appointor.35 Third parties who impart

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This is most obvious in the ever-growing recognition of the duty owed by directors to thecreditors of the company: Walker v Wimborne (1976) 137 CLR 1; Equiticorp Finance Ltd (in liq)v Bank ofNew Zealand (1993) 11 ACSR 642 at 680, 724-5; Kinsela v Russell Kinsela Pty Ltd (inliq) (1986) 4 NSWLR 722 at 730. See KJ Hopt, "Directors' Duties to Shareholders,Employees, and Other Creditors: A View From the Continent" in E McKendrick (ed),Commercial Aspects of Trusts and Fiduciary Obligations (1992); D Prentice, "Directors,Creditors, and Shareholders" in E McKendrick (ed), Commercial Aspects of Trusts andFiduciary Obligations (1992); L S Sealy, "Directors' 'Wider' Responsibilities - ProblemsConceptual, Practical and Procedural" (1987) 3 Monash Univ LR 164; and in historic rulessuch as the share capital maintenance rule: Trevor v Whitworth (1887) AC 409.Percival v Wright [1902] Ch 2 Ch 421; Bell v Lever Bros Ltd [1932] AC 161. Exceptions to thisrule have been made in particular circumstances: Coleman v Myers [1977] 2 NZLR 225 andGlavanics v Brunninghausen (1996) 19 ACSR 204.Gramophone and Typewriter Ltd v Stanley [1908] 2 KB 89. See also Imperial Hydropathic HotelCo Blackpool v Hampson (1882) 23 Ch D 1.H Ford and R Austin, Ford and Austin's Principles of Corporations Law (looseleaf) at paras[8.070-8.190] and P D Finn, Fiduciary Obligations (1977) at paras lllff.Corporations Law, s 60; Standard Chartered BankofAustralia Ltd v Antico (1995) 18 ACSR 1;ASC v AS Nominees (1995) 18 ACSR 459; Re Hydrodam (Corby) Ltd [1994] 2 BCLC 180. Inmore limited circumstances, an appointor may be vicariously liable for the acts of itsappointee on the board of a company, where those acts occur in the course of theappointee's employment: Dairy Containers Ltd v NZI [1995] 2 NZLR 30. See generallyP Koh, "Shadow Director, Shadow Director, Who Art Thou?" (1996) 14 C & SLJ 334; J Pizer,"Holding an Appointor Vicariously Liable for its Nominee Director's Wrongdoing - AnAustralian Roadmap" (1997) 15 C & SLJ 81; E W Thomas, "The Role of Nominee Directorsand the Liability of their Appointors" in I Ramsay (ed), Corporate Governance and the DutiesofCompany Directors (1997) 184.Harkness v Commonwealth Bank ofAustralia (1993) 12 ACSR 165. Not even the more "liberal"approach of Jacobs J in Re Broadcasting Station 2GB Pty Ltd [1964-65] NSWR 1648 and Levinv Clark [1962] NSWR 686 would support such a disclosure. On nominee directors' duties,see generally: P Redmond, "Nominee Directors" (1987) 10 UNSWLJ 194; P Crutchfield,"Nominee Directors: the law and commercial reality" (1992) 20 ABLR 109; E W Thomas,ibid.


confidential information to a company under a contractual relationship are not taken tohave agreed to the communication of this information to the company's controller.Such a disclosure would place the company in breach of its obligations to the thirdparty36 and directors who have occasioned such a breach of contract may indeed havebreached their fiduciary duty to the company.

Beyond the mainten~nce of this fiduciary structure, corporate law has turned ablind eye to informal communication between corporate principals and their agents.The management of public companies will often conduct "roadshows" in whichcorporate information will be communicated to shareholders and potentialshareholders. Several corporate governance reports have explicitly encouragedinformal communication between board and shareholders about company affairs as away of promoting shareholder understanding of company operations and policy.37 Inpublic companies, this permissive stance is qualified by the desideratum that allshareholders be, as far as possible, equally consulted and informed of the company'saffairs and the prohibition on the disclosure of "inside" information imposed bystatutory insider trading provisions.38 There is a stronger case for the benefits ofinformal communication between boards and shareholders in large proprietarycompanies, as shares in these companies are not publicly traded.

The legal structure of the Corporations Law company thus offers a discerniblemodel for principal-agent communication. The separation between the legalpersonality of the membership and the company has little effect on the flow of informalcommunication. The corporation's separate legal personality will only come to theforeground when informal communication threatens the observance of the fiduciarystructure of corporate governance. Third parties dealing with the corporation have arelatively clear picture of how courts will assess principal-agent communication incircumstances which might cause these duties to be breached.

Principal-agent communication in the statutory corporationAs with the incorporated company, aspects of the governance structures of manystatutory corporations might also be analysed as a response to the problem ofinformational asymmetry between the political principal and its managerial agents.The informational disadvantage of the principal is most obvious in the case of thehighly specialised scientific and industrial activities of bodies such as the Research andDevelopment Corporations created within the primary industry portfolio.39 But it isalso evident in the service-providing and regulatory bodies such as the former CivilAviation Authority, the body considered in Hughes. The corporate governancestructure of statutory corporations responds to this informational asymmetry through adivision, between the minister and the board, of authority over corporate decisionmaking.

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Bank ofTokyo v Karoon [1986] 3 All ER 468 at 476.Toronto Stock Exchange Committee on Corporate Governance in Canada, Where were theDirectors? Guidelines for Improved Corporate Governance in Canada (December 1994) paras 7.17.11; Committee on the Financial Aspects of Corporate Governance, (Cadbury Committee)1996, paras 6.9-6.11.For example, Toronto Stock Exchange, ibid paras 7.8-7.9 and see also 3.10.Primary Industries and Energy Research and Development Act 1989 (Cth).

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In the case of man~o statutory corporations, the parent statute will create amemberless corporation41 comprising a board of directors, to be appointed by theExecutive, with defined tenure and conditions for removal. Provision might be madefor a "government director", in practice a direct nominee of the Executive employed asa public servant in the relevant portfolio area. Responsibility for the statutorycorporation is granted under the Administrative Arrangements Order to the ministerin charge of the department of state most closely related to the activities of thecorporation. The corporation is vested with a range of powers necessary for theconduct of statutorily-defined functions. But the statute will usually reserve, for theministerial principal, authority over certain aspects of corporate decision-making. Thiswill usually be through a series of legal techniques which enable periodic flows offormal communication between principal and agent, for example, the ministerialapproval of periodic operational, financial and corporate plans. The preparation ofannual reports and the corporation's subjection to audit by the Auditor-General furthersupplement the informational needs of both the Executive and the Parliament.42 Theparent statute will also regulate formal non-periodic communication between thepolitical principal and the board of the corporation. The statute may require the boardto obtain the minister's approval for a range of specified transactions (for example,borrowing, investment, entry into a contract, price-setting). It may also require thedirectors to notify the minister of the occurrence of specific events or the generalconduct of corporate operations.43

Behind these controls lie other formal oversight mechanisms. As part of theconvention of responsibleJovernment, Parliament retains the right to inquire into theaffairs of the corporation. Through statute, or the issue of administrative guidelinesby the Executive, other departments or agencies might be granted authority overspecific aspects of corporate operations. For example, the Minister for Finance might begranted oversight of corporate borrowing and "dividend" policy; the approval of theDepartment of Foreign Affairs may be required for ventures outside the jurisdiction; orthe approval of the Department of Industrial Relations for staff salaries and so on.

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See text above at nn 9-12. This account is based on a survey of the legislation cited aboven 17. Surveys of general characteristics of Australian statutory corporations may also befound in R Wettenhall, "Quangos, Quagos, and the Problems of Non-MinisterialOrganization" in G R Curnow and C A Saunders (eds), Quangos: The Australian Experience(1983) ch 2; I Beckett, above n 12; L Zines, "Federal Public Corporations in Australia" inW Friedmann and JF Gamer (eds), Government Enterprise: A Comparative Study (1965) ch 13and G Sawer, "The Public Corporation in Australia" in W Friedmann (ed), The PublicCorporation: A Comparative Symposium (1954) ch 1.Bank ofNeuJ South Wales v Commonwealth (1948) 76 CLR 1 at 361.A contemporary legislative technique is to impose these requirement through a genericstatute applying across the board to statutory corporations: eg, CommonwealthAuthorities and Companies Act 1997 (Cth), Pt 3.For example, Commonwealth Authorities and Companies Act 1997 (Cth), ss 16-17.Lange v Australian Broadcasting Corporation (1997) 189 CLR 520 at 561; G J Lindell,"Parliamentary Inquiries and Government Witnesses" (1995) 20 MULR 383 andE Campbell, "Parliament and the Executive" in L Zines (ed), Commentaries on the AustralianConstitution (1977) at 90ff. Wettenhall has examined political control techniques exercisedover statutory corporations, see above n 40 especially at 28-9.


Depending on the character of the decision,45 and the rules of standing,46 there is apossibility that the board's actions might be subject to scrutiny by the courts at the suitof a member of the public. In this circumstance, the review of board decisions will bebased on the judicial review of administrative action rather than the general lawgoverning the director's fiduciary duties to the corporation. Depending on the identityof the statutory corporation, corporate information may be examined by the publicunder freedom of information legislation (albeit in a manner limited by considerationsof commercial competition and state confidentiality).47

Oversight and coordination is also established through informal communicationbetween the board (and management) and various parts of the Executive. Thesecommunications range from the ongoing contact between senior management andmembers of the portfolio department or the minister's office, to the phenomenon whichis the focus of this paper - the direct intervention of the minister in corporate decisionmaking over issues allocated ex ante to the board under the parent statute.

Within the Anglo-Australian legal system, the most systematic inquiries intoministerial intervention of this nature have been occasioned by the large scalenationalised industries of post-war Britain.48 The British Parliament was so concernedby the visible growth of extra-statutory ministerial control, and "the lack of clarityabout purposes, policies, methods and responsibilities" that ministerial interventioncreated, that a Select Committee was appointed to inquire into the ministerial control ofthe nationalised industries.49 Evidence before the Committee by corporate officers andpublic servants confirmed the extent of de facto ministerial control over the industries.Variations were noted in the pattern of ministerial intervention between industries, inthe personal styles of ministers, in the extent of ministerial control and its historicalbackground.50 Empirical data on the frequency of ministerial interventions in

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The decision must be of an administrative character under an enactment for the purposesof the Administrative Decisions Oudicial Review) Act 1976 (Cth), s 3(1). See AustralianNational University v Burns (1982) 43 ALR 25 (decision under a contract); General NewspapersPty Ltd v Telstra Corporation (1993) 117 ALR 629 (decision to enter a contract). See generallyN Seddon, Government Contracts: Federal, State and Local (1995) 270-80; M Allars, "PrivateLaw But Public Power: Removing Administrative Law Review From Government BusinessEnterprises" (1995) 6 Public Law Rev 44; M Aronson and B Dyer, Judicial Review ofAdministrative Action (1996) at 49ff. There is also the possibility of making use of thecommon law basis of review: Mercury Energy Ltd v Electricity Corporation DfNew Zealand Ltd[1994] 1 WLR 22; P Bayne, "The Common Law Basis of Judicial Review" (1993) 67 AL] 780and M Taggart, "Corporatisation, Contracting and the Courts" (1994) Public Law 351.See generally M Aronson and B Dyer, ibid ch 12.Freedom of Information Act 1982 (Cth), s 4 (definition of "prescribed authority"), s 7 andSch 2 (schedule of excluded bodies).A H Hanson, Parliament and Public Ownership (1961); W A Robson, Nationalized Industry andPublic Ownership (1960); T Prosser, Nationalised Industries and Public Control: Legal,Constitutional and Political Issues (1986) and 0 Woodhouse, Ministers and Parliament:Accountability in Theory and Practice (1994) at 20-2. Cf the brief discussion of these issues inCommonwealth Parliament, Joint Committee of Public Accounts, The Australian AluminiumProduction Commission (Report no 21, 1955), Pt 1, Ch 3.United Kingdom Parliament, Select Committee on Nationalised Industries Session 1967-68,Ministerial Control of the Nationalised Industries: First Report (1968) especially ch III.Ibid. Cf J Corkery and R Wettenhall, "Public Enterprise Boards: A Neglected Area ofGovernance" paper published by the International Institute of Administrative Sciences


Australian statutory corporations is not available; nor is it ever likely to be availabledue to the inherent methodological difficulties in ascertaining and measuring theexercise of political influence.51 However, ministerial interventions in board affairshave been documented in the case of entities such as the Australian BroadcastingCorporation,52 Telecom,53 the Overseas Telecommunications Commission54 and theCivil Aviation Safety Authority.55

In summation, the governance structure of the statutory corporation creates a verydifferent allocation of authority over decision-making than that of the privatecompany. Within these structures, different solutions are found to the problem ofinformal principal-agent communication. The law of the private company offers asimple answer: such communications are permitted, provided that they do notundermine the fiduciary duties owed by the directors to the company. Not so thestatutory corporation. The relationship between the minister and the board is soinfluenced by the location of the corporation within the political system - and, ofcourse, the statutory setting - that informal minister-board communication occurs in aspace governed more by political habit and expediency than by legal norms andconventions.

There are deep-seated structural reasons for this normative indeterminacy. First, thegovernance structure of the statutory corporation derives from the combined exerciseof both the legislative power (controlled by the Executive in the Westminster system)and the executive power. Parliament's monopoly over the legislative power allows itenormous latitude in defining the legal incidents of the corporation and the general law

51

52

535455

Brussels (1990) at 14-5 and C Mantziaris, "When the Minister Leans on the Board: theForced Resignation of the Managing Director of Australia's Overseas TelecommunicationsCommission" (1997) 19 Asian JPub Admin 157 at 174-5, 191.Nevertheless, compare G Stapledon's empirical analysis of "extraordinary" action taken byinstitutional investors in the governance of listed companies in the United Kingdom andAustralia: G Stapledon, Institutional Shareholders and Corporate Governance (1996) at 122-31,185-96 and Appendices Band D.J Rydon, "The Australian Broadcasting Commission 1942-48" (1952) 11 PublicAdministration (Sydney) 190; G Bolton, Dick Boyer: an Australian Humanist (1967) chs 6-9;and, more recently, E Simper, "Alston pressures ABC on bias" The Australian 4 May 1998 at1.R Wettenhall, above n 40 at 44-5.C Mantziaris, above n 50.JShort and M Gordon, "Howard under pressure as Sharp admits jobs ploy" The Australian13 February 1997. The evidence of Ministerial intervention in respect of governmentcompanies is too limited to support any conclusions: S Bottomley, "Corporatisation andAccountability: the Case of Commonwealth Companies" (1997) 7 Aust Jof Corp Law 157 at170 (intervention is rare). Cf documented instances of departmental or ministerialintervention in the cases of AIDC Ltd (resignation of government directors requested bytheir department to disclose information confidential to AIDC Ltd) and ANL Ltd (ministerpressuring board for a quick sale of the entity's assets as part of a privatisation process):Commonwealth Parliament, Department of the Parliamentary Library, AIDC Sale Bill1997, Bills Digest 115 (1996-97) at 1 and Australian National Audit Office, Matters Relating toProposed Sale of ANL Ltd (Audit Report no 2 1995-96) and K Trace, "'You Couldn't Give itAway': Privatising the Australian National Line" (1996) 2 Agenda 433-44.


environment within which it operates.56 Significantly, legislation may be used todetermine the division of corporate powers between the board and minister and mayqualify the fiduciary duty of the directors to "the corporation as a whole" .57 Thisrenders marginal the circumstances in which the minimum company law norm namely, that informal communication is permissible provided that it does notundermine the director's fiduciary duties - may be applied usefully to thecircumstances of the statutory corporation.

Secondly, the statutory corporation necessarily falls within the ambit of the doctrineof responsible government.58 As a member of the Executive, a minister assigned theresponsibility for a particular statutory corporation is accountable to Parliament for theaffairs of that corporation, and, through the Parliament, to the electorate. As will beseen below,59 the precise character and content of this relationship of accountability isunclear. But its existence may require the political principal to intervene in the affairsof the corporation in a manner not permitted to the private principal in theCorporations Law corporation. The demands of responsible government may alsogenerate additional informational needs (and associated costs) not experienced by aprivate principal. These demands might also cut across the directors' fiduciaryobligations regarding the confidentiality of corporate information.

Thirdly, the Executive is a principal which is necessarily engaged in the pursuit ofmultiple and often conflicting objectives. Within the statutory corporation, this internalconflict is realised in the interplay between corporate profit objectives, corporate nonprofit objectives (for example, the provision of loss-making services for reasons ofsocial policy) and extra-corporate objectives (for example, the conformity of corporateaction to the government's foreign or employment policies). The pursuit of theseobjectives might be directed by different parts of the Executive, each of which isconcerned with a particular policy,60 or by the same part of the Executive in responseto electoral pressures. The temporal limitations (and the inherent insecurity) of theExecutive's term of office61 may force the Executive to influence the corporation in adirection which conflicts with the statutory corporation's own perception of itsobjectives. By contrast, the problem of a shareholder attempting to dictate to the board

56

57

58

5960

61

A point most clearly made in the economic analysis of the statutory corporation:M JTrebilcock and JR S Pritchard, "Crown Corporations: The Calculus of InstrumentChoice" in M JTrebilcock and JR S Pritchard, Crown Corporations in Canada: The Calculus ofInstrument Choice (1983) ch 1; and M Horn, above n 8.Legislation (in combination with common law understandings) may also subsume orseparate the corporation from "the Crown". See generally: P W Hogg, Liability of the Crown(2nd ed 1989); S Kneebone, Tort Liability of Public Authorities (1998) ch 7 and N Seddon,above n 45 ch 4.Lange v Australian Broadcasting Corporation (1997) 189 CLR 520 at 561; British SteelCorporation v Granada Television Ltd [1981] AC 1096 at 1168 and Hughes Aircraft SystemsInternational v Airservices Australia (1997) 146 ALR 1 at 24-5, 74, 88-9.See below text at nn 144 and 159-77.In the case of government business enterprises, this problem has led to the demand forcentral policy coordinating agencies: R Wettenhall and C O'Nullain (eds), Getting Togetherin Public Enterprise (1987); Department of Finance, Review ofGBE Governance Arrangements Report by Richard Humphry (1997) at 4.The instability caused by this "commitment problem" within political transactions has beennoted by students of the US Congressional system: M Horn, above n 8 at 16-19 and T Moe,"Political Institutions: The Neglected Side of the Story" (1990) 6] of Law, Econ and Org 213.


of a company a non-profit or extra-corporate objective rarely arises in the CorporationsLaw company. Despite views to the contrary expressed by "stakeholder" and"communitarian" theorists,62 large proprietary companies are fundamentally driven bythe profit motive. The law has responded accordingly, by embodying theunderstanding that a directors' fiduciary duties may be breached if he or she puts awider notion of corporate social responsibility before the financial interests of thecompany.63 This aspect of the directors' fiduciary duty is of little utility to the statutorycorporation in circumstances where it is directed to pursue non-profit or extracorporate goals.

This comparison between the corporate governance arrangements of theCorporations Law company and the statutory corporation has identified structuralreasons for the normative indeterminacy of informal minister-board communication.As the next section will indicate, this indeterminacy has been replicated in the attemptsto establish legal norms and conventions that might structure this communication.

Regulation of ministerial intervention

Both British and Australian administrative history reveal an absence of conventionsregarding ministerial intervention in the affairs of statutory corporations. Finn's64study of the practice of colonial boards in New South Wales, Victoria and Queenslandfound a broad divergence between British and colonial practices in relation to theaccountability of boards. In addition, the colonies themselves presented no uniformmodel for minister-board relations. Each colony appears to have positioned its variousBoards, Trusts, and Commissioners in different degrees of proximity to the Executive,represented variously by one or more ministers of state, or the Governor-in-Council.The legal interpretation of these interventions is usually restricted to the specificstatutory context of the body in question.65 Uhr identifies the problem as an ongoinguncertainty within the realm of Commonwealth Parliamentary practice.66 Similarconclusions have been drawn in the international public administration literature.67

Attempts to regulate informal minister-board communications have foundered on abasic conflict between the need to delegate decision-making to an agent, whilepreserving the principal's capacity to intervene when it chooses. The failure of theBritish Select Committee on Nationalised Industries to formulate principles for theexercise of ministerial control is instructive.68 Some of these principles restated theobvious: "Ministers should be concerned with securing that the industries operate in

62

63

6465

6667

68

For example, contributions to the Special Issue on the Corporate Stakeholder Debate: TheClassical Theory and its Critics (1993) 43 U Toronto LJ and D Millon, "Communitarianism inCorporate Law: Foundations and Law Reform Strategies" in L Mitchell (ed), ProgressiveCorporate Law (1995) ch 1.Hutton v West Cork Railway Co (1883) 23 Ch D 654; Parke v Daily News Ltd [1962] Ch 927.Within the law of (private non-charitable) trusts, cf Cowan v Scargill [1985] 1 Ch 270.P D Finn, Law and Government in Colonial Australia (1987) at 60-1,97-9 and 129-31.For example, Commonwealth of Australia, Joint Committee of Public Accounts, n 48above, ch 3 paras 33-52.JUhr, Deliberative Democracy in Australia: The Changing Place of Parliament (1998) at 199-201.M Dornstein, Boards of Directors under Public Ownership (1988) ch 6 and J Corkery andR Wettenhall, above n 50.Select Committee on Nationalised Industries, above n 49 ch IV.


the public interest"69 and "Proper and fruitful exercise of Ministerial control depend~on the attitudes and ability of both Ministers and Members of Boards".70 Others drewblunt distinctions which indicated a broad division of authority between ministers andboards (for example, "Ministers should seek to ensure the efficiency of the industries byexercising a broad oversight of them, but should not become involved inmanagement").71 But these allocations of authority were tempered by other distinctionsof dubious worth, for example the proposition that "The methods of Ministerial controlsholtld be mainly strategic rather than tactical".72 The Committee openlyacknowledged that the problem of informal ministerial intervention was incapable of aneat solution. On the one hand, the Committee accepted that ministerial control neednot be wholly formal:

[W]hatever may be the theoretical arguments in favour of making all exercise ofMinisterial control precisely formal and authorised by statute ... some degree ofinformality is unavoidable ... A fairly general acceptance of informality in MinisterBoard relations makes possible a flexibility of approach that is desirable whencircumstances are liable to major and sometimes sudden change. But this can only beaccepted if there is also a clear recognition and mutually agreed definition ofresponsibilities ... [T]he respective responsibilities and the spheres of Ministerial interestshould be informally discussed by the two parties and published if possible so thatParliament and the general public should appreciate who is responsible for what.73

The solution recommended by the Committee appeared to be a publicly-acknowledgedagreement between the minister and the board regarding the appropriate subjectmatter and occasion for informal ministerial intervention. On the other hand, theCommittee accepted that this regulatory norm could not be achieved without the aid ofstatute! Thus:

The Committee [had] two major reservations ... Even informal control, they believe,should be exercised within the ambit of statutory powers. Ministers should thereforehave statutory powers for their use of the main instruments of strategic control. And incases of ultimate disagreement between Ministers and Boards, if the Minister is to get hisway, he should be required to act formally. 74

Australian jurisdictions have turned to the grant of statutory powers of ministerialdirection.75 Although the device has been used in legislation establishing statutorycorporations for quite some time, it is increasingly a source of tension betweenministers and boards. The most important reason for this development is the influenceof managerialism in the restructuring of the public sector. While government haswithdrawn from the control of operational detail in statutory corporations anddepartments, entrusting such control to senior public sector management, it stillrequires devices such as the ministerial direction in order to exercise control over this

69707172737475

Ibid at 34.Ibid at 39.Ibid at 35.Ibid at para 147 ("Principle V").Ibid at paras 150-2.Ibid at para 153.For example, Science And Industry Research Act 1949 (Cth), s 13; Broadcasting ServicesAct 1992 (Cth), s 162; Special Broadcasting Service Act 1991 (Cth), s 12; Australian TradeCommission Act 1985 (Cth), s 10; Primary Industries and Energy Research andDevelopment Act 1989 (Cth), s 143.


detail as the need arises.76 The statutory directions power is also a means for limitinginformal minister-board communication. These statutory provisions are an attempt todivert informal principal-to-agent communication into a transparent formal channeland aim, one presumes, to discourage (informal) communication outside this channel.

The legislative results have been varied.77 Statutory powers of direction range fromthe grant of a broad discretionary power of direction over the entire breadth of acorporation's activities to more limited powers circumscribed to particular corporatefunctions or transactions.78 In some circumstances, the corporation must comply withthe ministerial direction, but the corporation is granted indemnity from any legalliability that might arise from the implementation of the direction.79 Yet anothervariation is the imposition of an obligation upon the statutory corporation to complywith government policies notified to it by the minister,80 a formulation which raises thedifficult question of how the board is to determine the precise content of the policy andits application to the matters before it.81 Accompanying the use of the directions powerare a host of manner and form provisions and guidelines which aim at increasing thetransparency of the process.82

These provisions no doubt offer guidance in determining which ministerialcommunications to the corporation fall squarely within or without the channel ofcommunication delineated by Parliament. Yet the experience of statutory corporations- as with other, less autonomous parts of the bureaucracy - comprises manyincidents which resist this neat dichotomy. For example, the political principal mayattempt to use the statutory power to direct the corporation on matters not covered bythe power; or the principal may communic..ate its desire for a particular outcome, butrefrain from an (otherwise valid) exercise of the statutory power in order to achieve it.

Directions provisions are rarely litigated, as the problems emerging from the use orabuse of the statutory power are often resolved through political means. But suchprovisions have been considered in actions brought by third parties. This litigation fallsinto three main categories: (i) judicial review of the minister's exercise of the statutory

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82

M Aronson, "Ministerial Directions: The Battle of the Prerogatives" (1995) 6 Public Law Rev77 esp at 88ff.The most comprehensive survey of these provisions is that of M Aronson, ibid.See below text at nISIUnder certain statutes, there is an arrangement for the indemnification of the statutorycorporation for any loss incurred by reason of compliance with a ministerial direction: seeAronson's discussion of these provisions, above n 76 at 84-5. The successor of thecorporation considered in Hughes, Airservices Australia, is now the beneficiary of such anindemnification clause under the Air Services Act 1995 (Cth), s 16, but only in so far asdirections are concerned. "Financial detriment" suffered by the corporation as a result ofcompliance with a formal notification of government policy is specifically exempted: s16(6).For example, Commonwealth Authorities and Companies Act 1997 (Cth), s 28.Ansett Transport Industries (Operations) Pty Ltd v Commonwealth (1977) 139 CLR 54 andHughes (1997) 146 ALR 1 at 52. Cf JMcMillan, Review of Government Policy by AdministrativeTribunals, Law and Policy Papers, ANU (no 9, 1998), on the problem of administrativetribunals applying government policy.For example, the guidelines suggested in Australian National Audit Office, Aspects ofCorporate Governance: The Australian Tourist Commission (Audit Report no 10 1997-98) at 82.See the discussion by M Aronson, above n 76 at 85-6.


power; (ii) judicial review of the validity of an administrative act performed by thestatutory corporation in compliance with a ministerial direction made under thepower; and (iii) litigation on another point of law (such as the liability of a statutorycorporation for breach of contract) in which the court might consider a ministerialdirection, or action performed in conformity with it, as a relevant matter (for example,as a cause of the contractual breach). The litigation in Hughes Aircraft SystemsInternational v Airservices Australia83 falls into the third category.

THE HUGHES CASE84

Wherein the minister, "like Macbeth, 'would not play false, and yet wouldst wronglywin.,,,85

Hughes is the most recent and dramatic illustration of both the structural causes of thenormative uncertainty surrounding minister-board communications and the precariousnature of judicial attempts to generate norms that might govern such processes. Thecase involved a statutory corporation in which a statutory power of ministerialdirection was superimposed upon the standard de jure division of decision-makingresponsibilities between principal and agent. It involved two interventionist ministerswho attempted to dictate to the board a decision which would put extra-corporateobjectives before corporate objectives. Finally it is a case in which the Court confrontedthe normative indeterminacy afflicting the informal communications between ministerand board and sought a solution through a theory of responsible government. This partof this article simply analyses the manner in which a particular version of the theory ofresponsible government came to the fore in the process of judicial reasoning. Thecritique of this reasoning is reserved for the broader discussion of the interplaybetween Parliamentary intention and the system of responsible government in the nextpart of this paper.

The litigation

Hughes was a successful challenge by a tenderer (Hughes) of the award of agovernment contract to its commercial rival (Thomson). The contract was for thesupply of a nationally integrated air traffic control system to replace older systemsoperating in various Australian centres. The contract was awarded by the CivilAviation Authority (the CAA), a Commonwealth statutory corporation establishedunder the Civil Aviation Act 1988 (Cth) (the Act).86 The corporate governance issuestraversed in the case were of secondary significant to the important developments incontract law upon which the case ultimately turned. Practitioner attention has focusedon the novel finding (at least in Australia) that the CAA breached the terms of a"process contract" governing the tender evaluation procedure up to the award of the

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(1997) 146 ALR 1.At the time of publication, the litigation was still in progress because the case was "split"and the decisions so far made only related to liability. Causation and damages were still tobe argued at the time of publication.(1997) 146 ALR 1 at 73 per Finn J.At the time of the tender process, the CAA fulfilled both regulatory and service provisionfunctions. It was later abolished and replaced by the Civil Aviation Safety Authority (aregulator) and Airservices Australia (a service provider) which eventually became therespondent in the action.


contract. Although this finding rested on the particular terms of the tender and theparties' conduct, the use of this reasoning in the circumstances of governmenttendering processes more generally is a matter of some importance.

The reasons for judgment considered a number of causes of action - breach ofcontract, misleading or deceptive conduct, negligence and estoppel. The Court dealtwith issues of corporate governance peculiar to statutory corporations in the context ofthe breach of contract claim. This part of this paper examines Finn J's construction ofthe statutory power of direction over the CAA given to the portfolio minister (theminister for Transport and Communications). A corollary of this analysis was theconstruction of the proper ambit of the CAA directors' duty to inform the minister ofthe affairs of the statutory corporation. Both issues were resolved on the basis of atheory of responsible government focused on the principle of ministerial responsibility.

The central issue within the claim for breach of contract was whether, in deciding toaward the contract to Thomson, the CAA had evaluated the tenders in accordance withthe terms of the "process contract" governing the tender evaluation procedure prior tothe award of the contract. The process contract included an express term regarding theevaluation methodology agreed to by the parties and an implied contractual term thatthe CAA would act "fairly" as between the competing tenderers. The tender evaluationmethodology established a hierarchy of selection criteria. First priority was to be givento "operational and technical performance, logistic support and [completion] schedule";second priority to "price and other financial issues"; third to "risk" and fourth to"Australian industry involvement" in the performance of the contract for the supply ofthe system. The fourth criterion reflected a broader extra-corporate objective, that of apreference for an outcome which might provide a stimulus to a section of theAustralian economy.

A specially constituted committee of senior managers evaluated the tender bids andrecommended to the board that Hughes be awarded the contract as its tender bid faredmuch better on the (second priority) price criterion than that of Thomson. The boardwas eventually persuaded by the Department of Trade Industry Technology andRegional Development (DITRD) to award the contract to Thomson on the basis thatThomson's bid was superior on the (fourth priority) criterion of Australian industryinvolvement. The CAA was not within DITRD's portfolio. DITRD had merely beengiven the task of conducting the evaluation of the tenderers' Australian industryinvolvement proposals. Finn J found that "a clear majority of the board did not takeany or proper account of the levels of importance to be given the priority rankings ofprice and [Australian industry involvement] or of the relative weightings to be giventhem" 87 when it awarded the contract to Thomson and had ther2fore breached theprocess contract.

The issue of improper minister-board communication was raised by Hughes, whichargued that between the time of the committee's recommendation and the decision toaward the contract, the board had been (improperly) influenced by two ministerialletters which expressed support for Thomson's bid. These were a letter from theportfolio minister and a letter from the DITRD minister to the chairman of the boardand the chief executive officer (the CEO) which "intimated" the government'spreference for Thomson on the basis of its better performance on the Australian

87 (1997) 146 ALR 1 at 65.


industry involvement criterion. Hughes also argued that these letters may have beenregarded by the board as directions to award the contract to Thomson.

The reverse flow of communication - from board to portfolio minister - wasconsidered under a further aspect of the contract claim involving a confidentialityclause.88 It was an express term of the process contract that the CAA implement andmaintain measures to achieve strict confidentiality of the information contained in thetender bids. Finn Jfound that this term was breached when the CEO, a board memberhimself, disclosed to the minister details of the rival tenders prior to the board'sconsideration and selection of the successful tender proposal. The disclosure was notsolicited by the minister, but was simply offered by the CEO. Both instances ofminister-board or board-minister communication ultimately called for an interpretationof the minister's statutory power to direct the corporation.

Minister to board: the permissible breadth of a ministerial directionThe Court's construction of the directions power must be viewed in the context of theCAA's formal governance structure. In a manner typical for the period and theportfolio,89 the Act established a board which was appointed by the minister andwhich comprised a chairperson, deputy chairperson, the CEO and six other members.The board was entrusted with the purpose of deciding "the objectives, strategies andpolicies to be followed by the Authority" and "to ensure that the Authority performs itsfunctions in a proper, efficient and economical manner".90 The CEO was appointed bythe minister after recommendation from the board and held office during the board'spleasure.91 The Act contained a series of periodic reporting requirements (theprovision to the minister of corporate and financial plans and annual estimates) andcertain non-periodic reporting requirements which required the board to consult withthe government "where appropriate" to notify the minister of matters which, in theboard's opinion, may prevent or siwnicantly affect achievement of the CAA'scorporate objectives or financial targets. 2 The main incidents of the formal relationshipbetween the board and the minister were the minister's powers to appoint boardmembers (other than the CEO) on specified grounds, the power to give writtendirections, the power to direct the board in relation to the corporation's financial planand the general power to approve or vary the board's recommendation of the dividend(if any) to be paid to the Commonwealth.93

The ministerial power to direct the corporation was stated widely, with thequalification that directions regarding the performance of the CAA's regulatoryfunctions were restricted to directions of a "general" nature:

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Finn J also considered the disclosure of information regarding the tenders by the CAA'sTender Evaluation Committee - a committee of senior CAA managers - to an officer ofDITRD who then relayed this information to her colleagues.See comparative analysis by I Beckett, above n 12 at 178-87.Civil Aviation Act 1988 (Cth), ss 32A, 33(1), 32B.Ibid, ss 84, 89.Ibid, ss 44, 46, 16 and 48A, respectively.Ibid, s 42 (cf s 89), ss 12, 43-48 and s 56, respectively. Discussed in (1997) 146 ALR 1 at 20.


Directions

12.

(1) The Minister may give the Authority written directions as to the performance of itsfunctions or the exercise of its powers.

(2) Directions as to the performance of the regulatory functions shall be only of a generalnature.

(3) Particulars of any directions given in a financial year shall be included in the annualreport of the Authority for that year.

(4) The Authority must comply with a direction given under subsection (1).

Finn J found that the non-portfolio minister's letter could not be construed as adirection, for that minister was given no statutory power to direct the CAA. Theportfolio minister's letter could also not be construed as a direction, for it was notformally exercised in the way the section contemplated.94 Such a communication waslegally ineffective and, in the particular instance, was characterised as "highlyimprudent" and "offensive" to Parliament's intention to preserve the agent from thecontrol of its ministerial principal:

Where a ministerial communication could, because of its tenor or context, reasonably beinterpreted by those to whom it is made either as being akin to a direction (whether ornot it formally disclaims such an intent) or as manifesting an intent to contrive a decisionto be taken, it properly can be regarded as offending the purposes (constitutional andstatutory) which inform the legislative creation of bodies whose decisions are intendedby Parliament to be freed from ministerial control save where the Minister, ascontemplated by the statute in question, assumes responsibility for a particular decisionin the manner envisaged by that statute.95

In so far as the letters constituted a cause of the board's breach of the terms of theprocess contract, the Court's examination of the evidence left it "unable to conclude thatsuch attempted ministerial interference as there was had any operative effect in theboard's decision [to award the contract to Thomson]".96 This might have ended theCourt's consideration of the directions power, but for the fact that its properconstruction appears to have been necessary for the consideration of the reverse flow ofcommunication, namely, whether the board (or a particular director) was obliged orpermitted to communicate corporate information to the minister.97

The portfolio minister was held to possess "the prima facie right to communicatewith the board on any matter concerning the affairs of the CAA", including the terms of

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(1997) 146 ALR 1 at 75. The Court appears to have considered the letter on the basis that itsought to influence the CAA's ~xercise of its power to enter into contracts (under CivilAviation Act 1988 (Cth), s 13). The construction of the directions power therefore centredon s 12(1) and not on the limitation in s 12(2) regarding "general" directions in respect ofregulatory functions. If the letters had been considered as attempts to direct the CAA withrespect to the exercise of its regulatory functions, the Court might have been forced toconsider the restrictive interpretation placed on such clauses in its earlier decisions ofAboriginal Legal Service Ltd v Minister for Aboriginal and Torres Strait Islander Affairs (1996) 45ALD 235 and Aboriginal Development Commission v Hand (1988) 15 ALD 410. See below textat nn 149-55.(1997) 146 ALR 1 at 75.Ibid at 76-7.See below text at nn 102-111.


the procurement.98 Within this general breadth of permissible communication, theminister's power to direct the corporation was also broad, provided the direction wasexercised in the appropriate formal manner. The minister could therefore direct aparticular outcome, such as the award of a tender. This power existed notwithstandingthat its use might give rise to "political difficulties" for the government or expose theCAA to liability. The latter possibility was clearly a reference to (at least one version of)the doctrine of executive necessity which allows the Crown to break a contract in orderto implement government policy without being subject to the full range of remediesgranted to a plaintiff for breach of an ordinary contract.99

Two reasons were offered for this broad construction of the minister's power ofdirection. The first was the minister's Ilattenuated" responsibility to account toParliament for the actions of the CAA. This supported a construction of the statutewhich would allow the Minister to assume responsibility for a particular decision.Ministerial responsibility is an accepted component of the doctrine of responsiblegovernment. The minister's right to direct the CAA was therefore justified on the basisof a prior legal norm of responsible government. In the words of Finn J:

There is nothing in the Act which is inconsistent with [the minister's] right. On thecontrary. Bearing in mind that responsible government is a premise of our system ofgovernment, the statutory arrangements created by the Act presuppose such a right.100

The second reason was the minister's right to have access to "any and all information ofthe authority concerning its affairs", a reference to Finn 1's later finding on this aspect ofthe case.10l

Board to minister: the confidentiality of board mattersStripped of the peculiarities which attended the CEO's disclosure of tender bidinformation to the minister,l02 the process contract's confidentiality clause raised thequestion of how, and subject to what conditions (if any), a statutory corporation suchas the CAA could provide information to the minister.103 There were no statutoryprovisions authorising such a disclosure, so the matter had to be determined throughan analysis of the CAA's corporate governance structure. Finn Jdistinguished between(i) the minister's right to obtain information and (ii) the directors' duty to provide thisinformation to the minister.

98

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103

(1997) 146 ALR 1 at 74. Finn J noted, but did not feel bound to consider, the questionwhether the only member of the ministry who ought to communicate directly with thestatutory corporation was the portfolio Minister or the corollary issue, whether nonportfolio ministers need to communicate with the corporation about the corporation'saffairs through the portfolio Minister (at 75).Ibid at 75. Finn J referred to Ansett Transport Industries (Operations) Pty Ltd v CommonuJealth(1977) 139 CLR 54 at 76 and L'Huillier v Victoria [1996] 2 VR 465 at 481. On the variousversions of the doctrine of executive necessity and its recognition in Australian courts, seeN Seddon, above n 45 at 149-167.Ibid at 74.Ibid. This aspect of the case is discussed immediately below.The CEO disclosed the information to the minister (i) voluntarily, (ii) without the authorityof the board and (iii) prior to the board's decision to award the contract. The provision ofthis information was not mandated by the Act.(1997) 146 ALR 1 at 88.


The minister's right to obtain informationFinn J found that the minister was entitled to obtain any corporate information he or sherequired in order to maintain his or her accountability to Parliament. In the absence ofany legislative indication to the contrary, no distinction could be drawn betweenparticular forms or classes of information that could or could not be sought andobtained. The minister was thus entitled to view the details of the tender bids. Finn Jstated that third parties who contract with government agencies "must be taken to havedone so subject to such lawful rights of access to information in the agency's hands asour laws and system of government confer to others".104 Obiter comments appear toadopt the view that a contractual clause to exclude these rights might, prima facie, beconsidered ineffective.10S

Again, two reasons were offered for the minister's right to information. The first ofthese referred to the theory of responsible government and carried the weight of thereasoning. Finn J stated that the "constitutional environment of responsiblegovernment" required a statutory corporation such as the CAA to be publiclyaccountable.106 Though it was clearly acknowledged that the requirement ofaccountability was manifested in other aspects of the Act such as the CAA's subjectionto audit by the Auditor-General under the Audit Act 1901 (Cth) and its accountabilityto various Committees of the Pariiament,l07 these means of accountability were deemphasised in favour of .the minister's responsibility to Parliament for the affairs ofcorporation. To fulfil this function, the minister required access to corporateinformation:

[C]entral to the public accountability of statutory corporations so circumstanced undertheir legislation as was the CAA, was - and is - their accountability first to executivegovernment through their respective minister, and then to parliament via that minister. Itis the minister to whom questions in parliament are directed; it is the minister who,within the government, is given portfolio responsibility for the corporation and itslegislation; it is the minister who, in the CAA Act itself, is given both specific oversightpowers and a general and specific direction powers. In such a setting - statutory andconstitutional - the minister should be taken as having a general right to obtaininformation from the CAA in virtue both of his relationship to parliament and to theauthorityi and of its accountability to government, the parliament and the public via theminister. 08

The second reason merely offered a bridge between the construction of the directionspower and the construction of the minister's informational rights. The minister's powerto direct the CAA "carri[ed] with it the presupposition that the minister, by request tothe CAA, ha[d] the right to be provided with any and all information regarded asnecessary for the purpose of considering whether to exercise the [directions] power".109

It is apparent that the driving force behind Finn J's broad construction of both thedirections power and the minister's right to corporate information is a theory ofresponsible government and, in particular, the principle of ministerial responsibility.

104105

106107108109

Ibid at 89.Ibid at 89, referring to Brennan J's dicta in Esso Australia Resources Ltd v Plowman (1995) 183CLR 10 at 37-8.Ibid at 88.Ibid at 88-9.Ibid at 89.Ibid at 88.


Other reasons offered in support of the statute's construction merely flow from theapplication of the theory. Thus, a broad construction of the power to direct thecorporation necessitates a broad construction of the right to information and vice versa.The construction of the minister's power is robust. If it is accepted that a minister may(through reliance on the doctrine of executive necessity or otherwise) direct thecorporation in respect of a single operational matter, the minister must be able to obtaininformation about such matters. In practice, the minister may intervene at any time inthe affairs of the corporation as long as he or she does so in a formal manner. Thesefindings cut across the corporate law model for the regulation of informal non-periodicprincipal-agent communication and reveal the deep structural differences between thecorporate governance of private companies and statutory corporations.

The director's duty to provide informationFinn J's construction of the directors' duties to provide information to the minister wasalso structured by the principle of ministerial responsibility. It was held that if theminister requested corporate information, the board - though not the individualdirector - had a duty to disclose, even where the information was confidential. If sucha disclosure would prejudice the interests of the corporation, it would still have to bemade, but subject to some deliberation "at least to the extent of ensuring that theminister was fully appraised of the possible implications" for the corporation ofcompliance with the request.110 In the absence of a ministerial request, the need todeliberate would be far greater. The directors would have a duty to have proper regardto the interests of the corporation and would need to weigh the reasons for disclosureagainst the need to maintain confidentiality. Disclosure in these circumstances wouldbe an "exceptional" event.lll Yet again, this construction of the directors' duties cutsacross the corporate law understanding that information which belongs to thecompany is not by reason of this characteristic information which ought be released bythe directors to a member/ shareholder of the company.

RESPONSIBLE GOVERNMENT AS A FIELD OF INTERPRETATION

The outstanding feature of the Hughes analysis of the informal communication betweenministers and boards is the consciousness that such an analysis necessarily involves theresolution of the issue regarding the constitutional status of statutory corporations. Inan early part of the judgment headed "Issues not Pleaded", Finn Jnoted that:

This case sits unhappily on twol12 rather significant fissures in Australian jurisprudence.The [first] concerns the constitutional status and standing in our system of government ofstatutory corporations that by statute are subject to prescribed (hence, presumably,correspondingly limited) powers of ministerial direction. Do they fall within theExecutive? Or are they a fourth arm of government? ...

I inquired [of counsel] whether any issue would be taken as to the constitutionality orotherwise of a body such as the CAA because of the provisions of the Constitution, s61.Given the paucity of the legal literature on this matter I reluctantly refer to the SenateStanding Committee on Finance and Government Operations, Statutory Authorities of theCommonwealth: Fifth Report, Appendix 4, P D Finn and G JLindell, "The Accountability ofStatutory Authorities"; see also L Zines, The High Court and the Constitution, 268 (4th ed,

110 Ibid at 92-3.111 Ibid at 91.


Butterworths, Sydney, 1997); and Horta v The Commonwealth of Australia (1994) 181 CLR183 at 197.

For understandable reasons [counsel] disclaimed any wish to burden his case withconstitutional considerations. I would have to say, though, that the absence ofauthoritative guidance on the place of statutory corporations in our system ofgovernment - and, importantly, on their proper relationship both with Parliament andthe Executive - is an abiding difficulty in divining the proper resolution of cases of thisvariety. I have not been able to avoid venturing some conclusions on these issues."113

The main conclusion ventured from the constitutional position of the statutorycorporation was not expressly stated. But it appears to be that the grant of theExecutive power of the Commonwealth under s 61 of the Constitution requires therelevant minister to be responsible for the activities of the statutory corporation down to the level of decisions to enter individual contracts. The minister's broad powerof direction and his general right to obtain confidential corporate information arose "invirtue both of his relationship to Parliament and to the [corporation], and of [thecorporation's] accountability to government, the Parliament and the public via theminister".114 This is an express interpretative choice;115 moreover, a choice that thispaper respectfully queries.

This part of this article analyses the emerging theory of responsible government andthe merits of strong and weak form approaches to its use in the construction ofstatutory powers of ministerial direction. It is argued that the strong form approach toresponsible government is problematic, due to lack of constitutional support and to itsconstricting effect on Parliament's ability to fashion new accountability arrangementsfor the Executive. '

Interpretative choices

As the statutory corporation is the direct creature of Parliament's will, features of itsgovernance structure such as a directions power fall to be determined by reference tothe enabling statute.116 Whether through "literal" or "purposive" constructions of theparent legislation, or some combination of both,117 the conventional techniques ofstatutory interpretation aim at eliciting Parliament's intention. Where the statute issilent or ambiguous, judges will have recourse to other means of interpretation.

112

113114115116

117

The other "fissure" was "the extent to which the manner of scrutiny of the formally 'nongovernmental' action of a statutory corporation (ie, entering into a 'commercial' contract)can or should be affected by the considerations that it nonetheless is a public body that isso acting and that in so doing it is exercising a public function." Ibid at 24.Ibid at 24-5.Ibid at 89.Cf JStone, Precedent and Law: Dynamics of Common Law Growth (1985) at 114.For example, Kathleen Investments Australia Ltd v Australian Atomic Energy Commission(1977) 139 CLR 117 and Williams v Hursey (1959) 103 CLR 30 at 52-6, per Fullagar J on thebroader principle.D C Pearce and R D Geddes, Statutory Interpretation in Australia (4th ed 1996) para [2.2] ffand F Bennion, Statutory Interpretation: A Code (2nd ed 1992) at Pts VII and XX; cf ActsInterpretation Act 1901 (Cth), s 15AA.


One possibility, deeply ingrained in legal thinking,llB is to seek out the lawapplying to a similar (corporate) structure and apply that law, by analogy, to thestatutory corporation. As a result of the "corporatisation" process within the Australianpublic sector, many statutory corporations now possess governance structures derivedfrom the Corporations Law.119 The law of the incorporated company is therefore anobvious resource for interpreting statutory provisions of functional or grammaticalequivalence.120 But a ministerial directions power knows no equivalent in theCorporations Law company. Attempts to describe the minister's powers by analogisingbetween the two models have simply been rhetorical, and have never been used todecide the ambit of a directions power.121

The novel possibility, raised by Hughes, is that a theory of responsible governmentmay be used to craft legal norms that would regulate instances of non-periodiccommunication between minister and board. Two possible approaches may be taken tothis task.122 The first approach, "the weak form approach", is to persist in giving effectto Parliament's intention by recognising responsible government as an interpretativefield against which Parliament's intention might be construed. The second, "strongform approach", is to turn from the silence of the statute on the precise point (forexample, whether the minister may intervene in a board decision regarding the awardof a tender) to a construction which gives direct effect to the principles of responsiblegovernment. Finn J appears to have adopted the strong form approach in Hughes byattempting to give a constitutional basis to the principle of ministerial responsibilitywhich was then directly applied to the construction of the directions power.

Subject to some reservations expressed below,123 it is acknowledged that, on thefacts of Hughes, both strong and weak form approaches would have produced the sameresult, namely, a broad construction of the directions power that would havesupported ministerial intervention in the tender process. Yet the point of principleremains, for the interpretative choice may make a difference in other factualcircumstances.

Why so? If one uses the principles of responsible government as a backgroundinterpretative field that may assist in determining Parliament's intention, there is, ingiven circumstances, clear scope for recognising that Parliament intended authorityover a particular form of decision-making to be vested in a board independent ofministerial control. Conversely, if one seeks to give direct effect to the principles ofresponsible government in a ministerial directions power, any board decision willalways be subject to the possibility of ministerial intervention. For, according to the

118

119

120

121

122

123

S Brewer, "Exemplary Reasoning: Semantics, Pragmatics, and the Rational Force of LegalArgument by Analogy" (1996) 109 Harvard LR 926 and C R Sunstein, "On AnalogicalReasoning" (1993) 106 Harvard LR 741.Note in particular the effect of the Commonwealth Authorities and Companies Act 1997(Cth), Pt 3.For example, State Bank of South Australia v Marcus Clark (1996) 19 ACSR 606 at 628; Hughes(1997) 146 ALR 1 at 89-90.For example, Tamlin v Hannaford [1950] 1 KB 18 at 22-4 (Crown immunity context) andBank of New South Wales v Commonwealth (1948) 76 CLR 1 at 273 (construing the entitywhich was the subject of post-war bank nationalisation legislation).Cf G JLindell, "Responsible Government" in P D Finn (ed), Essays on LaID and Governmentvol 1: Principles and Values (1995) at 82.See text below at nn 185-190.

334 Federal Law RevieuJ Volume 26

strong form approach in Hughes, there can be no other way in which the minister maysatisfy his or her responsibility to Parliament. Some of the difference between theseapproaches may be traced to different views about the content of the theory ofgovernment.

The meaning of responsible government

Ambit of the theoryIt is now clear that the system of government established by the CommonwealthConstitution is based on the assumption of responsible government. There had alwaysbeen support for this proposition in constitutional jurisprudence,124 but the matter wasput beyond doubt in Lange v Australian Broadcasting Corporation125 where the HighCourt identified the sections of the Constitution which prescribed a system ofresponsible £overnment. These are sections 6, 49, 61, 62, 64 and 83 of theConstitution. 26 Section 61 of the Constitution vests Executive power in the Queen anddeclares it to be exercisable by the Governor-General. The power "extends to theexecution and maintenance of this Constitution, and of the law of the Commonwealth".Section 64 empowers the Governor-General to appoint ministers to administer thedepartments of state of the Commonwealth, makes such ministers members of theExecutive Council (established under section 62) and requires such ministers to beelected representatives. Section 83 ensures that the legislature controls supply, whilesection 6 requires that there be a session of the Parliament at least once in every year.Section 49 "provides the source of coercive authority for each chamber of theParliament to summon witnesses, or to require the production of documents, underpain of punishment for contempt".127 Finally, these sections must be read inconjunction with those constitutional provisions which establish a system ofrepresentative government.128

There has never been agreement as to the precise components of a system ofresponsible government and it is beyond the purpose of this paper to review thevoluminous debate on this matter.129 Earlier scholarship on the requirements of

124

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126127128129

Amalgamated Society of Engineers v Adelaide Steamship Co Ltd (1920) 28 CLR 129 at 147; R vKirby; Ex parte Boilermaker's Society of Australia (1956) 254 at 275; New South Wales vCommonIDeaIth (Seas and Submerged Lands case) (1975) 135 CLR 337 at 364-5; Attorney-General(Commonwealth); Ex reI McKinlay v COlnnl0nweaIth (1975) 135 CLR 1 at 24. See generallyG Winterton, Parliament, the Executive and the Governor-General (1983) at 71ff; L Zines, TheHigh Court and the Constitution (4th ed 1997) at 249-51. In respect of the States, seeR D Lumb, The Constitutions of the Australian States (5th ed 1991) ch 4 and P D Finn, Law andGovernment in Colonial Australia (1987) at 39ff.(1997) 189 CLR 520. The decision in Lange was handed down on 8 July 1997, one week afterthe decision in Hughes (30 June 1997).Ibid at 558.Ibid at 558-9.Constitution, ss 1, 7, 8, 13, 24, 25, 28 and 30 discussed in ibid at 557-8, 560-1.See eg, G J Lindell, above n 122 at 76-9; G Winterton, above n 124 at 71ff; L Zines, above n124 at 249-51; R S Parker, "Responsible Government in Australia" in P Weller andD Jaensch (eds), Resp~nsible Government in Australia (1981) at 11-22; H Emy, "The PublicService and Political Control: The Problem of Accountability in a Westminster System withSpecial Reference to the Concept of Ministerial Responsibility" in Royal Commission onAustralian Government Administration Appendix: vol 1 (1976) at 16.


responsible government generally moved from the same sections of the Constitutionidentified in Lange in order to state that responsible government in Australia containsat least the following elements:130

1 Ministers have to be members of Parliament.2 Ministers require a majority in the popular House of the Parliament to hold

office.3 Parliament can be dissolved before the expiration of its maximum term.131

4 Public servants must have different tenures from their ministers.Lange established an account of responsible government which is potentially broad

enough to encompass the totality of Parliament's formal relationship with theExecutive.132 The High Court did not seek to define responsible governmentexhaustively and so the precise identity of all the system's components remains to bedetermined. Yet, if the logic of the Court's analysis is followed, the system ofresponsible government might extend to all formal instruments which Parliament mayuse to inform itself about, and exercise influence over, the affairs of the Executive. Inrelation to the affairs of statutory corporations, these instruments will typically includeParliamentary inquiries133 and Committees such as the Joint Committee of PublicAccounts, the Senate's legislative Committees and the Committee on Finance andPublic Administration.134 One might speculate as to whether the activities of theAuditor-General might eventually be contained within a judicially-recognised theoryof responsible government.135

The principle ofministerial responsibilityThe principles of individual and collective ministerial responsibility to Parliament areconventions which have emerged within this basic structural framework forgovernment and are now said to be entrenched in the Constitution by ss 62 and 64.136

Collective ministerial responsibility refers to the shared responsibility of the Ministryas a whole to accept that its tenure as a government is conditional upon the"confidence" of the House.137 Individual ministerial responsibility, in its broadestsense, refers to the minister's accountability to Parliament, under which the minister is

130

131

132133

134135

136137

G J Lindell, above n 122 at 76-9 reworking RS Parker's definition in ibid. Lindell did notplace emphasis on the effect of section 49 (cf G JLindell, below n 133).Lindell noted that several Australian jurisdictions have either adopted (eg, New SouthWales), or are proposing to adopt, fixed-term parliaments.(1997) 189 CLR 520 at 557-9.E Campbell, above n 44 at 92-8 and G J Lindell, above n 44 at 400-1. Lindell draws anexpress distinction between the legal obligations and restrictions which frame Parliament'sinquisitorial jurisdiction granted under s 49 of the Constitution and a vaguer set of ruleswhich are identified under the label of "Responsible Government".JUhr, above n 66 ch 8.Western Australia, Royal Commission into Commercial Activities of Government and OtherMatters - Report Pt II (1992), para 3.10.1. The relationship between the Auditor-General andParliament is unclear: J Uhr, above n 66 at 188-90 and Conlmonwealth Parliament, JointCommittee of Public Accounts, The Auditor-General: Ally of the People and Parliament (ReportNo 296, 1989) ch 5.For example, G Winterton, above n 124 at 71ff.JUhr, above n 66 at 194.


held liable, in a political sense, for the conduct of policy within his or her departmentand the acts or omissions of officials within it.138

Although it is common to associate individual ministerial responsibility withministerial resignation, it is clear that resignation is only the most extreme remedy inan ascending scale of liability and corresponding remedy.139 More significantly, it is aremedy which has fallen into decline.140 Where the minister has no control orsupervisory authority over a body, no accountability is expected.141 Once suchsupervision or control is granted, ministerial responsibility may operate in variousmodes.142 The convention may merely mean: (a) that the minister has an obligation toredirect a Parliamentary question to the relevant official within the portfolio and toensure that an answer is produced. But it usually means that the minister has anobligation (b) to report to Parliament what has happened; or (c) to explain what hashappened; or (d) to make amends for what has happened; or finally (e) to resign overwhat has happened. In the present context, it need only be noted that, whatever theprecise ambit of a theory of responsible government, the principle of ministerialresponsibility (which played such a critical role in Hughes) is merely a component ofthe system and not exhaustive of it. As will be observed below,143 even whereministerial responsibility is present, it is not clear that responsible governmentmandates a particular mode of ministerial responsibility.

The uncertain requirements of responsible government for statutory corporationsLange has provided assurance that statutory corporations fall within the ambit ofresponsible government. It followed from the Court's analysis of the Constitution thatthere were implied limitations on the Commonwealth's legislative and executive powerto exclude Parliamentary oversight of the affairs of statutory corporations (or"authorities").

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140141142143

Incidental to the individual and collective responsibility of Ministers within the Australiansetting are a set of conventions regarding the Vice-Regal representative (eg, the conventionthat the Governor or Governor-General acts on the advice of the Minister) and theconventions of Cabinet solidarity and Cabinet secrecy.D Woodhouse, above n 48 ch 2. Cf Uhf, above n 66 at 194ff; R Brazier, Ministers of theCrown (1997) at 262-75; S E Finer, "The Individual Responsibility of Ministers" (1956) 54Public Administration 377; and C Turpin, "Ministerial Responsibility: Myth or Reality?" inJ Jowell and D Jaensch (eds), The Changing Constitution (2nd ed, 1989) 53 at 56.J Uhr, above n 66 at 165-6, 195-8 and D Woodhouse, above n 48, Pt II.G Winterton, above n 124 at 110; D Woodhouse, ibid at 27.D Woodhouse, ibid ch 2.See text below at nn 159-77.


[T]hose [constitutional] provisions which prescribe the system of responsible governmentnecessarily imply a limitation on legislative and executive power to deny the electors andtheir representatives information concerning the conduct of the executive branch ofgovernment throughout the life of a federal parliament. Moreover, the conduct of theexecutive branch is not confined to ministers and the public service. It includes the affairsof statutory authorities and public utilities which are obliged to report to the legislature or to aminister who is responsible to the legislature. In British Steel v Granada Television [1981] AC1096 at 1168 Lord Wilberforce said that it was by these reports that effect was given to"[t]he legitimate interest of the public" in knowing about the affairs of such bodies.144

That which remains uncertain is the character of the institutional arrangements thatwould satisfy the requirements of responsible government and indeed whether theserequirements might displace Parliament's choice of a particular arrangement. Thequestion "Does the Constitution entrench ministerial responsibility?", which is to beanswered affirmatively, is entirely different from the question "Must the governmentbe the executor of Commonwealth legislation?"145 This brief passage from Lange wouldappear to suggest that the assignment of ministerial responsibility to a portfolio is not anecessary implication from the theory of responsible government. Parliament maychoose to bypass the minister by requiring that the statutory authority report directlyto it. Moreover, there is ambiguity as to whether all statutory authorities and publicauthorities are obliged to report to Parliament or the minister, or whether such apractice is restricted to those "statutory authorities and public bodies which are obliged[by legislation or delegated legislation] to report". If the latter interpretation is adopted,it is conceivable that some bodies might meet Parliament's informational requirementsthrough means other than periodic reporting back to Parliament or the minister.

Given the fluidity in the contemporary understanding of the system of responsiblegovernment, how is a theory of responsible government to be employed in theconstruction of statutory powers of ministerial direction? If the Court is to apply anexpansive view of the theory - as it now must after Lange - how is it to contextualisea particular instrument of accountability, such as ministerial responsibility, within thewhole range of accountability instruments that are available within the system? Anyapplication of the principle of ministerial responsibility to construe the relationshipbetween the Executive and the statutory corporation and between the Executive andParliament must be alert to other ways in which these relationships might be construedso as to satisfy the requirements of responsible government. The weak form and thestrong form approaches to responsible government configure the accountabilityrequirements of a statutory corporation in different ways.

Parliamentary intention and the weak form approachAn examination of the case law on ministerial directions displays judicial allegiance toconventional techniques of statutory interpretation and a reticence to embrace a moregeneral theory regarding responsible government. These cases arise in two contexts:the judicial review of the minister's exercise of a statutory power to direct thecorporation;146 and the judicial review of the validity of an administrative act

144 Lange v Australian Broadcasting Corporation (1997) 189 CLR 520 at'561 (emphasis added).145 Cf G Winterton above n 124 at 101.146 New South Wales Farmers' Federation v Minister for Primary Industries and Energy (1990) 21

FCR 332; Aboriginal Legal Service Ltd v Minister for Aboriginal and Torres Strait Islander Affairs(1996) 45 ALD 235; Aboriginal Development Commission v Hand (1988) 15 ALD 410; Botany


performed in compliance with a ministerial direction.147 In both contexts, review issought on the usual administrative law grounds such as strict ultra vires, Wednesburyunreasonableness,148 or failure to address relevant considerations. In the lattercategory of case, the review will typically involve the question whether theadministrative decision-maker has failed to exercise a discretion delegated to it byreason of external restraint or influence.149 Such reflection as may be found on judicialmethodology within the case law points to the adoption of both "literal" and"purposive" constructions of ministerial directions powers. Reference to the system ofresponsible government is at most a background consideration which might supportthe process of statutory interpretation.

Literal constructionThe literal approach is illustrated by Aboriginal Development Commission v Hand,150 a

case which considered a statutory provision that the Commission (a statutorycorporation) "shall perform its functions and exercise its powers in accordance withsuch general directions as are given to it by the minister in writing".151 Davies J notedthe wide variation in the terms of ministerial directions powers enacted by FederalParliament and indicated that it was impossible to establish a general formula for theirinterpretation. His Honour nevertheless distinguished between legislative phrasingwhich enabled ministers to make directions with respect to particular cases andproblems, and phrasing which restricted these powers to more "general" directions152

which were akin to binding guidelines.In some statutes, the Minister is conferred an unfettered discretion to give directions...Such a provision enables the Minister to give not only directions with respect to mattersof policy or by way of guidelines, but also directions with respect to particular cases orproblems. Under such a provision, the Minister may direct the decision to be made in aparticular case ...

In many Federal statutes the term "general directions" appears. The adjective "general"indicates that the direction must be one which is not-directed merely to a particular caseor to a particular decision but is one which is to be applied generally. In this respect, ageneral direction is similar to a binding guideline. It sets the structure of activity or

147

148149

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152

Bay City Council v Minister of State for Transport and Regional Development (Federal Court ofAustralia, Lehane J, 30 May 1966, unreported); Ankers v Attorney-General [1995] 2 NZLR595; Social Security Commission v Macfarlane [1979] 2 NZLR 34.Bosjnak's Bus Service v Commissioner for Motor Transport (1970) 92 WN (NSW) 1003; BlayneyAbbatoirs Pty Ltd v New South Wales (NSW Court of Appeal, 18 July 1996, unreported);Kremer v North Sydney Municipal Council (1982) 47 LGRA 209; Ankers v Attorney-General[1995] 2 NZLR 595.Associated Provincial Picture Houses Ltd v Wednesbury Corp [1948] 1 KB 223.Broadly speaking, this is determined according to the principles in Bread Manufacturers ofNeu} South Wales v Evans (1981) 180 CLR 404. See generally M Aronson and B Dyer, aboven 45 at 314-23.(1988) 15 ALD 410.(Emphasis added). The section under consideration was Aboriginal DevelopmentCommission Act 1980 (Cth), s 11.On Commonwealth drafting practice regarding the distinction between "general" and"specific" directions, see M Aronson, above n 76 at 83-4.


decision-making. However, both a guideline and a general direction may be more or lessspecific, having regard to the terms which it uses and the concept which it conveys.153

The "general direction" provision under consideration was therefore construed as aguideline which did not permit the minister to direct the statutory corporation withregard to the outcome of particular decisions. Instead, the directions power wasconstrued as an instrument that could only affect the manner in which decisionmaking, allocated ex ante to the agent, could be conducted.

This literal approach to statutory interpretation allows greater scope forParliament's choice of the precise manner in which it will make the Executiveaccountable to it. Thus in interpreting the directions power at hand, Davies Jstated:

Rather than expressing the power of the minister to give directions and infer theobligation to give effect to such directions, the section implies the power of the Ministerto give directions and expresses the obligation of the Commission to give effect thereto.[The section] is an ample provision and reflects the point that, though the Commission isa statutory authority of the Commonwealth, the minister has overall control of andresponsibility for it.r54

This exemplifies the methodology of the weak form approach to responsiblegovernment: the statute is construed immanently and what results from thisconstruction is simply found to embody an easily recognisable principle of publicadministration. Thus, the particular directions provision is found to reflect theunderstanding that the minister would be responsible for the activities of thecorporation. The system of responsible government appears only as a faintbackground, an interpretative field that may assist, but not fully determine, the judge'sconstruction of the statute. This approach leaves room for the possibility thatParliament may have chosen another means to make the Executive accountable to it.The interpretative landscape is not prefigured by a particular theory of responsiblegovernment.

The lexical approach of Aboriginal Development Commission v Hand was followed bythe Full Federal Court in Aboriginal Legal Service Ltd v Minister for Aboriginal and TorresStrait Islander Affairs.155 In the course of its decision, the Court again rejected any priorunderstandings as to the manner in which Parliament chose to define its relationshipwith statutory corporations. It considered and rejected the suggestion that a ministerialpower to give "general" directions should be read down "in order to preserve to the[statutory corporation] a pre-determined zone of autonomous decision-making, freefrom ministerial interference".l56 The extent of the corporation's decision-makingautonomy could only be determined by reference to the statute.

Purposive constructionThe Full Federal Court decision in New South Wales Farmers' Federation v Minister forPrimary Industries and Energy157 illustrates that the "purposive" approach to theconstruction of ministerial directions powers is equally devoid of any traces of a theory

153 (1988) 15 ALD 410 at 413-4.154 Ibid at 414.155 (1996) 45 ALD 235. The case concerned the construction of a ministerial direction issued to

the Aboriginal and Torres Strait Islander Commission.156 Ibid at 247 per Sackville J; see also at 243 per Tamberlin J.157 (1990) 21 FCR 332.


of responsible government. This case concerned the minister's statutory power to givedirections, in "exceptional circumstances" to the Wool Corporation concerning theperformance of its functions and exercise of its powers. The provision was construedby reference to the Wool Marketing Act 1987 (Cth) which established the corporationand a regulatory regime for the marketing of wool. In this context, the Courtconsidered the national interest in giving effect to a decision-making process whichwould determine the price of Australian wool. The particular regulatory regimefeatured so prominently in the Court's construction of the minister's "reserve power" ofdirection that an earlier ministerial directions case was distinguished on the basis thatit "was concerned with a statute containing different provisions and subject matter[namely, regulation of transport services] to those contained" in the Wool MarketingAct.158

The strong recognition of regulatory purpose in the construction of directionspowers has also meant that courts are willing to consider the legislative history of theallocation of authority over decision-making within a portfolio in circumstances wherethe meaning of the statutory provision is unclear.159 In cases decided according to thepurposive method of statutory interpretation, there has been even less need to haverecourse to a theory of responsible government.

The strong form approach - constitutional predetermination?

The strong form approach to responsible government ill the interpretation ofministerial directions powers is illustrated by the approach of Finn J in Hughes(discussed in the second part of this paper). The strong form approach appears to bepremised on the view that s 61 of the Constitution requires that, where a statutorycorporation is to be the executor of Commonwealth legislation,160 the corporation canonly satisfy the requirements of responsible government via the principle of ministerialresponsibility. This appears to be the effect of the constitutional IIconclusions II drawn byFinn J in Hughes.16 These conclusions are surprising, given the wide variety ofpossibilities that s 61 has been said to support.

An early, and quite authoritative, summary of the different views on the role of s 61in respect of the accountability of statutory corporations (or "authorities") is thatoffered to the Senate Standing Committee on Finance and Government Operations byFinn and Lindell in 1982.162 Reviewing the meagre case law and academic writings, theauthors identified three main positions:

1 Parliament may create statutory authorities ("corporations"), but it is contrary tos 61 to vest the Executive power of the Commonwealth in such authorities withoutmaking them subject to ministerial control. Ministers have reserve non-statutory

158

159

160161162

Ibid at 340 (emphasis added), distinguishing Bosjnak's Bus Service v Commissioner for MotorTransport (1970) 92 WN (NSW) 1003.Blayney Abbatoirs Pty Ltd v New South Wales (NSW Court of Appeal, 18 July 1996,unreported per Powell JA).Cf text at above n 145 and G Winterton, above n 124 at 101ff.See text at above at nn 114-5.P D Finn and G J Lindell, above n 5 Appendix 4.


powers to issue binding directions to authorities.163 Finn and Lindell described thisview as implausible.

2 Parliament may create statutory authorities, but in vesting them with the Executivepower of the Commonwealth, some "residual function" inheres in the GovernorGeneral under section 61. This may be discharged by either of the two followingarrangements:(a) A ministerial responsibility in relation to the "execution" of the parent statute

which arises from a combination of the principle of ministerial responsibility(derived from outside s 61) and the executive's responsibility for themaintenance of the laws of the Commonwealth under s 61. According to thisview, a legislative scheme is unconstitutional if it positively precludes a ministerfrom supervising an authority.164

(b) The assignment of a minister to the administration of an authority's parentstatute under the Administrative Arrangement Orders. If the parent legislationdoes not accord to the minister actual responsibilities in the exercise of theauthority's function, then there is no such responsibility. The minister is simplythe person to whom Parliament can look when questioning about the authority,the person to whom the Governor-General will look for advice concerning theauthority and the person who is charged with initiating and enforcing changesto the parent statute. Thus the minimal mode of "redirectory" ministerialresponsibility165 might suffice.

3 Parliament may create statutory authorities but need not vest responsibility forsuch authorities in the Executive government under s 61. This is becauseParliament may legislate to control or limit the exercise of executive power under s61; or alternatively because the vesting of independent functions in the authorityinvolves no exercise of the Executive power of the Commonwealth. To the extentthat the authority is independent, there is no ministerial responsibility for theauthority. It is for Parliament itself to determine the manner and extent of itsaccountability.

Finn and Lindell rejected the first view outright and suggested that views (2)(b) and(3) would commend themselves to the judiciary as the most plausible views on theconstitutional basis for the accountability of statutory authorities. In rejecting view(2)(a), the view which located some uresidual" ministerial responsibility in s 61, theauthors suggested that it was "within the province of Parliament in allocating functionsto non-departmental agencies, to override that principle in a particular le~lative

scheme if that scheme falls within a head of Commonwealth legislative power."166 Theauthors concluded that the principle of ministerial responsibility "has no necessary partto play" in the creation of independent statutory authorities.167 Parliament couldsimply legislate to provide this, if it so pleased. It was for Parliament to "ordain the

163

164

165166167

This is the view of J Goldring, "Accountability of Commonwealth Statutory Authoritiesand Responsible Government" (1980) 11 Fed L Rev 353.This is the view of J Richardson, "The Executive Power of the Commonwealth" in L Zines(ed), Commentaries on the Australian Constitution: A Tribute to Geoffrey Sawer (1977) especiallyat 84-5.Cf text at n 142.P D Finn and G JLindell, above n 5 at 183.Ibid at 194.


nature and limits of the authority's independence from and accountability toParliament" .168

Winterton's study of the Executive power169 lends support to view (3) on analternative basis, namely, that nothing in s 61 indicates that the government is to be thesole executor of Commonwealth legislation. There is therefore no limitation on theParliament's discretion to specify an appropriate organ, such as an autonomousstatutory corporation, to execute Commonwealth legislation. Winterton rightlydistinguishes between the desiderata of "good political sense" and the possibilitiesoffered by s 61 of the Constitution. Thus,

desirable though it might be that the Commonwealth Parliament should be able tosupervise the implementation of its legislation through ministerial responsibility, there isno justification for entrenching such notions of political good sense in the Constitutionand invalidating legislation on the ground that Parliament has deprived itself (bylegislation which it can repeal at any time) of an opportunity of enforcing ministerialresponsibility.170

The rejection of views (1) and (2)(a) and the endorsement of views (2)(b) or (3) accordswith the expansive view of responsible government in Lange. It is also consistent withthe manner in which the High Court disposed of Horta v Commonwealth.171 In Horta, theCourt upheld, under the foreign affairs rower (s 51(xxix)), legislation giving effect to abilateral mining treaty with Indonesia. 72 The legislation conferred upon a vaguelydefined "Joint Authority", a body corporate created under the treaty, the "exercise ofthe rights and responsibilities of Australia" in relation to activities conducted under thetreaty.173 Control over the Joint Authority was shared with the Indonesiangovernment. The treaty provided for two offices and two Executive Directors whoreported to a Ministerial Council, a body comrrising ministers in equal numbers fromthe governments of Australia and Indonesia17 According to the High Court, there was"nothing in the Constitution which preclud[ed] the conferral of any Executive power"upon the Joint Authority.175 Similar concerns regarding the constitutionality ofCommonwealth-State intergovernmental bodies which, in part, exercise the Executive

168169170171

172

173174

175

Ibid at 185.G Winterton, above n 124 at 101-110, esp at 103 and 110.Ibid at 104 (footnotes omitted).Horta v Commonwealth (1994) 181 CLR 183 cited in Hughes (1997) 146 ALR 1 at 24 in thecontext of s 61 of the Constitution.The Petroleum (Australia-Indonesia Zone Of Cooperation) Act 1990 (Cth) and thePetroleum (Australia-Indonesia Zone Of Cooperation) (Consequential Provisions) Act 1990(Cth).Petroleum (Australia-Indonesia Zone Of Cooperation) Act 1990 (Cth), s 4Article 7 of the Treaty between Australia and the Republic of Indonesia on the Zone ofCooperation in an Area between the Indonesian Province of East Timor and NorthernAustralia (11 December 1989) provided, inter alia:3. The Joint Authority shall be responsible to the Ministerial Council.4. Decisions of the Executive Directors of the Joint Authority shall be arrived at by

consensus. Where consensus cannot be reached, the matter shall be referred to theMinisterial Council.

5. Unless otherwise decided by the Ministerial Council, the Joint Authority shall have itshead office in the Republic of Indonesia and an office in Australia, each of which shallbe headed by an Executive Director.

(1994) 181 CLR 183 at 197.


power of the Commonwealth, without being subject to control or direction by theCommonwealth, also appear to have been relegated to the margins of constitutionallaw debate.176

In light of these considerations, it seems surprising that the constitutionalconclusions drawn in Hughes reflect most closely views (1) and (2)(a), those views oncerejected by Finn J (writing as an academic) and implicitly rejected by the High Court.This may be in keeping with a particular version of a theory of popular sovereigntywhich would hold that, because the people - and not the Parliament - are sovereign,there is a necessary implication that Parliament, as the donee of the people's power,cannot "reconstitute theJenera! scheme of government in a way that denies itsfundamental character".l Such a theory begs the question of what that unalterablefundamental character may be, given that the Constitution is silent on all but the mostminimal institutional structures of Executive government. Whatever the contemporarysupport for an extension of a theory of popular sovereignty in this direction,178 this is aview which bears difficult consequences on a number of fronts.

The consequences of interpretative choiceThe strong form approach to the system of responsible government as a tool ofstatutory interpretation may affect legal structures, processes and interests in differentand at present, one is forced to say, unforeseen ways. It introduces the danger ofinflexibility to governmental arrangements and their judicial interpretation. And itwould not appear to improve the protection of the interests of third parties dealingwith the statutory corporation, as the capacity of ministers to intervene in the affairs ofstatutory corporations may not have been affected.

Structures - the Executive and historical changeThe utility of a theory of responsible government in constitutional and statutoryinterpretation lies in its flexibility and its ability to adapt to new circumstances.179 Thischaracteristic was recognised by the framers of the Constitution in two ways: first, inthe remarkable openness with which they canvassed rival models of responsiblegovernment while attempting to reconcile federalism with the divergence in executivepractices which had already emerged between Britain and its colonies;180 andsecondly, in their refusal to entrench their understandings of responsible governmentin the text of the Constitution.181 A strong form approach to the theory of responsiblegovernment inhibits the theory's inherent flexibility by threatening to constitutionalise

176

177

178

179180

181

Re Duncan; Ex parte Australian Iron and Steel Pty Ltd (1983) 158 CLR 535 at 563 per Mason J.See generally L Zines, above n 124 at 270-1; G Winterton, above n 124 at 101££. C£R Cranston, "From Cooperative to Coercive Federalism and Back?" (1979) 10 Fed L Rev 121.P D Finn, "A Sovereign People, A Public Trust" in P D Finn (ed), Essays on Law andGovernment Vol 1 (1995) at 20-1.C£ Re Residential Tenancies Tribunal of New South Wales: Ex parte Defence Housing Authority(1997) 146 ALR 495 at 510 per Dawson, Toohey, Gaudron JJ and Broken Hill ProprietaryCompany Ltd v Dagi [1996] 2 VR 117 at 204-205 per Hayne JA. See generally G Winterton,"Popular Sovereignty and Constitutional Continuity" (1998) ~6 F L Rev 1.G J Lindell, above n 122 at 80££ and G JLindell, above n 44 at 400-1.J Uhr, above n 66 especially at 77-80. C£ P D Finn, Law and Government in Colonial Australia(1987) ch 2.G Winterton, above n 124 at 71 ££, especially 72.


what can only be particular and historically-specific understandings of the workingConstitution. Thus, to mandate the application of a principle such as ministerialresponsibility to the conduct of the affairs of statutory corporations may frustrateParliament's ability to establish accountability structures for the conduct of theExecutive that afford monitoring and oversight capacities more appropriate tocontemporary social and economic realities.

The necessity of a flexible understanding of the requirements of responsiblegovernment has been borne out by political history. While the minimal formalcharacteristics of the Commonwealth Executive under the Constitution have remainedrelatively fixed since Federation, the "efficient" or "working" constitution182 hasproduced a variety of administrative arrangements for the conduct of government.183

The "political good sense" of one generation is experienced by the next generation asthe dead hand of the past. The withdrawal of the Executive from day-to-da~

operational control of many of its government business enterprises in the mid-1980s,1 4and the introduction of private sector corporate governance techniques throughlegislation such as the Commonwealth Authorities and Companies Act 1997 (Cth) andthe Financial Management and Accountability Act 1997 (Cth) are only the most recentexamples of changes in the framework of responsible government at theCommonwealth level. Ministerial directions provisions reflect a variety of concernssuch as, among other matters, the character of the decision-making, the level of thestate's involvement in an activity, competition and managerial policy.18S Ultimately,the extent to which these powers may disrupt the ex ante allocation of decision-makingbetween ministers and the boards is a matter in which Parliament's intent is to be givenits fullest effect before assistance is sought from understandings of responsiblegovernment which would apply across the board, regardless of the particular characterand locus of Executive activity.

Processes - judicial methodThe strong form approach to responsible government bears hidden dangers for thejudicial interpretation of new methods of accountability. When confronted withstatutory arrangements which blend older-style direct ministerial controls (such asdirections powers) with private sector style corporate governance structures (forexample, appraisal of dividends, audit reports and financial statements, directors'

182

183

184

18S

The distinction was introduced into English constitutional discourse by W Bagehot, TheEnglish Constitution (1867). See R H S Crossman's "Introduction" in W Bagehot, The EnglishConstitution (1963) at 16ff.See sources cited in above nn 8,12 and 40 and also R Wettenhall, Organizing Government(1986) chs 2-3 and 6; and J Halligan and P Power, Political Management in the 1990s (1992)especially ch 3.The main policy documents associated with these changes were: J Kerin (Minister forPrimary Industry), Reform of Commonwealth Primary Industry Marketing Authorities (1986);P Walsh (Minister for Finance), Policy Guidelines for Commonwealth Statutory Authorities andGovernment Business Enterprises (1987); G Evans (Minister for Transport andCommunications), Reshaping the Transport and Communications Government BusinessEnterprises (1988). See generally J Halligan and J Power, ibid and M Considine andM Painter (eds), Managerialism: The Great Debate (1997).M Aronson, above n 76 at 89-92.


duties, capital structure reviews),186 there is a danger that the status and sphere ofoperation of older-style ministerial controls will be exaggerated. By contrast, a weakform approach to responsible government is more likely to contextualise an individualmethod of accountability within the package as a whole.

Shades of this danger may be observed in Hughes. The emphasis on aconstitutionally mandated principle of ministerial responsibility in the construction ofthe directions power obscured other, more pedestrian, but equally effective paths ofinterpretation. Precedent alone would have provided an ample interpretative field forthe construction of the directions power.187 A strict literal interpretation of the CAA'sAct might have allowed the Court to construe the directions power as one not limitedto "general" directions but a power which extended to directions that could determinethe outcome of the tender process. As counterpoint, the adoption of a purposiveapproach might have allowed the Court to consider the directions power in the contextof the minister's second reading speech of an amendinBstatute which was introducedinto evidence in another part of the contract claim. 88 The speech suggested thatParliament had decided to shift responsibility for operational matters, such as theapproval of individual contracts, from the minister to the board:

In line with the philosophy of moving from [government] oversight of day to dayoperations to an emphasis on results and board accountability, the bill removes a rangeof day to day controls exercised by government, including controls over the terms andconditions of individual borrowings, the approval of individual contracts, the purchase ofshares and the establishment of subsidiaries and partnerships. These are now appropriatelythe responsibility of the board.189

It is surprising that this statement of Parliamentary intent was not considered in theconstruction of the directions power, for Finn J acknowledged that "the minister'sintention [in the second reading speech] was ... realised" in the amending statute andthat the minister "subsequently was to act on the assumption that the board was'responsible for ... handling day to day management"'.190 Indeed, both the text of theministerial letters and the occasion for their writing support this conclusion.191 Theseweak form approaches paint a more complex picture of the allocation of decisionmaking between minister and board.

186

187188189

190191

See eg, Commonwealth Authorities and Companies Act 1997 (Cth), Pt 3 and Sch 1;Australian National Audit Office, Government Business Enterprise Monitoring Practices:Selected Agencies (Audit Report no 2 1997-98); Management Advisory Board, Accountabilityin the Commonwealth Public Sector, Report no 11 (1993) at 13; Commonwealth ParliamentJoint Committee of Public Accounts, Public Business in the Public Interest: An Inquiry intoCommercialisation in the Commonwealth Public Sector (Report 336 1995) at 150ff andAppendix VII "Accountability and Ministerial Oversight Arrangements forCommonwealth Government Business Enterprises".It must be noted that the cases cited in above nn 146-7 were not argued before His Honour.(1997) 146 ALR 1 at 48-9.Commonwealth Parliament, H Reps Deb 1990 vol 171 at 611 cited in (1997) 146 ALR 1 at48-9.(1997) 146 ALR 1 at 49.Minister Collins' letter concluded: "Of course the decision is clearly a matter for the CAAboard using all the evaluation criteria established for the tender process" extracted ibid at73.


Interests - third parties dealing with the statutory corporationIt is difficult to assess the precise effect of the strong form approach on the interests ofthird parties dealing with the corporation. This will vary from case to case. To be sure,the relative certainty afforded by the corporate law model cannot be attained, due tothe idiosyncratic needs of the political principal. Whether the strong form approach toresponsible government will create greater or lesser uncertainty in transactions with astatutory corporation than the weak form is a complex question, as judicialinterpretation will only be one of a variety of factors going towards such anassessment. Nevertheless, some observations stemming from the construction of thedirections power in Hughes may be ventured.

Hughes removes the legal basis for the tolerance for the minister's de facto controlover the board, but expands the de jure power of the minister over the board. Thiswould appear to encourage the transparency of the statutory corporation's governancestructure. Yet it comes at the potential cost of (i) an alteration in the division ofauthority over corporate decision-making intended by Parliament; and (ii) the possibledisappointment of the expectations of third parties dealing with the statutorycorporation. Judicial interpretation of the statute has created a statutory corporationwith malleable boundaries. The CAA was created as an independent legal entity, yetthe directors must adjust their consideration of the corporation's interests in disclosingconfidential corporate information according to whether the minister has requestedsuch information. The CAA may contract with third parties as an independent legalentity, yet at a later time the contract may be made subject to the implied rights of theminister.

Whether particular ministers would actually use their increased de jure powers is anopen question which lawyers are ill-equipped to answer. It is nevertheless clear thatthe possibility that the statutory corporation may operate as a "duplicitous mask ofindependence, which conceals direct political manipulation by ministers"192 has notbeen eliminated. Even after Hughes, ministers may still engage in covert attempts todirect the corporation without invoking the directions power. In the rare event thattheir attempted directions would be considered by a court, they would be simply befound to be legally ineffective. Their actions will doubtless be politically effective.Ministers who wish to dissociate themselves from politically unpopular decisions oftheir statutory corporation may choose to minimise their political accountability byremaining "rationally passive" and relatively uninformed about the affairs of thecorporation. Finally, ministers might use the broad construction of their informationalrights over the corporation to pursue purposes collateral to the corporation, providedthat those purposes are related to the conduct of government. Within this spectrum ofpolitical activity, third parties are offered no greater assurances of their transactionalrights than before.

CONCLUSION

This paper has identified the source of the normative uncertainty surroundingminister-board communications in those features of the governance structure of thestatutory corporation which are most strongly determined by the location of theminister within the political system. Attempts to regulate these communications must

192 P D Finn, "Public Trust and Public Accountability" (1993) Australian Quarterly 65 at 58.


satisfy two conflicting needs - the political principal's need to delegate decisionmaking to an agent and the principal's need to preserve its capacity to intervene in theagent's decision-making. The enactment of ministerial directions provisions do notresolve these difficulties, as their interpretation forces this conflict onto a terrain whererival views of responsible government and its constitutional underpinnings now holdsway.

This paper has identified two approaches - a strong and a weak form - to the useof a theory of responsible government in the interpretation of ministerial directionspowers and has assessed their relative merits on the basis of a detailed examination ofthe remarkable facts of the Hughes case. The strong form approach has been shown tobe based on a questionable constitutional foundation. It is also shown to harbour thedanger of an undue emphasis on a particular form of relationship between Parliamentand the Executive, that of ministerial responsibility. Such an emphasis might frustratethe ability of Parliament to create and enjoy other forms of Executive accountabilitymechanisms which might better accommodate the changed nature of contemporarysocial and economic phenomena. Parliament's choice of private sector style corporategovernance techniques for statutory corporations is but one example. The ability of atheory of responsible government to remain flexible is critical to the evolution of theworking Constitution.

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