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Australian Senate Standing Committee for the Scrutiny of Delegated Legislation - Monitor |
Competition and Consumer (Industry Codes—Dairy) Regulations 2019
FRL No.
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Purpose
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To prescribe a mandatory Dairy Code of Conduct to set enforceable minimum
standards of conduct for business practices between dairy
farmers and processors
of milk (including a retailer where they are the first purchaser of milk).
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Authorising legislation
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Portfolio
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Treasury
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Disallowance
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15 sitting days after tabling (tabled in the Senate on
4 February 2020). Notice of motion to disallow given on
14 May 2020.
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1.15 The instrument prescribes a Dairy Code of Conduct (Dairy Code), a mandatory code which sets enforceable minimum standards of conduct for business practices between dairy farmers and corporations that purchase and sell milk (processors).
1.16 The committee has engaged extensively with the government in relation to its scrutiny concerns about this instrument, summarised below. Most recently, the committee drew its serious scrutiny concerns about the instrument to the attention of the Senate in Delegated Legislation Monitor 9 of 2020 (Monitor 9 of 2020). This entry summarises the committee's most recent engagement with the government about this instrument since Monitor 9 of 2020 was tabled, and details the committee's concluding comments.
1.17 The committee's technical scrutiny concerns about this instrument are detailed in Monitor 9 of 2020. The concerns focus on section 11 of the instrument, which imposes an obligation on processes and farmers to act in good faith in the supply of milk 'within the meaning of the unwritten law as it exists from time to time'. The section provides a non-exhaustive list of factors which 'may' be taken into account in determining whether a processor or farmer has acted in good faith, but no further guidance as to the meaning of the term. Failure to comply with the good faith obligations attracts significant civil penalties. [7]
1.18 The committee considers that the imposition of significant penalties for non-compliance with a term undefined by the written law raises significant technical scrutiny concerns under Senate standing orders 23(3)(e), clarity of drafting and 23(3)(j), significant penalties in delegated legislation. [8]
1.19 Between February and April 2020 the committee twice wrote to the minister to seek his advice about the committee's scrutiny concerns, and, in particular, the appropriateness of amending section 11 to provide further guidance as to the meaning of good faith.[9] This correspondence is detailed in Monitor 9 of 2020. In summary, the minister provided the following reasons in support of the original drafting of section 11 of the instrument:
• defining good faith would undermine the instrument's objective and purpose;
• defining good faith would create inconsistencies with other industry codes which also impose civil penalties for failing to act in good faith within the meaning of the unwritten law from time to time;[10]
• the current approach enables the application of the Dairy Code to evolve with the common law; and
• the non-exhaustive list of factors which may be considered in determining whether a processor farmer has acted in good faith provides appropriate guidance about the scope of good faith whilst enabling consistency with the common law as it develops.
1.20 On 14 May 2020 the committee placed a 'protective' notice of motion to disallow the instrument to provide additional time for the committee to further consider the instrument while it was still subject to disallowance.
1.21 The committee subsequently sought and undertook a private briefing with representatives from the Department of Agriculture, Water and Environment, and the Treasury, on 12 June 2020, to discuss its ongoing scrutiny concerns. Pursuant to the briefing, the committee sought further advice from the minister about a range of matters, including whether the instrument could be amended to provide that a farmer or processor acted in good faith if they complied with the specific factors set out in paragraphs 11(4)(a)-(h) of the instrument.
1.22 In his response of 18 June 2020, the minister reiterated his view that the non-exhaustive list in subsection 11(4) provides sufficient guidance as to the meaning of good faith, and limiting the relevant factors might unduly restrict the provisions in a manner inconsistent with the evolving common law understanding of good faith. The minister also suggested that the committee may wish to seek further information from the Attorney-General and the Treasurer.
1.23 In correspondence to the minister, Attorney-General and Treasurer (the ministers) of 22 July 2020, the committee set out its ongoing technical scrutiny concerns about the instrument. This correspondence is detailed in Monitor 9 of 2020.[11] In summary, the committee restated its view was that the scope of the obligation to act in good faith remains unclear and subsection 11(4) of the instrument does not provide the clarity and certainty required of civil penalty provisions. The committee also expressed broader concerns about the systemic use of undefined good faith provisions in industry codes.
1.24 In light of the committee's ongoing concerns, the committee requested the minister's advice as to whether subsection 11(4) could be amended to require certain factors to be taken into account in assessing whether processors or farmers have acted in good faith. In addition, the committee asked the Treasurer and Attorney-General to give comprehensive advice on the committee's scrutiny concerns about the instrument, and, more broadly, whether urgent consideration could be given to improving the clarity of drafting of good faith obligations in all Commonwealth delegated legislation.
1.25 The ministers' joint response of 18 August 2020 is detailed in Monitor 9 of 2020.[12] In summary, the ministers reiterated their view that section 11 is fit for purpose, and expressed concern that prescribing a mandatory list of factors to be considered in assessing good faith could create potential uncertainty where common law concepts evolve and diverge from that prescribed by statute. The ministers also cited several examples of other provisions in both primary and delegated legislation which impose civil or criminal penalties for breaches of good faith provisions.
1.26 The committee set out its response to the ministers' correspondence in Monitor 9 of 2020.[13] In the absence of an undertaking by the ministers to amend the instrument, the committee reiterated its concerns that the civil penalty provisions in section 11 of the instrument lack the clarity necessary to enable persons and entities, particularly farmers, to understand their obligations and the consequences of non-compliance.
1.27 The committee also addressed the examples provided by the ministers of similar provisions in other legislation. As a technical matter, the committee noted that primary legislation falls outside the scope of the committee's role prescribed by Senate standing order 23. From a scrutiny perspective, the committee reiterated its longstanding view that the existence of similar provisions in other legislation does not, of itself, justify the continuation of such an approach, where it raises significant technical scrutiny concerns. The committee also expressed concern that the ministers' examples provide evidence of a more complex and systemic issue in which regulatory flexibility is pursued via the imposition of broadly drafted good faith provisions at the expense of legal clarity and certainty.
1.28 Noting that the instrument raises an example of a more complex, systemic issue relevant to both delegated and primary legislation, the committee requested that the Attorney-General refer the codification of good faith obligations in Commonwealth legislation to the Australian Law Reform Commission for inquiry, with particular reference to:
• the importance of balancing legal clarity and certainty with regulatory flexibility; and
• how potential divergence between common law concepts of good faith and concepts used in statute could be resolved without compromising legal clarity and certainty.
1.29 The Attorney-General responded to the committee's request on 31 August 2020.[14] The Attorney-General agreed that the issue of good faith obligations in Commonwealth legislation 'is a matter which should be subject to further inquiry, subject to settling appropriate terms of reference'. As a practical matter, noting that the drafting of good faith obligations raises complex, systemic issues, the Attorney-General explained that the scope of the inquiry will need be carefully examined, and 'such consideration necessarily takes time'. Accordingly, whilst agreeing that the matter 'warrants inquiry', the Attorney-General advised that the he does not anticipate that he will be able to commence an inquiry by the date nominated by the committee.
1.30 In the interim, the Attorney-General encouraged the committee to withdraw the disallowance motion, on the basis that:
disallowance of the Dairy Code could risk creating precisely the lack of clarity over the obligations of farmers and processors on the ground that your request seeks to avoid.
1.31 The committee strongly welcomes the Attorney-General's acknowledgment that the issue of good faith obligations in Commonwealth legislation is a complex and systemic matter which warrants further inquiry.
1.32 As a practical matter, the committee notes the Attorney-General's advice that, given the complexity of the matters involved and the consequent need to carefully consider the scope of such an inquiry, he does not anticipate it will be possible to commence the inquiry before the disallowance period for the Dairy Code is due to expire.
1.33 In considering this instrument, the committee has been exclusively concerned to ensure that it accords with the technical legislative scrutiny principles set out in Senate standing order 23(3). Since December 2019, these principles have expressly included clarity of drafting.[15] In this regard, the committee has been particularly concerned about section 11 of the instrument, which imposes significant civil penalties on farmers and processors for failing to act in accordance with a term which is undefined in the written law, 'good faith'. As a matter of principle, the committee strongly considers that civil and criminal penalty provisions should be drafted with sufficient clarity to enable persons and entities to understand their obligations and the consequences of non-compliance.
1.34 In correspondence with the ministers, the committee has been alerted to several examples of similarly drafted provisions in both delegated and primary legislation.[16] As detailed in Delegated Legislation Monitor 9 of 2020, these examples raise broader, systemic concerns about the pursuit of regulatory flexibility via the imposition of broadly drafted good faith provisions at the expense of legal clarity and certainty. Noting that section 11 of the instrument is just one example of this much broader and complex matter, the committee considers that the disallowance of section 11 in isolation would not address this systemic issue.
1.35 Instead, the committee considers that this issue would be most appropriately addressed by way of a broader inquiry into the drafting of good faith obligations in Commonwealth legislation, and consideration by the Australian Competition and Consumer Commission as part of its ongoing inquiry into bargaining power in supply chains for perishable products.
1.36 Accordingly, the committee has resolved to withdraw its notice of motion to disallow the instrument, and instead pursue this complex and systemic technical scrutiny matter by:
• monitoring the Attorney-General's undertaking to conduct an inquiry into good faith obligations in Commonwealth legislation and liaising with the Attorney-General regarding the terms of reference; and
• requesting that the Australian Competition and Consumer Commission consider this matter as part of its ongoing inquiry into bargaining power in supply chains for perishable products.
1.37 On this basis, the committee has concluded its examination of the instrument.
[5] Scrutiny principle: Senate Standing Order 23(3)(e).
[6] Scrutiny principle: Senate Standing Order 23(3)(h).
[7] Failure to comply with these obligations attracts a civil penalty of 100 penalty units ($22 200) for processors which are small business entities, 300 penalty units ($66 600) for other processors, and 100 penalty units ($22 200) for farmers.
[8] Senate standing orders 23(3)(e) and 23(3)(h).
[9] Copies of the letters are available on the committee's website.
[10] The minister noted that the Competition and Consumer (Industry Codes—Horticulture) Regulations 2017 [F2017L00302] (section 8) and the Competition and Consumer (Industry Codes – Franchising) Regulation 2014 (section 6) [F2020C00511] impose civil penalties for failure to deal in good faith within the meaning of the unwritten law as incorporated from time to time.
[11] Senate Standing Committee for the Scrutiny of Delegated Legislation, Delegated Legislation Monitor 9 of 2020, pp. 1-6. A copy of the letter is also available on the committee's website.
[12] Senate Standing Committee for the Scrutiny of Delegated Legislation, Delegated Legislation Monitor 9 of 2020, pp. 1-6. A copy of the letter is also available on the committee's website.
[13] Senate Standing Committee for the Scrutiny of Delegated Legislation, Delegated Legislation Monitor 9 of 2020, pp. 1-6.
[14] A copy of the Attorney-General's letter is available on the committee's website.
[15] Senate standing order 23(3)(e).
[16] See, in particular, the examples cited by the ministers in their letter of 18 August 2020, available on the committee's website.
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URL: http://www.austlii.edu.au/au/other/cth/AUSStaCSDLM/2020/105.html