EXPLANATORY STATEMENT

 

Select Legislative Instrument 2009 No. 87

 

 

 

Issued by authority of the Assistant Treasurer

 

Trade Practices Act 1974

 

Trade Practices Amendment Regulations 2009 (No. 1)

 

Section 172 of the Trade Practices Act 1974 (the TP Act) provides, in part, that the Governor‑General may make regulations prescribing matters required or permitted by the TP Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the TP Act.

 

Section 52 of the TP Act enables plaintiffs to take an action in certain circumstances where they have been the victim of misleading and deceptive conduct. This broad provision has been recognised as being a possible alternative basis to common law negligence to commence proceedings.

 

However, section 87AB of the TP Act provides that the professional standards law of a state or territory applies to limit occupational liability relating to an action for contravention of section 52 of the TP Act. The relevant state and territory laws limit the civil liability of professionals and others while still maintaining appropriate protection for consumers of professional services through measures such as compulsory insurance cover, continual education and training and formalised complaint procedures.

 

Section 87AB also provides that a state or territory scheme only applies to professional schemes that have been prescribed.

 

The Trade Practices Regulations 1974 (the Principal Regulations) currently prescribe twenty one state or territory professional standard schemes. The new Regulations prescribe for the purposes of section 87AB the following additional professional standards schemes:

 

•                Engineers Australia (ACT);

•                Engineers Australia Western Australia;

•                Institution of Engineers Australia (NT); and

•                Institution of Engineers Australia (Queensland).

 

The new Regulations have also amended the Principle Regulations to re-prescribe The Engineers Australia (NSW) Scheme, which has been amended. This scheme has been amended to make it consistent with the Engineers Australia schemes in other jurisdictions.

 

The new Regulations have updated the Principal Regulations to re-prescribe the following professional standards schemes, as the current prescription of these schemes ceases to have effect on 12 June 2009.

 

•                CPA Australia Limited (Northern Territory);

•                CPA Australia Limited (South Australia);

•                CPA Australia Ltd (ACT);

•                CPA Australia Ltd (Queensland);

•                CPA Australia Ltd (Victoria);

•                CPA Australia Ltd (Western Australia);

•                Engineers Australia (NSW);

•                Institute of Chartered Accountants in Australia (ACT);

•                Institute of Chartered Accountants in Australia (Northern Territory);

•                Institute of Chartered Accountants in Australia (Qld);

•                Institute of Chartered Accountants in Australia (South Australia);

•                Institute of Chartered Accountants in Australia (Victoria);

•                Professional Surveyors Occupational Association; and

•                Victorian Bar Incorporated.

 

The prescription of the above schemes in the new Regulations commence on 13 June 2009. The prescription of these schemes in the new Regulations cease on 13 June 2011, two years after they commence, as a review of the relevant policy is expected to commence in 2010.

 

The new Regulations add to the four new schemes and the fourteen re-prescribed schemes to the existing prescriptions of The New South Wales Bar Association Scheme, The Law Society of NSW (NSW) Scheme, The Investigative and Remedial Engineers NSW Scheme, The Australian Valuers Institute (NSW) Scheme, The CPA Australia Ltd (NSW) Scheme, The Institute of Chartered Accountants in Australia (NSW) Scheme and The Institute of Chartered Accountants in Australia (Western Australia) Scheme. The table would also be reorganised to list all the prescribed schemes in alphabetical order.

 

Further details on the capping of civil liability for certain professionals are included in the Attachment.

 

The new Regulations have the effect of limiting the occupational liability of members of the schemes relating to an action for contravention of section 52 of the TP Act in the same way as occupational liability is limited under the relevant state and territory laws:

the Professional  Standards Act 2003 (Vic), the Professional Standards Act 2004 (SA), the Professional Standards Act (NT), the Civil Law (Wrongs) Act 2002 (ACT), the Professional Standards Act 2004 (Qld), the Professional Standards Act 1997 (WA) and the Professional Standards Act 1994 (NSW).

 

The new Regulations have been requested by the applicable associations, following approval by the relevant Professional Standards Councils and gazettal in the relevant states and territories.

 

The TP Act specifies no conditions that need to be met before the power to make the new Regulations may be exercised.

 

The Professional Standards Council sought the opinion of an independent actuarial consultant and called for public comment on the schemes via public notification in major metropolitan newspapers in the relevant jurisdictions prior to approving the professional standards schemes.

 

 

 

 

attachment

 

Professional standards legislation involves the capping of civil liability for members of professional groups which apply to have schemes approved by the Professional Standards Council in their respective state. Members can include sole practitioners, firms and large corporations. The cap, which is intended to limit the member’s liability in respect of a single claim for economic loss, is provided in exchange for the member undertaking risk management practices, continuing professional development and holding insurance or assets up to the level of the cap. The overarching aim of professional standards schemes and liability caps is to maintain affordable levels of professional indemnity insurance, as well as improve professional standards and consumer protection.

 

Professionals are provided with an incentive (capped liability) to lift their standards and better manage their risks. Consumers are intended to benefit from schemes because in the event of a claim, there is a greater prospect that they can fully recover. This is because the professional is required to hold insurance at levels that they otherwise may not have taken out in the absence of a scheme. Any additional risk management undertaken by professionals should help reduce the likelihood of a claim.

 

Professional standards legislation was first passed in NSW in 1994. Western Australia passed legislation in 1997. However, it was in response to the crisis in the availability and affordability of insurance in 2001-02 that national arrangements for professional standards legislation were implemented, with all remaining states and territories and the Commonwealth passing professional standards legislation. The Commonwealth first prescribed a scheme in 2006, and in 2007, a scheme outside NSW commenced for the first time.

 

Civil liability is subject to state legislation. Therefore, each state and territory established a council to assess and approve state scheme applications. Each council has common membership and sits simultaneously, meaning that in a practical sense the council is identified as one entity, the ‘Professional Standards Council’.

 

Occupational associations make an application to the Council for approval of schemes. Once approved by the Council and gazetted by the relevant state, the Council secretariat requests the Commonwealth to make regulations as required under the Commonwealth’s Trade Practices Act 1974 (the TP Act), Corporations Act 2001 and Australian Securities and Investments Commission Act 2001 (the ASIC Act). This has the effect of limiting liability in accordance with the state scheme for scheme members for misleading and deceptive conduct under sections 52 of the Trade Practices Act, 12DA of the ASIC Act or 1041H of the Corporations Act. Most schemes require prescription under the TP Act only as the scheme members do not carry out work that falls under the ASIC Act and Corporations Act. The purpose of the Commonwealth legislation is to prevent state and territory caps being circumvented by alternative actions.

 

The size and structure of the cap on liability varies from scheme to scheme. Where scheme members have broadly similar characteristics in terms of the nature of work undertaken and the potential economic loss caused, a flat cap applying to all members of the scheme may be judged to be appropriate. For occupational associations with memberships ranging from sole practitioners to large firms, who undertake work with a similarly wide variety of risk, variable caps that are dependent on firm turnover or fee charged may be applied in order to better reflect the risk profile of each member.