EXPLANATORY STATEMENT

 

Select Legislative Instrument 2010 No. 123

 

 

 

Issued by authority of the Minister for Financial Services, Superannuation and Corporate Law

 

Trade Practices Act 1974

 

Trade Practices Amendment Regulations 2010 (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 prohibits misleading and deceptive conduct by corporations in trade or commerce. Section 82 of the TP Act enables persons to take action to recover any damage or loss caused by a contravention of section 52. This broad provision has been recognised as being a possible alternative basis to common law claims.

 

However, section 87AB of the TP Act provides that in relation to schemes prescribed under the regulations, 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.

 

The Trade Practices Regulations 1974 (the Principal Regulations) currently prescribe 25 state or territory (state) professional standard schemes.

 

The new Regulations amend the Principal Regulations to prescribe for the purposes of section 87AB the following additional professional standards schemes:

 

•                Engineers Australia Tasmania;

•                Engineers Australia (Victoria);

•                Engineers Australia South Australia; and

•                The ACS Limited Liability (NSW).

 

The prescription of the above schemes commences on 8 June 2010. The prescription of the schemes in the Regulations ceases to have effect on 8 June 2012, two years after they commence. The period in which the prescription will have effect has been limited to two years, pending a review of the relevant policy.

 

The new Regulations also amend the Principal Regulations to prescribe Law Institute of Victoria professional standards scheme. As the scheme does not commence until 1 July 2010, the prescription of scheme commences on 1 July 2010 and ceases on 1 July 2012.

 

 

The new Regulations also amend the Principal Regulations to re-prescribe the Professional Surveyors’ Occupational Association Scheme and the Victorian Bar Incorporated Scheme, which have been amended. As the two schemes have been amended, they require re-prescription at the Commonwealth level.

 

The new Regulations add the five new schemes and the two re-prescribed schemes to the existing prescriptions to form the consolidated list of prescribed schemes outlined in the table under Regulation 8A of the Principal Regulations.

 

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);

•                the Professional Standards Act 1994 (NSW); and

•                the Professional Standards Act 2005 (Tas).

 

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

 

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

 

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 independent actuarial consultants and called for public comment on the schemes via public notification in major newspapers circulating throughout 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 (state) 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 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 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.