Why is this decision important?

There are a number of class actions currently on foot against federal and state governments. The HIP class action sought recognition of a novel duty of care, and an expansion of the misleading and deceptive conduct provisions of the Trade Practices Act to apply to policy statements made by the Commonwealth. The class action had the potential to significantly curtail future policy design, implementation and innovation.

Those designing, implementing and administering government policy and programs can take some comfort and guidance from this decision. While this country's appetite for class actions against governments is unlikely to be quelled by Dixon J's decision, the decision should deter future claims from being brought in similar circumstances.

Class action at a glance

The Home Insulation Program (HIP) was introduced as an element of the Government's economic stimulus strategy in response to the Global Financial Crisis. Following the deaths of four installers, the HIP was unexpectedly terminated before its intended expiration. A class action was brought in response, with group members comprising owners of insulation businesses and installers, manufactures and suppliers of insulation who were alleged to have suffered economic loss.

The action revolved around allegations that the Commonwealth:

• owed them a duty to take reasonable care to avoid economic harm to them in the design, implementation and administration of the HIP;
• owed them a duty to take reasonable care in making statements about the HIP or alternatively, to correct statements once it became aware that such statements were misleading;
• engaged in misleading or deceptive conduct, or conduct likely to mislead or deceive, in breach of s 52 of the Trade Practices Act 1974 (Cth) (TPA); and
• repudiated a contract that had come into existence between the parties.

The claims were unsuccessful. Dixon J held that the Commonwealth did not owe a duty of care as its conduct constituted a core policy-making function which was not justiciable and the imposition of such a duty would have a 'chilling effect' on future policy design. The plaintiffs' TPA claim failed because the Commonwealth was not 'carrying on a business' nor engaged 'in trade or commerce'. Dixon J further found that no contract of the type alleged had come into existence.

This case note focuses on the negligence and negligent misstatement claims.

Negligence claim

In effect, the plaintiffs argued that the Commonwealth had an obligation to 'take reasonable care in the design and/or implementation and/or administration of the HIP to avoid inflicting pure economic loss on the plaintiffs'. However, the plaintiffs' case was not limited to 'design, implementation and administration', but rather, focussed on the Commonwealth's conduct in suddenly terminating the HIP, 'contrary to an expectation' held by the plaintiffs that it would continue until December 2011 or until the allocated funds were dissipated.

Upon termination, payments for completed installations ceased, allegedly causing the plaintiffs to suffer economic loss. The plaintiffs contended that the termination of the HIP was caused by the Commonwealth's breach. In other words '[t]he essential causal link contended for was that had the defendant prudently designed, implemented and administered the HIP, it would not have terminated the HIP when it did and insulation installation work would have continued as expected'.

The plaintiffs sought recognition of novel duties of care. Accordingly, his Honour had regard to the 'salient features' approach adopted in novel duty cases which have considered the duties of statutory authorities. This case differed to those relied upon because the 'statutory authority' in question was the Commonwealth itself. The relevant acts were performed by public servants under the direction of Ministers exercising executive power under s 61 of the Constitution and without recourse to statutory powers. However, his Honour concluded that these distinctions did not warrant a different approach.

Consideration of the fifth and sixth 'salient features' (as espoused in Crimmins) was decisive. The fifth 'salient feature' captures the notion that the exercise of policy functions (as distinct from 'operational' functions) is non-justiciable. In that regard, the plaintiffs argued that the acts being challenged were not the core policy decision but rather 'the steps that were taken by the defendant through the relevant public servants', including the design, implementation and administration of the HIP. These steps, they argued, were operational in nature and could be challenged.

The Commonwealth argued that, properly understood, the Commonwealth's conduct in respect of the HIP was 'a policy decision taken by the defendant exercising executive power as an urgent fiscal stimulus measure'. While noting that the issue is 'complex and fact sensitive', his Honour agreed. The HIP 'was designed by a Cabinet sub-committee as part of an overall fiscal stimulus program', and thus constituted a core policy function.

In relation to the sixth 'salient feature', the Commonwealth argued that the duties of care described by the plaintiffs would require it to act in the interests of the insulation industry rather than in the national interest. The imposition of a duty would have 'a chilling effect on all future policy design by the national government' because 'public servants would be constrained by duties owing to innumerable public interest groups and businesses'. These policy considerations also precluded a finding of liability.

Negligent misrepresentation / misleading and deceptive conduct

The plaintiffs submitted that, through a number of statements, the Commonwealth impliedly represented that it would not reconsider its decision to fund the HIP until the earlier of 31 December 2011 or until its funds were exhausted. The plaintiffs argued that this representation constituted a statement as to future matters and that the Commonwealth was negligent when making the representation because there was no proper basis for it. They alleged that two separate causes of action arose from the statements:

• first, the Commonwealth engaged in misleading or deceptive conduct or conduct likely to mislead or deceive the plaintiffs and group members, in breach of s 52 of the TPA; and
• secondly, the Commonwealth owed a duty to take reasonable care in making the representations.

The TPA claim was dispensed with at the threshold level, with Dixon J finding that the Commonwealth was not 'carrying on a business', nor was it engaged 'in trade or commerce' within the meaning of the TPA. In any event, Dixon J accepted the Commonwealth's argument that the representations were statements as to the government's current policy, not as to what its policy would be in future.

In relation to the negligent misstatement claim, the plaintiffs submitted that the Commonwealth's duty arose because it made the representations to induce the plaintiffs to invest in their businesses and knew, or ought to have known, that the plaintiffs would act in reliance on those representations.

The Commonwealth argued that it did not make the representation alleged by the plaintiff. As above, its statements were of (then) current government policy. It was neither reasonably foreseeable nor reasonable that the plaintiffs would act in reliance on the representations allegedly made because they were aware, or ought to have been aware, that the HIP could change pursuant to a change in government policy. The statements did not give rise to a duty due to their impermanence and the government's discretion to depart from or alter its policy.

In response, the plaintiffs contended that, even if reliance was not reasonable, the relevant consideration in determining the existence of a duty of care was whether the statements were made to deliberately induce investment in the policy so as to achieve economic stimulus. His Honour did not accept the plaintiffs' description of the Commonwealth's supposed inducement of participants in the HIP. There was clear encouragement, but business owners were able to make their own business decisions about whether, and to what extent, to engage with the HIP.

What guiding principles flow from this case?

This case confirms that:

• government decisions-makers have the necessary freedom to make policy decisions free from the scrutiny of the Courts;
• the Commonwealth acts in the national interest and is not obliged to act in the particular interests of public interest groups and businesses which may be affected by government policies and schemes; and
• when operating similar schemes to the HIP, the Commonwealth will not be considered to be engaging in trade or commerce for the purposes of consumer protection legislation.