14 June 2019

No duty owed by government to prevent financial loss to business

This article was written by Emma Costello, Peta Stevenson and Jane Menzies.

  • Insulation businesses have failed in their bid to recover losses from the Federal Government after the early termination of the Home Insulation Program (HIP) in 2010.

  • In Roo Roofing Pty Ltd & Anor v The Commonwealth of Australia [2019] VSC 331, the Supreme Court of Victoria has refused to find that the Federal Government had to take reasonable care in the design of fiscal policy to avoid economic loss to one sector of the community.

  • An attack was made on steps taken by public servants to design, implement and administer the HIP but this was rejected as the decision to embark on the HIP was a policy decision that was immune from legal challenge. This places the onus on businesses to make sound investment decisions when participating in government schemes.

  • The decision is a strong warning to businesses that class actions against the Commonwealth that arise from Commonwealth policy decisions have a difficult road to navigate to success.

What was the HIP?

The HIP was part of the Federal Government’s 2009 economic stimulus package in the wake of the Global Financial Crisis (GFC). The HIP saw existing homes retrofitted with ceiling insulation at little or no cost to the owner. It was a wildly popular program. At its peak, there was a 36-fold increase in the number of retrofits per month. The rapid increase in demand lead to an increase in inexperienced installers entering the market. Some businesses invested significantly in resources and infrastructure to take advantage of what was anticipated to be a surge in demand for insulation as a result of the HIP. After the deaths of four installers over a four month period, departmental advice about unacceptable safety risks prompted the early termination of the HIP.

Can business losses caused by poor fiscal policy be recovered from the government?

The same insulation businesses that profited from the HIP’s rollout, later sued the Government for profits and business investments lost when taxpayer funded rebates ceased as a result of the early termination of the program. Insulation businesses claimed that the Government negligently designed, implemented and administered the HIP, which caused safety risks to crystallise and the HIP to be terminated early.

Despite the insulation businesses contending that it was the day to day decisions of the public service (as distinct from the policy decision to launch the HIP) that were negligent and resulted in the early termination of the program, the Court found that the Government’s conduct (including that of the public service) in respect of the HIP was part of core policy-making functions. Those decisions are immune from legal challenge because the courts cannot assess the reasonableness of Government policies that involve weighing competing public interests.

In principle, public servants can be liable in negligence for decisions made in exercising a statutory power. However, the HIP was not a statutory program. It was embarked upon and implemented within the Government’s executive power, which must be used in the public interest. It was the very manner in which the HIP was swiftly implemented (and its consequent administration) that made it attractive as an economic stimulant. The Court concluded that, if the HIP had been slower to launch and more heavily regulated, as insulation businesses asserted it should have been, the HIP simply would not have been embarked upon at all.

The duty of care asserted required the Government to act in favour of the economic interests of one sector of the community (insulation businesses) over the interests of the community as a whole.

Businesses have control over investment decisions

The Court concluded that businesses who participated in the HIP were not vulnerable to decisions of government. Rather, they freely chose to participate in a program that was only ever temporary. Each business could make investment decisions to safeguard itself against the inevitability of the HIP ending at some point. Those businesses had no justification for complaint when government policy changed and their expectations were disappointed.

Our predictions

Despite the growth in class action litigation in Australia, this decision will ward off class actions targeting government policy decisions. Given that this decision maintains the legal status quo, it is unlikely to discourage private industry from participating in government rebate schemes, even if little reliance can be placed on government guidance about implementation periods.

Conclusion

  • For government stakeholders, the case provides reassurance about immunity from legal action when exercising core policy-making functions. However, it echoes the findings of the Royal Commission into the HIP about project management and coordination shortcomings.

  • For private businesses considering participating in temporary government schemes, investment decisions need to safeguard against loss at the inevitable conclusion of the program. The potential lack of certainty about how government policies will be implemented ought to also be considered.

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