Ombudsman’s letter to major agencies in mid 1998 and their responses
2. Act of grace payments
C.15 The Ombudsman’s letter outlined the following difficulties.
• Because they require action by DoFA or the Minister for Finance and Administration rather than the agencies concerned, those agencies can avoid taking responsibility for the consequences of their actions.
• The fact that all requests for act of grace payments have to be considered by DoFA slows down the resolution of the problem.
• Restricting the act of grace power to the Minister for Finance and
Administration and his department is inconsistent with the FMA Act’s emphasis on devolution and prevents responsible agencies themselves
from providing remedies in all circumstances. It could be argued that this reduces the incentive for agencies to get it right in the first place.
• The fact that large act of grace payments (over $100,000) can only be made after the Minister for Finance and Administration or DoFA have considered a report from a committee comprising the heads of DoFA, the Australian Customs Service (ACS) and the agency concerned, may involve a conflict of interest (the head of the responsible agency could not provide an independent view). In addition there seems little role for the ACS in determining whether an act of grace payment would be appropriate.
Agency responses
C.16 Most agencies supported the Ombudsman’s view that responsibility should rest with them for compensating individuals who suffer financial loss as a result of their actions.
C.17 The ACS and Centrelink supported devolution of the act of grace power to agency heads, to ensure that compensation payments can be made in all relevant circumstances. DFaCS said they would have no objection to reinstating the devolution arrangements in place between 1988 and 199579. They have had very few recent cases where they have disagreed with DoFA’s decision but they understood that Centrelink had disagreed quite frequently80.
C.18 The ATO and CSA stated that the existing arrangements are adequate to provide compensation whenever they believe it is warranted. The ATO stated that when the CDDA scheme was introduced it was clearly intended to all but replace the act of grace arrangements for matters relating to defective administration. They have proceeded on that basis and see limited scope for the act of grace provisions at this stage, but agreed that there was some merit in the proposal to devolve the act of grace power. By comparison, the Public Service Commissioner has delegated limited
powers under the Public Service Act 1922 to agencies to make payments to satisfy claims by public servants arising from their employment81 .
C.19 DEETYA and DIST did not comment specifically about devolution of the act of grace power, but DEETYA’s response implies that they believed the current compensation arrangements are adequate.
C.20 Defence was the only agency to state clearly that DoFA should retain the act of grace power, because that provides an independent review of claims and ensures consistent application of the principles involved.
C.21 The ACS suggested that an obvious solution to the difficulties the Ombudsman had outlined would be to provide agencies with a general power to make compensation payments in circumstances covered by all
79 See Attachment B for a description of those arrangements.
80 Centrelink informed us later that this perception was incorrect.
81 These claims cannot be met by the act of grace mechanism because alternative power exists under the Public Service Act.
three existing mechanisms, with a requirement to identify the basis for payment in their annual reports (eg, faulty advice, unintended
consequence of a regulation, etc). The ACS stated that there would have to be some basic rules for such an arrangement, including consultation with relevant agencies if a payment would be likely to set a precedent affecting them, and seeking legal advice before paying large amounts.
C.22 The ACS encouraged a review of the existing arrangements and supported decentralisation and devolution of the act of grace power in the context of a single arrangement for compensation. They stated that a key problem with the current act of grace mechanism is the requirement that DoFA make the decision. In their view, the delegation of the power to compensate under the CDDA scheme to all agencies on the public account and the direction of the FMA Act is at odds with the centralised nature of the act of grace mechanism.
C.23 Centrelink and DHAC agreed with the former Ombudsman that the advisory committee for payments over $100,000 should comprise the heads of the departments of Prime Minister and Cabinet, A-G’s and DoFA.
DHAC suggested that they could co-opt the relevant agency head if necessary.
C.24 DHAC did not have strong views on whether the act of grace mechanism should be exercised only through DoFA, but they saw clear advantages in restoring the power to other agencies through delegation.
They said the requirement to refer requests to DoFA adds another layer in communication to the process which may not be justifiable, at least for small amounts. DHAC said that reserving a decision for the Minister for Finance and Administration is understandable where large amounts are involved but it would be consistent with current principles of devolution and local responsibility to delegate the act of grace power.
C.25 DHAC agreed that the act of grace power should not be used where another power was available but said there are risks in construing that exclusion too rigidly. DHAC believe that if there is uncertainty as to
whether another power is available but there is a clear case consistent with act of grace principles, there would be no harm in proceeding expeditiously by act of grace rather than indulging in arid debates as to which
mechanism is preferable. They gave an example of having corresponded last year with DoFA about which mechanism was appropriate for paying someone compensation and considerably delaying payment in the process.
C.26 DHAC agreed that act of grace payments do not set a precedent, but said it is naive to expect that if similar circumstances arose again there would not be an expectation of a payment. By contrast, DHAC thought it too easy to use the ‘floodgates’ argument to avoid making a favourable decision to make a compensation payment. But they did comment that if agencies are considering act of grace payments from their own resources they may be more cautious than when they are asking another agency to pay.
C.27 DoFA agreed that it would be possible for the Minister for Finance and Administration to impose conditions if he delegated the act of grace power, but said that the discretionary nature of the power and the fact that it covers every aspect of Commonwealth administration, make it difficult to articulate useful, workable conditions. Regardless of rigorous
definitions or guidelines about what constitutes a moral obligation on the Commonwealth, the decision remains subjective. It is interesting, in view of DoFA’s firm view that the act of grace power is properly the province of the Minister for Finance and Administration rather than other Ministers and CEOs, that their response indicates they are considering whether it should be devolved this year.
C.28 DoFA stated that ‘special circumstances’ do not have to be unique but act of grace is not an appropriate method for addressing administrative or legislative deficiencies that involve a reasonable number of people. It would not be fair to pay one person who requests an act of grace payment when there are possibly many more in similar circumstances who have not asked for a payment. But it could equally be argued that it is
manifestly unfair to deny a payment to a person which is judged warranted, simply because there are others with identical claims.
C.29 DoFA also stated that the CDDA scheme was not intended to replace the need for agency heads to be delegated the act of grace power. It was specifically established to allow agency heads to make gratuitous payments to people adversely affected by defective administration, but it does cover the complaints about wrong oral advice that used to be considered in the act of grace context.
C.30 DoFA stated that there is no conflict of interest if an advisory committee for payments over $100,000 includes the head of the agency responsible for the problem (or their delegate) because DoFA always seek advice from the responsible agency anyway before deciding whether to make a payment. Involvement of the agency head in considering large payments maximises the consideration of salient information and allows the Minister to make a fully informed decision in the interests of the claimant and the Commonwealth, including the agency concerned. In DoFA’s view, the inclusion of the head of ACS (or their delegate) in the advisory committee provides a further independent view from an agency experienced in protecting revenue collection and the broader community interest.