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The Legal Services Directions: Obligations and Compliance Strategies - September 2000

Ian Govey, General Manager, Civil Justice and Legal Services, Attorney-General's Department

Integrating Conformance with Performance Conference, 7 September 2000 Canberra

• Reform of the Commonwealth Legal Services Market
• Legal Services Directions
• Distinction between FMA and CAC bodies
• Focus of the Directions
• Public Interest
• Consistency
• In-house lawyers
• Role of the Office of Legal Services Coordination
• Responsibilities of CEOs
• Enforcement mechanisms
• Conclusion
• Endnotes

My role is to discuss the reforms over the last year or so to the Commonwealth legal services market. They include, most importantly, the Legal Services Directions which were issued by the Attorney-General under the Judiciary Act 1903 with effect from 1 September 1999. The Directions play a central role in establishing the framework within which government legal services must now be delivered.

Reform of the Commonwealth Legal Services Market

It was the universal desire for greater efficiency and improved performance that led to the reform of the Commonwealth legal services market.

Like many reforms of this kind, functions that had previously been carried out internally, either by the Australian Government Solicitor (AGS) or in-house lawyers, have now been exposed to the rigour of the open market.

The aim was for market forces to improve the quality of legal advice and reduce, or at the very least contain, the cost of these services. The new system was fully implemented with the commencement of amendments to the Judiciary Act 1903 on 1 September last year.

These amendments established the AGS as a statutory authority, separate from the Attorney-General’s Department. They also enabled the last step to be taken in the process of opening up most Commonwealth legal work to private sector competition. Now, most litigation, as well as most contractual, commercial and advising work, can be undertaken by private sector lawyers, in addition to AGS.

For most agencies, legal services are one of the areas where things can go wrong. Whether legal services are part of the core functions or an incidental (and often unwelcome) part of the business, they will often attract external attention.

Clearly, this makes the choice of the providers of legal services absolutely crucial - to enable the risks of inadequate service to be minimised, as well as to ensure that the best value is achieved.

Agencies are, of course, increasingly gaining experience in managing both the purchase of a wide range of services and the ongoing contractual relationship with external providers of those services. Legal services are just one of these services.

For the most part, the principles and practices relevant to the acquisition of legal services do not differ from those for other services. However, there are some significant differences.

Legal Services Directions

One of the major issues to be taken into account in purchasing legal services is the Chief Executive’s responsibilities under the Legal Services Directions. I’ll outline the specific requirements of the Directions for Chief Executives shortly. But first let me provide some details of their general content.

The Directions are overseen by the Office of Legal Services Coordination (OLSC) in the Attorney-General’s Department.

Their simple purpose is to help managers to implement, manage and benefit from the reforms to the Commonwealth legal services and to ensure that these reforms do not come at the expense of the public interest or without regard to the responsibilities of the Attorney-General as the Government’s first law officer.

To a large extent, the Directions clarify and formalise practices and policies that have been in place for many years.

In many cases, the AGS was, in effect, responsible for ensuring compliance with the practices and policies relevant in discharging the Commonwealth’s obligations. They were both the gatekeepers and the gamekeepers.

There was no comprehensive, straight-forward statement of these practices and policies - but this was arguably not essential given AGS’ role.

Now, in fewer than 25 pages, the Legal Services Directions provide a compilation of relevant requirements.

There is one other fundamental point to be made about the Directions. They are made as a statutory instrument by the Attorney-General and have the force of law. They are therefore more than mere policy or guidelines. Failure to comply results in an agency, and those public sector employees responsible, being in breach of the law.

Having said that, it is important to note that many of the requirements are expressed in general terms - as principles, rather than as black and white rules. This is both appropriate and necessary to ensure sufficient flexibility to deal with the different circumstances in which Commonwealth legal services, especially litigation, must be performed.

Distinction between FMA and CAC bodies

The Directions apply in fundamentally different ways to 2 categories of agencies.

They are principally directed at Commonwealth agencies falling within the scope of the Financial Management and Accountability Act 1997 (FMA Act), but they do apply, to a lesser extent, to agencies other than GBEs covered by the Commonwealth Authorities and Companies Act 1997 (CAC Act).

In going through the Directions, I will point out where requirements differ between FMA and CAC bodies.

Focus of the Directions

There are a number of elements to the Legal Services Directions. To give you an overview of what they mean for the day-to-day running of public sector agencies, I’ve divided them into 2 broad categories.

First, the Directions contain provisions to ensure the public interest is not compromised by the ‘outsourcing’ of government legal services.

Secondly, they provide a series of reporting requirements to ensure that, although agencies are largely responsible for their own legal advice and litigation, the Government still maintains a coordinated and consistent approach to significant legal matters.

In short, the Directions are about making sure that Commonwealth legal services are cost effective and of a high quality.

Public Interest

The main aim of the Directions is to ensure that the Attorney-General can discharge his duty to protect the public interest in relation to legal services to government.

The Directions seek to achieve this in a number of ways. In particular, the Attorney-General is empowered to give instructions to CAC and FMA agencies about the handling of their legal services, including claims or litigation in which an agency is involved. This requirement may be affected in certain circumstances by other legislative arrangements which provide, for example, for an enforcement agency to operate independently from government.

There are 4 other requirements of the Directions which deserve specific mention:

• they aim to promote and preserve the Commonwealth’s responsibility to act as a model litigant
• they ensure sensitive work involving ‘machinery of government’ is not outsourced inappropriately
• they set threshold limits for counsel fees, and
• they provide guidelines for assisting government officials who are involved in legal proceedings.

The model litigant obligations apply to both FMA and CAC bodies.

They are an example of the Directions simply restating duties and codes of behaviour that have always been expected of the Commonwealth.

The courts have long recognised the Attorney-General’s role as a representative of the Crown to ensure the highest standards in conducting litigation.

The obligation on the Crown to act as what has been termed "a model litigant" has been referred to by the Supreme Court of New South Wales in P&C Cantarella v Egg Marketing Board¹ and the Full Court of the Federal Court in SCI Operations v The Commonwealth.² The key point is that the responsibility to act as a model litigant goes beyond what is required of a private party.

The Directions make it clear that the new-found independence of Commonwealth FMA agencies to act through private legal service providers does not in any way dilute the Crown’s long-standing obligation to be a model litigant.

They articulate and clarify the model litigant responsibilities to ensure that the Commonwealth continues to conduct itself in accordance with principles of "fair play".

In essence, this requires that the Commonwealth, as a party to litigation, act fairly, with complete propriety, and in accordance with the highest professional standards. To give some examples - it requires that Commonwealth agencies deal with claims promptly, endeavour to avoid litigation where possible, not rely on technical defences unless the agency’s interests would be prejudiced and apologise where the agency is aware that it or its lawyers have acted improperly.

The Legal Services Directions require that some types of legal services must be carried out by government lawyers, primarily AGS.

This work, known as ‘tied work’, covers Cabinet, constitutional, national security and public international law work, as well as most legislative drafting work, undertaken for an FMA agency.

Before engaging private sector lawyers, agencies should be aware of what ‘tied’ work they have and make sure that their legal services contract contemplates that this work will be carried out by the appropriate government lawyers.

If any doubt exists, agencies should clarify with OLSC that the appropriate arrangements are in place for ‘tied work’, both at the stage of developing any request for tender for legal work and when contractual arrangements are made with a private firm.

CAC bodies are not generally restricted in relation to tied work, but are required to report to OLSC or the Attorney-General details of any threatened or proposed litigation which involves constitutional issues.

Counsel fees is another matter where the aim of the Directions is to protect the public interest. The relevant Direction applies to services provided to almost all agencies, whether FMA or CAC bodies.

The rationale is to benefit from the Commonwealth’s position as a major purchaser of counsel fees to negotiate the rates paid for counsel so as to get the best possible value for money.

The Direction on counsel fees sets out thresholds ($1600 per day for junior counsel and $2400 per day for senior counsel) for rates for barristers engaged to represent agencies in matters before courts, tribunals or inquiries, or to provide legal advice. Rates above the thresholds must be approved by OLSC or the Attorney-General.

Approval for amounts above $3,800 per day must go to the Attorney-General, although to get such an approval a truly exceptional case must be made.

The Attorney-General has made it very clear that keeping a lid on counsel fees is something to which he is very much committed.

Another issue to do with protecting the public interest is the provision of assistance to public officials of FMA agencies when they are defendants to legal proceedings.

The Directions spell out the circumstances under which legal assistance will be provided and the extent of that support.

In broad terms the Directions reflect the view that it is in the public interest to support officials who have acted reasonably and responsibly in the performance of their duties.

A decision whether to provide assistance is normally made by the employing agency. Where assistance is sought by an agency head the decision whether to provide assistance is made by the responsible Minister.

The Directions also make it clear that assistance can be provided to enable an action to be brought by an official in a matter relating to their employment, where this is in the Commonwealth’s interests. However, it is not permitted for assistance to be provided where the official wishes to bring an action for defamation arising from their work.

Other Legal Services Directions are also designed to facilitate the Attorney-General’s role in relation to Commonwealth legal services or more generally protect the public interest. For example:

• the Attorney-General is entitled to access to legal advice provided to agencies, unless this is restricted by legislation, and
• limitation periods must be relied upon in defending the Commonwealth against claims, unless approval not to do so is given by the Attorney-General or his delegate.

Consistency

The second purpose of the Directions is to ensure that the outsourcing of legal services does not affect the coordination and consistency of legal advice to the Commonwealth. This purpose is relevant primarily for FMA bodies.

The key point here is that, even though agencies can purchase services to meet their individual needs, they need to operate within a whole of government framework.

This is designed to minimise the risk of agencies acting on the basis of conflicting advice and to avoid a situation where agencies are pursuing conflicting legal and policy outcomes.

To assist in achieving consistency, FMA agencies are obliged to report on whole of government issues that arise in the provision of legal services.

The matters that need to be reported to the Attorney-General or OLSC include:

• matters involving sensitive legal, political or policy issues
• disputes between Commonwealth agencies, and
• matters where significant coordination is required between agencies. (It should be noted that CAC agencies are also required to report claims or litigation involving another agency unless this is inconsistent with the legislative charter of the agency).

Once again the purpose is to promote good government - while not detracting from the capacity of agencies to act responsively and autonomously.

Another instance where FMA agencies need to maintain consistency across government is where advice is required on legislation that is not administered by the agency wanting the advice.

When this happens, the agency wanting the advice must consult properly with the agency that is responsible for the legislation.

This obligation is consistent with the responsibility given to individual Ministers for legislation under the Administrative Arrangement Orders.

It fosters consistency in the delivery of Commonwealth legal services and mirrors the practice of consultation that is appropriate when dealing with policy matters.

A further matter relating to the consistency of Government actions is the need for FMA agencies to take a consistent approach, across government, in the handling and settlement of monetary claims and the conduct of litigation against the Commonwealth.

The Directions provide a clear guide to deal with monetary claims and they replace the rules previously set out in Finance Directions and Guidelines. Basically, they stipulate that:

• in accordance with legal principle and practice, there needs to be at least a meaningful prospect of liability to justify an agreement to settle a claim
• settlements for amounts not exceeding $10,000 can be approved by agencies on the basis of a common sense view that the settlement is in accordance with legal principle and practice
• settlements for amounts exceeding $10,000 can be approved if written advice is received from an external legal adviser (including AGS) that the settlement is in accordance with legal principle and practice, and the agency head (or delegate) agrees with the settlement, and
• any claim or proposed settlement raising sensitive or novel legal issues or political issues must be reported to OLSC.

Once again, the requirement to act in accordance with accepted standards of legal practice and principles is an element of good government and good legal practice.

The rules for settling claims set out in the Directions do not apply to claims that need to be determined under a statute - for example, a Comcare benefit. And the Directions do not apply to claims under a mechanism provided by contract -- such as arbitration of a disputed contractual right.

In-house lawyers

It is important also to comment on the use of in-house lawyers to perform legal services for FMA agencies.

In line with the Government’s policy on the use of in-house services, a number of agencies have reviewed, or are currently reviewing, their use of in-house lawyers in light of the Government’s market testing initiatives.

Quite apart from the requirement to examine outsourcing of legal services, the Directions set out significant restrictions on the use of in-house lawyers by FMA agencies.

In particular, in-house lawyers are not permitted to conduct court litigation for the Commonwealth without the Attorney-General’s approval. This is consistent with the position that applied to FMA agencies prior to the opening up of litigation to private law firms. Whether these restrictions should be relaxed is a matter that is currently under review.

In general, tied work is not able to be performed by in-house lawyers, although there are some areas where this does properly occur. However, Constitutional law work, in particular, is not appropriate for in-house legal advice.

Role of the Office of Legal Services Coordination

The Directions provide a framework for the provision of legal services to Commonwealth agencies.

They are about encouraging good government, fostering good corporate governance, and empowering agency managers to do their jobs well.

That said, the Attorney-General has an interest and responsibility in ensuring compliance with the Directions. One of OLSC’s major responsibilities is to monitor the Directions and to enforce them if necessary.

OLSC’s primary focus is on voluntary compliance with the Directions. Through seminars, the widespread distribution of the Directions, and a variety of information on their website, OLSC is keeping public sector agencies and private legal service providers, as well as the AGS, informed about the Directions and what they mean for them and their organisation.

Remedial action in relation to actual or potential breaches of the Directions is very much a last resort.

Responsibilities of CEOs

Under the Directions, CEOs of FMA agencies are personally responsible for ensuring strategies are in place to comply with the Directions. CEOs are also responsible for ensuring that all lawyers providing legal services are themselves aware of the Directions and that these lawyers assist the agency to achieve compliance.

However, it is agencies, and their CEOs, rather than their lawyers, upon whom the Directions impose their primary obligations.

The Directions require CEOs of FMA agencies to:

• ensure their agency’s arrangements for legal services, especially any litigation for which the agency is responsible, are handled efficiently and effectively
• put in place appropriate management strategies and practices to achieve compliance with these Directions, and
• report any breaches of the Directions to the Attorney-General or OLSC.

When selecting a legal service provider, an FMA agency is responsible for considering not just their ability to do the job. Agencies should also take into account:

• the ability of the provider to assist the agency in complying with the Directions, and
• the provider’s awareness of and experience with applying the Directions.

OLSC has developed model contractual clauses for use in preparing tenders and contracts for legal services. The clauses are designed to give effect to the obligations of legal service providers to comply with the Legal Services Directions, in particular, to require that tied legal work be performed only by government lawyers.

Enforcement mechanisms

In the event of non-compliance with the Directions, a number of sanctions are available as a last resort.

While it is not a preferred option, the Attorney-General does have the power to take enforcement action under section 55ZG of the Judiciary Act.

It is also worth remembering that FMA agencies are bound by the requirement that all their expenditure accords with Commonwealth policies, including the Directions.

Conclusion

Our very strong desire, and that of the Attorney-General, is for the role of OLSC to be an open and consultative one.

We are keen to ensure that the Attorney-General’s policies and Directions relating to legal services are as well known as possible. They are all on OLSC’s web page at law.gov.au/olsc. If you or your organisation would like them explained further, contact me or Philippa Lynch, who heads up OLSC.

Let me conclude by emphasising the importance of the Legal Services Directions in helping to ensure that:

• the public interest is protected, and
• high standards of ethics and propriety that are demanded of the public sector are met.

Having an appropriate compliance program in place to achieve compliance is at as least important in this area as in other areas of public administration where there are rules and policies that need to be complied with.

It is more important than ever for agencies to have a clear and succinct set of practices and principles for handling legal work if the government’s reforms of the Commonwealth legal services market are to be successfully implemented. In this area, as in others, increased freedom of choice of providers of legal services brings with it additional accountability requirements for agencies and their CEOs.

The Directions, and compliance programs in general, are about good government. They provide a framework by which change can be introduced without sacrificing the standards expected of the public sector.

Our aim is not for the Directions to be an administrative burden. Rather, they are hopefully an essential part of the framework for Commonwealth agencies to successfully managing the conduct of their legal services.

Endnotes

¹ [1973] 2 NSWLR 333

² (1996) 139 ALR 595