What happens if a Regulator steps off the cliff?
Regulatory overreach. What happens when a Regulator stretches too far? What are they stretching ‘from’? A post on this site reporting on a recent example of regulatory overreach is: ‘E-Safety Commissioner news -When is a non-notice a notice?’ And here’s another example from 2024, ‘Another fine recovery process hits the dust’.
When a regulator reaches beyond their statutory power, they may face a kind of review process in a tribunal or a court. This is the most common challenge seen in administrative law. However, a claimant may go further and sue the decision-maker in ‘tort’, which allows them to seek payment of money for damage caused to them or their business.
The title of this post has the words ‘Regulatory overreach: How not to fear (it)’. My answer regarding how to avoid fear of overreach is this: don’t do it. If you, as a decision-maker, comply with the law and legal principles, including those of fairness, then you do not need to fear a challenge that is based on unlawfulness. And if you, as a decision-maker, stick to the legislation, with all its lack of emotion and passion. And you avoid an approach which may be seen as subjective, passionate, and even vindictive, you will be on much safer territory when it comes to complying with the statutory goals.
Challenges to the lawfulness of decisions is not uncommon – but a decision-maker who tries hard to stay within the boundaries of the law can stand tall in the face of such challenge. And if mistakes were made, so be it, the government can learn from such processes. However, facing an allegation of a tort is a more serious, and personal, allegation against a decision-maker. This is what happened in the Pan Pharmaceuticals case.
The TGA and the Pan case
In 2003, which is over 20 years ago, a regulator made a decision to suspend a licence of a manufacturing company. This case was significant because it led to a class action alleging not just ‘regulatory overreach’, but an actionable tort.
The regulator was the Therapeutic Goods Administration. The company was Pan Pharmaceuticals. And the group members in the class action totalled 161.
The TGA wrote on their website a summary of the suspension decision:
“The Therapeutic Goods Administration (TGA) has suspended the licence held by Pan Pharmaceuticals Limited of Sydney to manufacture medicines, for a period of six months with effect 28 April 2003, because of serious concerns about the quality and safety of products manufactured by the company.
The suspension follows audits of the company’s manufacturing premises, which revealed widespread and serious deficiencies and failures in the company’s manufacturing and quality control procedures, including the systematic and deliberate manipulation of quality control test data. The licence has been suspended in order to urgently address the safety and quality concerns posed by the multiple manufacturing breaches. Where the quality of a medicine cannot be certain, neither can the safety or effectiveness of that medicine.
Due to the serious and widespread nature of the manufacturing problems identified and following expert advice regarding potential risks, the TGA has taken the decision to recall all batches of medicines manufactured by Pan Pharmaceuticals Ltd since 1 May 2002 and that are being supplied on the Australian market.”
And, elsewhere on the TGA website:
“219 products manufactured and supplied in Australia by Pan Pharmaceuticals Limited have been identified for immediate recall. These products have been cancelled from the Australian Register of Therapeutic Goods for quality and safety reasons. The company has also had its approval to supply its range of export products (approximately 1650) cancelled.”
One website reported that (at the time) this was the biggest recall of health care products ever. In the world. It is not clear how this claim can be made, but it certainly shows the impact of the recall on the industry:
“The largest, quickest and most comprehensive recall of health care products in world history occurred in Australia following an announcement on Monday April 29th by the Therapeutic Goods Administration (TGA) that they had served Pan Pharmaceuticals with an order to suspend its operations for a six month period. The company supplied 75% of Australia’s complementary healthcare products such as nutritional supplements in the form of vitamins, minerals, omega oils, and herbal products.”
A bunch of court cases followed. A class action was launched. It was ultimately settled ‘out of court’.
The court had to approve the settlement, and published a summary of the case with a few observations. But there was no judgment given about the issues in the case.
The reasons for the settlement are not publicly recorded. One could assume that the TGA considered there to be something in the case. Otherwise it would not have settled. One could assume that the complaints considered there to be risks in the case. Otherwise they would not have settled.
What were some of the arguments raised by the complainants in court? What can regulators learn from these arguments?
The court
The court cases had a ‘group’ of over 160 entities, led by Pharm-A-Care Laboratories Pty Ltd. The action against Pan Pharmaceuticals affected their suppliers – that is, their various businesses.
When an administrative decision affects a company’s ‘bottom line’, they may look for ways to recoup, only to discover that they cannot afford the cost and risks of litigation. But here, so many entities were affected that they could manage launching litigation together.
There are several decisions on-line including procedural decisions about what preliminary steps could be taken in the litigation (see the website: austlii.). Some of the decisions are quite technical and procedural. For this post I considered three decisions.
One of the court decisions is Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 5)[2010] FCA 1204 (5 November 2010.)
Another is Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 3) [2010] FCA 361 (16 April 2010).
And Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 4) [2010] FCA 749 (15 July 2010).
Factual allegations hint at overreach (in ‘No 3’ case)
The judge summarised the factual allegations in the “No 3” case as follows.
22. The Applicant, Pharm-A-Care Laboratories Pty Ltd, is a corporation engaged in the business of arranging for the manufacture and supply of therapeutic goods. It seeks to bring the present proceeding as a representative proceeding pursuant to Part IVA of the 1976 Act. Loss is claimed to have been suffered by both the Applicant and other “Group Members” that is said to have been occasioned by regulatory action taken as against Pan Pharmaceuticals Ltd (“Pan Pharmaceuticals”).
23. Pan Pharmaceuticals is a manufacturer of therapeutic goods licensed in accordance with the Therapeutic Goods Act 1989 (Cth) (“Therapeutic Goods Act”). In the financial year ending 30 June 2002 it had approximately 3,000 products listed in the register known as the Australian Register of Therapeutic Products. That register is required to be maintained under s 9A(1) of the Therapeutic Goods Act.
24. It is alleged that from at least 2000 to April 2003 the Therapeutic Goods Administration had established practices and standard operating procedures with respect to various matters including the conduct of audits and the exercise of power under the Therapeutic Goods Act. The Therapeutic Goods Administration is said to be “a division or unit within the Department of Health and Ageing”.
25. On 30 April 2002 and 1 May 2002 the Therapeutic Goods Administration by its officers conducted an audit of the manufacturing processes and premises of Pan Pharmaceuticals. Further audits were undertaken in January and February 2003. A search warrant was executed on 13 February 2003.
26. By 20 March 2003 a decision was made to suspend the licence of Pan Pharmaceuticals with 28 days’ notice. But the Therapeutic Goods Administration did not then inform Pan Pharmaceuticals of this decision.
27. On or about 26-27 March 2003 a meeting was apparently held at which officers of the Therapeutic Goods Administration agreed on what is said to be a “New Strategy” for dealing with Pan Pharmaceuticals.
28. Between 7 and 14 April 2003 a further audit of Pan Pharmaceuticals was undertaken.
29. On 23 April 2003 a variety of decisions and other conduct is said to have taken place. Decisions said to have been taken include a decision to suspend the licence of Pan Pharmaceuticals and a decision to cancel the registration of all therapeutic goods manufactured by Pan Pharmaceuticals.Decisions are also said to have been made to impose a condition on the registration or listing of all products manufactured by Pan Pharmaceuticals. All of what are described as “Pan Sponsors” were said to have been “strongly encourage[d]” to immediately undertake a voluntary safety related recall of all batches of products manufactured since 1 May 2002.
30. The next date which assumes importance is 28 April 2003. On that date a further meeting was held. The Applicant claims that notices were then issued giving effect to the decision to suspend the licence and to issue the cancellation and recall notice. Advertisements were placed in newspapers and on the website of the Therapeutic Goods Administration from 28 April 2003 advising consumers of various matters, including advice that none of the products manufactured by Pan Pharmaceuticals since 1 May 2002 were safe to be consumed. A warning was given to consumers that “consuming any such Pan products would create a risk of death, serious illness or serious injury”.
31. The Applicant claims that the “New Strategy” involved withholding the findings or results of the February and April audits and sought to “go for the jugular” of Pan Pharmaceuticals.
32. Various purposes are said to have motivated those involved in taking such action.
94. (The) “constituent elements of the New Strategy” (elsewhere called an agreed ‘common action’)… (include) a “belief or opinion” which is alleged against each of the individual Respondents. …”. The purposes alleged to have been pursued (by Slater, MacLachlan, Tribe, Fraser and Cesarin) were:
“to injure the business interests of Pan and Selim …”;
“to ensure that Pan did not have a proper opportunity to seek administrative and injunctive relief from the courts…”; and
“to punish Pan and Selim…”
One would not need legal training to think that such purposes were not appropriate for government representatives. Was there a basis for these allegations? In order for them to be articulated, some basis would have been in existence. Whether or not such allegations could have been proven is another question. And the full evidentiary basis at the time the matter was settled is not publicly available information.
Tort of misfeasance in public office
The main claim was the ‘tort of misfeasance in public office’. Essentially this means that a person can sue and recover money from someone who commits this tort.
This tort is a very unusual basis for legal action against a government decision-maker. It requires wrongdoing on the part of the public officer which goes beyond making a mistake.
It’s not enough for the regulator to get the law wrong. It’s not enough for the regulator to make a mistake in their decision making process. The tort requires something intentional before the regulator will have to pay. This means that you can have all sorts of regulatory overreach without committing this tort. You can make unlawful decisions (and this happens all the time), but you can’t be sued.
The judge sets out various explanations of the tort of misfeasance in public office. Really, explaining this tort is worthy of a separate post or two. For the moment some dot points will be enough.
In Porter v OAMPS Ltd [2005] FCA 232, 215 ALR 327 , the judge gave these dot points1:
The elements of the tort of misfeasance in public office are:
- there is a public officer;
- who owes a public duty (including to the plaintiff as a member of the public);
- which the public officer has breached;
- the breach of duty has caused loss or damage to the plaintiff; and
- the public officer breached the duty with the intention of causing harm to the plaintiff or with the knowledge that he or she was acting in excess of his or her powers.
Key players
The judgment lists some key decision-makers2:
- A Director of the Office of Devices, Blood & Tissues, a subunit within the TGA, who was a Delegate of the Secretary for the purposes of s41 of the TG Act;
- The head of the Non-Prescriptions Medicines Branch of the TGA, who was a Delegate of the Secretary for the purposes of ss28, 30 and 30(6) of the TG Act;
- Chief GMP Auditor of the Auditing Section of the TGA; and
- Lead Auditor in respect of Pan.
Torts alleged as more than mere regulatory overreach
As stated above, a regulator might make an unlawful decision, and you might at times call this regulatory overreach. But a tort of misfeasance in public office needs more than mere unlawfulness. In this case, there were several decisions which were claimed to be ‘torts’. (The list of decisions, of course, supported the concept of a ‘strategy’ which was claimed to be unlawful.)
The judgment summarises the allegations of torts in the Pan case as3:
(i) the Pan Suspension Misfeasance alleged re s 41 of the Therapeutic Goods Act on 23 April 2003 to suspend the licence of Pan Pharmaceuticals;
(ii) the Pan Cancellation Misfeasance alleged re s 30(1)(a) of the Therapeutic Goods Act on 23 April 2003 to cancel from the register of therapeutic goods all products manufactured by Pan Pharmaceuticals;
(iii) the Pan Recall Misfeasance alleged re s 30(6) of the Therapeutic Goods Act on 23 April 2003 to require Pan Pharmaceutical to undertake a mandatory safety related consumer level recall of all products manufactured by Pan Pharmaceuticals “since 1 May 2002”;
(iv) the Sponsor Prohibition on Supply Misfeasance alleged re s 28(3) and (4)(a) of the Therapeutic Goods Act on 23 April 2003 to impose a condition on the registration or listing of all products manufactured by Pan Pharmaceuticals that Pan Sponsors cease supply of all products manufactured since 1 May 2002;
(v) the Sponsor Voluntary Recall Misfeasance alleged re 23 April 2003 all Pan Sponsors were “strongly encourage[d]” to immediately undertake a voluntary safety related recall of all batches of products manufactured by Pan Pharmaceuticals since 1 May 2002; and
(vi) the Pan Warnings Direction Misfeasance alleged re 28 April 2003 advertisements and warnings were published in newspapers and on the Therapeutic Goods Administration website.
In addition:
(vii) paragraph [127] alleges that each of the individual Respondents, “agreed on the New Strategy” and paragraph [131] alleges that “each of Slater, MacLachlan, Tribe, Fraser and Cesarin is, and is liable as, a joint tortfeasor in respect of each of the above misfeasances”.
In the alternative:
(viii) an allegation that Respondents “joined in formulating, recommending to, and/or instructing Cesarin, as delegate of the Secretary” the conduct thereafter identified in the Amended Statement of Claim.
Were the pleadings good enough?
Yes, said the judge. The pleadings were good enough for the case to go on.
The government wanted them ‘struck out’. The judge agreed that the pleadings would not win prizes for good drafting4. But they were clear enough for the government officers to know what they had to prepare for. And the allegations were so serious that the case should be allowed to continue5.
What happened next?
His Honour Justice Flick in April 2010 decided that the case was allowed to continue.
But then it settled.
By July 2010 – only three months later, the parties wanted to settle. They had to get court approval for the settlement. Enter the ‘No 4’ decision. Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 4) [2010] FCA 749.
Where is the court’s decision to settle the class action?
This is a trick question. There is no judgment in relation to the class action, because the matter was settled. There is only a decision of the court to approve the settlement.
In November 2010, there was a mediation between the parties.
On 25 March 2011 the case was settled. His Honour Justice Flick concluded the matter by approving the parties’ settlement agreement. This was case ‘No 6’. Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 6) [2011] FCA 277 (25 March 2011). No judgment of the issues. No fanfare.
Reporters noted that the government did not admit wrongdoing, but paid over 67.5 million dollars to the group members.
His Honour did not go into details. He wasn’t writing a judgment on all the issues. However, he did summarise the issues, and he did get to view some background documents ‘in confidence’. Broadly speaking, his Honour had to be satisfied that the settlement had a basis and was fair. He said that the settlement avoided a hearing which would have lasted over seven months! But he formed no conclusion about the claims. Therefore, it will never be known what would have happened if the case had run its course to hearing.
Key issues raised in the pleadings
Key issues are raised in the proceedings, which are briefly summarised in the decision. I comment on these below without the benefit of any of the pleadings or court documents, and without knowledge of any legal advice given to the parties in the case. I comment based on my experience in working with, advising, and training, government decision-makers over many years. Essentially, I see that there are some warning bells that are evident in the publicly available material.
Group think
There is evidence of ‘group think’ in the allegations: ‘a meeting was apparently held at which officers of the Therapeutic Goods Administration agreed on what is said to be a “New Strategy” for dealing with Pan Pharmaceuticals‘. It was alleged that a decision was made in a meeting to ‘go for the jugular’ of Pan. And in order to pursue that strategy, also called an agreed ‘common action’, the various decision-makers took steps (statutory or otherwise).
Whenever I have encountered a form of group decision-making in the face of a statutory regime which gives decision-making power to individuals, a red flag emerges.
Generally speaking, administrative decisions under a statute need to be made by one delegate based on that person’s view about how the statutory tests are met. Decisions made by groups about strategies in the context of significant statutory powers are very risky. They can give rise to an argument that a particular purpose or goal is being established by the ‘regulator’ which replaces the statutory goal which the individual decision-maker is meant to meet.
I do appreciate that government units need to be strategic. However, a problem arises when team meetings seek to replace, or unduly influence, the individual decision-making power of a statutory decision-maker (such as a delegate).
Even where an allegation of misfeasance is unlikely, ‘group decision-making’ about employing a particular strategy contains several risks of unlawfulness. These include the risk that:
- the actual decision-maker cannot be identified;
- a person without a delegation is involved in the decision-making;
- the purported decision-maker may be acting under dictation; and
- the purported decision-maker may not fulfil the statutory requirements as to any state of mind they must reach.
Why did the government settle the case?
For a long time the Commonwealth has been bound by the ‘Model Litigant Policy’ when conducting litigation and settling cases. The policy, as summarised in a 1998 article, has long required that settlements be reasonable. And clearly the Commonwealth would not pay out millions of dollars in settlement of a hopeless case. That would not be a good use of taxpayer funds.
Therefore, one can assume that there was a risk that the Commonwealth would lose the case, and that the payout was a ‘good deal’ for the Commonwealth.
This tells us that the case had legs.
What are the lessons for regulators?
Regulators can avoid overreach by complying with the administrative law rules for decision-making. These are a ‘given’. They include things like checking the statutory words carefully and abiding by them; forming the opinions the statute requires; providing natural justice; and making independent decisions. It is hard enough for decision-makers to follow these established rules, without setting up new purposes for their decision-making.
When regulators set out in groups to ‘get someone’, they should assume that they are stepping into dangerous territory. Their purposes are now going beyond the terms of the statute. The legislation is usually clear about the role of individual decision-makers and the factors they must take into account. Fulfilling the purposes of the Act must be the primary goal of all administrative decision-makers. Purposes which go outside it, such as a purpose to ‘take someone down’, will be hard if not impossible to justify.
Often litigation reveals the tip of the iceberg. It’s not just that something went wrong. It’s that the whole organisational approach is not in line with the law. This is where litigation like Pan Pharmaceuticals provides deep lessons for government agencies. How is it that the claim could even be made? The strategy as claimed was allegedly conducted by several people over several different kinds of statutory decisions. If team meetings were indeed held as claimed, then the practices which enabled them should be revised. All administrators can learn from this.