Australia: Dyson Heydon decision: a refresher on managing conflicts of interest

In brief - Declared or identified conflicts should be recorded in a register

The recent controversy surrounding whether the private activities of John Dyson Heydon AC QC could reasonably give rise to an apprehension that he might not be impartial as a Royal Commissioner of the Royal Commission into Trade Union Governance and Corruption, is a timely reminder for organisations to consider afresh the broad topic of conflict of interest which includes issues of bias.

Reasonable person test critical element of conflicts of interest management

There is almost universal agreement regarding the need to manage conflicts of interest but a more limited understanding as to what constitutes a conflict of interest and how it might be managed. At a macro level, it is generally accepted that, while conflict of interest is not the same thing as corruption, conflicts of interest can directly lead to corrupt activity (see Conflicts of Interest in the Public Sector, Ombudsman Victoria, March 2008). Further, as the recent controversy surrounding the Royal Commission has shown, even an allegation of conflict of interest can have lasting reputational consequences. It is therefore generally accepted that a proper governance framework should be developed, implemented, reviewed and updated to provide confidence in organisational decision-making.

It is not uncommon, however, for decision-makers to find it difficult to identify conflicts of interest at a suitably early stage of the decision-making process. In such situations, it may be helpful, as a first step, to evoke the hypothetical "reasonable person". Understanding the "reasonable person" test is critical for decision-makers because, if the conduct in question does not comfortably pass the reasonable person test, other steps should immediately be taken, consistent with the organisation's conflict of interest protocols.

This article, therefore, aims to flesh out the character of this reasonable person and how the "reasonable person" test forms part of the overall management of conflicts of interest.

Before addressing these issues, the first step is to consider what may constitute a conflict of interest.

Conflicts of interest in commercial and public spheres regulated by law

There is a variety of expressions used to convey the broad concept of a "conflict of interest". These include concepts of "lack of impartiality" and "undue influence". However, there is no strict definition that applies to all circumstances. This is because the existence of, or potential for, conflicts of interest is measured against the surrounding factual circumstances.

Nevertheless, the law does regulate certain behaviours that could otherwise result in conflicts of interest. Familiar examples include provisions of the Corporations Act 2001 (Cth) regarding improper use of one's position to gain an advantage and the obligation placed on directors to notify the remainder of the Board of material personal interests in a matter (refer to sections 182, 183 and 192). Another well-known example is the legal duty imposed upon a fiduciary (such as a lawyer) to act solely in another party's (for example, a client's) interest such that the fiduciary is not permitted to profit from their relationship with that other party without the other party's express informed consent.

In the public sphere, as well, duties of public officers to avoid conflicts of interest are often enshrined in legislation. Hence, the common formulation that a holder of a public office must "act impartially and in the public interest". (See, for example, section 110 of the Occupational Licensing National Law 2010 (NSW).)

Protocols should address actual, potential and perceived conflicts

From a governance perspective, a broad definition should be adopted in order to best capture activities and behaviours that are antithetical to good governance. For example, the Law Society of NSW provides that a conflict of interest involves serving, or attempting to serve, two or more interests or duties which are not compatible. (See V.P. Shirvington, Ethics and Conflicts of Interest, The Law Society of New South Wales, 2006.)

The broad concept of conflict of interest can then be sub-divided into three categories, which should be addressed in any conflict of interest protocols. Those categories are:

  • "actual conflict of interest" (where a real or tangible conflict exists)
  • "potential conflict of interest" (where circumstances arise which could give rise to a conflict)
  • "perceived conflict of interest" (where a third party reasonably forms the view that a conflict exists or could arise)

It is also generally accepted that, to be actionable, a conflict must meet a threshold "materiality" test, although the bar is generally set quite low. As long as the issue or interest is more than a remote or insubstantial one, then it is one that needs to be captured by conflict of interest protocols.

It is, of course, the case that it may not be possible to avoid all situations where conflicts of interest could arise. This is particularly the case in niche industries or when operating in a small geographical area. Processes for managing conflicts of interest should, therefore, be as much a focus of an organisation as the initial identification of the conflicts.

Apply reasonable person test to assist with identifying conflicts

A common approach to both identifying and managing conflicts is to list certain types of conduct which are prohibited unless consented to at a senior level of the organisation. Ideally, any such list would form part of the organisation's conflict of interest protocols and be cross-referenced to other appropriate policies, such as a sanctions and penalties policy and a conflict of interest register. Examples may include:

  • having a direct financial interest in a competitor
  • accepting gifts, benefits and hospitality from suppliers above a nominal value
  • contracting with an entity with which you have a secondary employment arrangement

Of course, many conflicts of interest will not fit neatly within the parameters of any listed examples. Thus, one commonly recommended approach to assessing whether decision-making is tainted by any conflict of interest is to ask the theoretical question: how would a reasonable person view this conduct?

This question is analogous to the test used by courts to examine allegations of bias and, as adopted by Royal Commissioner Heydon in his Reasons for ruling on disqualification applications, is that "...a judge is disqualified if a fair-minded lay observer might reasonably apprehend that the judge might not bring an impartial mind to the resolution of the question the judge is required to decide." ( Ebner v Official Trustee in Bankruptcy [2000] HCA 63 at [6].) The question for the fair-minded lay observer (or reasonable person) is said to be largely a factual one, albeit one that must be considered in the legal, statutory and factual contexts in which the decision is made. (See Isbester v Knox City Council [2015] HCA 20.)

I note here for completeness that the application of a judicial bias test to decision-makers other than judges must necessarily recognise and accommodate differences between court proceedings and other kinds of decision-making and, consequently, the content of the test may differ (Isbester v Knox City Council at [22]). So, for example, the test may be re-formulated to ask whether a reasonable person may apprehend that a decision-maker lacks impartiality as a consequence of his or her material personal interests in the matter being decided.

A reasonable person considers all circumstances before judging

So what, then, is the mindset of this reasonable person? This person has certain qualities. The reasonable person, among other things, does not make snap judgments ( Johnson v Johnson [2000] HCA 48 at [14]) and is informed by their training and experience (see Reasons for ruling on disqualification applications, [40] at page 14). He or she also knows all the relevant circumstances of the matter and, importantly, reserves judgment until all circumstances are considered (ibid [73] at page 23).

The reasonable person does not assume that a decision-maker is devoid of life experiences and personal view points. Instead, the reasonable person understands that a decision-maker is entitled to be predisposed to a view, as long as he or she does not prejudge the matter so as to be incapable of being swayed by evidence or judgment. Royal Commissioner Heydon acknowledged this point and stated: "If it was enough to disqualify a person from a role because the fair-minded observer might conclude that the person held political views, there would be no-one who could occupy the role." (Ibid [76] at page 24.) This is consistent with the views expressed by Justices Gleeson and Gummow quoted earlier in Royal Commissioner Heydon's reasons that:

Decision-makers, including judicial decision-makers, sometimes approach their task with a tendency of mind, or predisposition, sometimes one that has been publicly expressed, without being accused or suspected of bias. The question is not whether a decision-maker's mind is blank; it is whether it is open to persuasion. ... Natural justice does not require the absence of any predisposition or inclination for or against an argument or conclusion... ( Minister for Immigration v Jia Legeng [2001] HCA 17 at [71] - [72])

Finally, Royal Commissioner Heydon adopted a three-step test from Justice Gageler in an earlier decision (Isbester v Knox City Council at [59]), as follows:

  1. Identify the factor which might cause a question to be resolved otherwise than as a result of a neutral evaluation of the merits.
  2. Articulate how the identified factor might cause that deviation from a neutral evaluation of the merits.
  3. Consider the reasonableness of the apprehension of that deviation being caused by that factor in that way.

It is in connection with step three that the surrounding circumstances, including adherence to existing conflict of interest protocols, are particularly relevant. So, for example, if an organisation's conflict of interest protocols requires a decision-maker to:

  • declare any relevant personal relationship which might impact a business decision (such as friends/associates or family members who have expressed interest in tendering to supply works or services)
  • decline any gifts or hospitality above a specified or nominal value (or at least record receipt of the item where it would cause offence to decline it)
  • register financial or economic interests, or political, personal or professional affiliations, relevant to the industry or sector in which they operate
  • involve a third party to participate in, oversee or review the decision-making process where the decision-maker is concerned that his or her private interests could be viewed as incompatible with the decision to be made, and/or
  • remove themselves from further consideration of a matter where the issue cannot otherwise be satisfactorily resolved,

then evidence as to whether or not the decision-maker has turned his or her mind to compliance with these requirements is highly relevant. The reasonable person would also consider the decision-maker's consideration and compliance with all other organisational procedures, processes and codes of conduct and with their terms and conditions of employment (which may contain relevant controls or restrictions, such as restrictions on secondary employment).

Conflict of interest register may provide defence against lack of impartiality claims

Best practice dictates that an organisation records in a conflict of interest register all declared or identified conflicts of interest (whether existing, perceived or potential) and how they have been managed. The records should cover in suitable detail the period from when the conflict of interest first became known until the issue was resolved. Ideally an individual management plan should be prepared for each conflict of interest. Such records can provide the best defence to an argument that a reasonable person might reasonably apprehend that a decision-maker lacks impartiality.

There is another equally good reason as to why a conflict of interest register should be kept: it provides valuable data regarding the ethical issues that are faced by decision-makers in an organisation. Such data should be regularly reviewed, and if trends are identified, the organisation is then suitably armed to update its policies and decision-making processes. Finally, of course, by following these suggested processes in a consistent fashion, an organisation will be best positioned to prevent decisions later being challenged and, importantly, to grow a strong organisational culture.

Victoria Hawkins
Corporate advisory
Colin Biggers & Paisley

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.