PUBLIC LAW II 2010/11 Part I: Contemporary techniques of governance A. Regulation and Governance (continued x 2) 4.

Regulatory Agencies process and accountability The Ofdog model To recap, we noted in the previous lecture how Conservative privatisation policies fed regulation in the guise of the Ofdog model :


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A single, independent regulatory agency, headed by a Director-General, for each industry o So ultimately, the bulk of the regulatory power vested in the DG Within a general regulatory framework provided by the privatisation statute, practical operations predicated on a system of licensing o E.g. to be a water supplied, you had to have a license from the DG which of course would have T s and C s which could have regulatory requirements written into them. Control of the dominant firm via a price-cap formula, intended to incentivise greater efficiency [RPI-X] The DGs as part of a regulatory network, the competition authorities included Latterly, emphasis on quality regulation as part of the economic regulation o Needed as the price-cap was shown to have a potentially adverse effect.

This sort of institutional architecture of regulation came to be heavily criticised especially by public lawyers. The chief concern was this idea of giving these powers to an individual (the DG) as these legal powers were very significant indeed. E.g. the DG f telecommunications would decide which companies could enter the marketplace, the price-cap on the dominant firm, how much new entrants would pay to enter etc Significant decisions affecting both consumers and commercial enterprises.

The argument was that they were given a huge amount of discretion and there were many legitimacy issues stemming from giving such a large amount of power to an individual. It allows for very personalised forms of regulation and also, a real lack of transparency in much of the decision making. The statutory framework set up under the conservatives was determinably open-ended or vague. It is quite clear that the conservatives, though moving to an American model of private ownership with regulation, were keen to avoid the elements of heavy detailed framework which came with much litigation said to have characterised the American system. Sources of legitimacy for agency action 1

Concerns about a lack of procedural safeguards and of insufficient accountability in the case of the Ofdogs spurred a search for agency legitimacy - as expressed in terms of the core values which agencies need to satisfy in order to merit and receive public approval. Indeed, this became a leitmotif of UK public law in the 1990s. An important link was being made with regulatory effectiveness: many regulators operate without sufficient legitimacy to do their job with full confidence, weakening the regulatory environment and prompting agencies to operate defensively .1 A standard template was produced for the purposes of agency design and evaluation:
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Legislative mandate Expertise Efficiency and effectiveness Due process Accountability

Legislative mandate So agencies were required to have a clear and understandable legislative mandate. The idea here of course is that an agency needs a clear purpose which should be set out in statute and that it should be given clear powers to perform that mandate. Operation of this criteria shifted with NL; the C s centred on price control and this was seen to be too narrow. Under NL, these mandates increased for virtually all agencies to take into account social and environmental aims. Of course, with more aims, come more competing interests and thus, more agency discretion has is built into the system. Expertise Goes back to the argument that we have agencies because they re meant to have expertise in the relevant field. So it has to be ensured that the expertise of the agency does indeed cover the area they re regulating. Efficiency and effectiveness Efficiency of the agency itself but also, of the regulated sector which the agencyis regulating. Note that both of these can be very difficult to assess: E.g. with race discrimination, it s self-evident that race discrimination has not been eradicated. Does that mean that a regulator such as the commission for racial equality was ineffective?The only suitable comparator would be a parallel world where the commission for racial equality was not around in the first place.

Constitutional Reform Centre, µRegulatory Agencies in the United Kingdom¶ (1991) 44 Parl. Affairs 504, 507.



Due process This refers to the procedures a regulatory agency undertakes before it makes decisions. We would expect that before a regulatory agency imposes a set of requirements on that enterprise, that the enterprise has a right to be heard etc... We d expect also there d be opportunities for consultation among wider interest groups. A major criticisms of the Ofdogs is that while they would consult with the regulated enterprise, there were no clear legal requirements asking them to open the decision-making process more generally to other sectors. Accountability What matters is the collective justificatory power of the arguments that can be made under the five headings. Strong claims across the board point to regulation that deserves support, generally weak claims indicate a low capacity to justify It can [also] be asked whether performance on one of the five fronts can be improved significantly without material loss on another. (This kind of discussion is the meat and drink of most regulatory debates.) Designers or reformers of regulations should bear in mind, however, that performance under some headings may be linked, under certain conditions, to performance under other headings Thus, if a regulatory regime is perceived by the public to be unfair, the regulator may enjoy low levels of co-operation and this may impede performance in satisfying the mandate Whatever the philosophy of the regulatory designer or reformer, that individual or institution should be wary of endorsing regulatory designs that score conspicuously badly on any of the five tests How, then, can legitimacy be improved in the real world? The answer is by taking steps to improve ratings according to the five tests.2 So this template was developed really in response to what was seen as perceived defects in the C s Ofdog model. NL responded to this and came up with (described by one commentator as) a new regulatory model for a NL government; some of which we ve touched on already. New Labour: new regulatory model 3

Regulatory commission o A decisive move away from giving powers to an individual DG. We now have regulation by commission/committee.


R. Baldwin and M. Cave, Understanding Regulation (Oxford: OUP, 1999).

T. Prosser, µThe Powers and Accountability of Agencies and Regulators¶, in D. Feldman (ed.), English Public Law (Oxford: OUP) 2ndedn, 2009.



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E.g. Equalities and HR commission or FSA, they have a chair and director but also, a series of commissioners who have an ultimate collective responsibility for what the agency does. So this collective decision making provides a series of internal checks and balances. o Also, the idea of a regulatory commission is meant to balance out the increase in discretion accompanying wider duties. Clarification of key duties, with priority given to consumers and competition, and injection of social and environmental objectives (beginning with Utilities Act 2000). Enhanced enforcement powers ( wider and deeper ) (underwritten in RESA 2008)) Heightened process requirements, such as transparency Expanded ex post facto forms of accountability ( answerability )

So on the one hand, we have more powerful agencies, typically given wider discretion over a larger number of areas. On the other hand, they have more duties to increase accountability. This culminates in An age of super-agencies , not least: Financial Services Authority (FSA), Office of Communications (OFCOM), Equality and Human Rights Commission (EHR). In part, this seems to be largely about the nature of certain institutional structures. Where they are similar, the thought is that by combining them, there will be economies of scale, less institutional fragmentation, and also, cross learning . With other areas though, technical developments seem to be the driving force. E.g. with the FSA, the idea was that companies tended to be regulated by a number of different bodies so the idea was the regulatory agency should encompass all that. o E.g. in OFCOM, we saw technologies like broadband and communication coming together. o Or with human rights and equality, they often played out together, especially with the phenomena of multiple discrimination, where an individual is discriminated against on multiple grounds.


So there are ideas of institutional design but also, broader market and policy views. Like most things however, once you respond to one set of criticism, you open up another We start to see concerns expressed of these super agencies as sprawling empires;losing responsiveness, losing focus and in the case of the Equality and Human Rights Commissionin particular, a serious concern about the internal governance arrangements of this sprawling empire(resulting in significant no of commissioners in the EHRC resigning).


So there s a need to think about a better design. Do we go back towards smaller and more compact agencies or stick with super agencies? Again, it will be interesting to see how the coalition responds. Thislinks in to the promised bonfire of the quangos. Accountability issues We re talking about the need for regulatory agencies to justify themselves. To be subject to criticism and perhaps to be sanctioned or allow for remedies against them. (Public criticism, legal sanction etc...) There s always a question of who regulates the regulators (and this becomes more important the more power they take on) House of Lords Select Committee on the Constitution, The Regulatory State: Ensuring its accountability, 6th Report of Session 2003-04 They did a major report and came up with a nice scheme of regulatory accountability Sets out the different lines/channels of accountability to which these agencies may be subject. So there s this 360 degree view of accountability : see diagram below o Typically has the more formal channels on top (parliament, ministers, courts) and the less formal forms (typically through pressure from various groups) of accountability on the bottom (consumers and interests groups) So the argument is that there are many eyes looking over the shoulders of the regulatory agencies Read up in textbook


Notes in some particular techniques: Audit: National Audit Office and Public Accounts Committee This has been quite powerful asthe National Audit has the ability to audit accounts and all the workings of regulatory agencies The National audit office then reports to the Public accounts committee in the HC which is probably the most powerful select committee. Regulators can then be summoned in and questions on their effectiveness.

Select Committees: for example House of Commons Business, Innovation and Skills Committee These select committees are set up on a departmental basis Different select committees will also be scrutinising those regulatory agencies subject to ministerial powers of direction in their relevant department. o E.g. a select committee shadowing a business department for instance would also be shadowing a number of regulatory agencies in that area. Typically the coverage here is very uneven (with regards to how closely they monitor the relevant regulatory agency). So much depends on quality of select committee and time and resource constraints on that select committee.




So we see that in terms of scrutiny by parliament, it is done in a very piecemeal, ad hoc manner.

Legal Accountability: Adjudication: Judicial supervision deference After all the reforms, when talking about regulatory agencies, we are not dealing mainly with statutory agencies, so the general powers of the courts in terms of HR will apply. There are potentially issues of jurisdiction with regards to self-regulation but generally, the courts have taken an expansive approach in the last 20 years(to JR more generally even) and brought them within the ambit of HR. Sogenerally we can say that regulatory agencies are subject to supervision by the administrative court



When we think about judicial supervision and JR, we need to think about the different sources of law which may be applied: CL ECHR Some agencies may find themselves susceptible to challenge on the grounds of convention rights. E.g. violation of art. 6 is the most obvious example But more generally, an agency which affects people s property rights for example needs to consider the jurisprudence on peaceful enjoyment of possessions under Protocol 1 Of a media regulator would have to be wary of art. 10 Regulatory agencies will be subject to all the CL tests developed over the years

EU law -


This is of particular importance in many spheres of commercial regulation because of the single market. Many powers of the regulatory agencies may be derived from EU law and equally, EU law gives us a set of general principles of JR which our domestic courts are required to apply in domestic legal proceedings. E.g., if a regulator is operating an EU law source regime, you might have a challenge on grounds of proportionality. So you ve got lots of possibilities and lots of potential here.

Intensity of Review How far are the courts going to push in this type of area? Clearly there are many different kinds of regulated sectors, so you can t generalise across the whole field. But there are going 6

to be arguments here about regulatory expertise, complexity, technicalities, that are going to be raised, with the result that it is often suggested that the courts should take a deferential or a respectful approach to regulatory decision making. Traditionally, if we take them at one at atime, at CL, you ll see that for many years, the CL had a really hands of approach to JR of agencies. Parliament had set them up as individual centres of excellence the relevant fieldsand so, courts wouldn t push them hard Indeed, it is still the case that a challenge to an agency s decision on substantive grounds (e.g. Wednesbury in its substantive sense) is hard to win. CL courts have however become much more interested in procedural forms of review. And there have been a number of significant decisions in this area in the last 10 years or so. Note how the theme of respect or deference not only infuses the CL but can also be seen both in the realms of EU law and ECHR rights. Not least in the sense of proportionality testing. We see courts giving the agencies a significant margin of appreciation when they apply the proportionality test. In tutorials think about whether the approach developed by courts here is appropriate. Illustrative Cases: R v Panel of Take-overs and Mergers, ex p. Datafinplc [1987] QB 815 (self-regulators susceptible to JR) Held, that the supervisory jurisdiction of the High Court was adaptable and could be extended to any body which performed or operated as an integral part of a system which performed public law duties, which was supported by public law sanctions and which was under an obligation to act judicially, but whose source of power was not simply the consent of those over whom it exercised that power; that although the panel purported to be part of a system of self-regulation and to derive its power solely from the consent of those whom its decisions affected, it was in fact operating as an integral part of a governmental framework for the regulation of financial activity in the City of London, was supported by a periphery of statutory powers and penalties, and was under a duty in exercising what amounted to public powers to act judicially; that, therefore, the court had jurisdiction to review the panel's decision to dismiss the applicants' complaint; but that since, on the facts, there were no grounds for interfering with the panel's decision, the court would decline to intervene South Yorkshire Transport v Monopolies and Mergers Commission [1993] 1 WLR 23. (example of substantive review failing) Here, the applicant acquired another bus company giving it control of all buses in 1.65% of the UK. The Secretary of State for Trade and Industry referred this to the Monopolies and Merger Commission; the jurisdictional precondition here was that the reference area 7

shouldbe a substantial part of the UK . They decided substantial meant more than nominal and accordingly ordered the applicant to divest themselves of their acquisition. On appeal at first instance and in the CA, judgment was given for the applicant as the reference area was too small to constitute a substantial part of the UK HL reversed this and restored the decision of the commission. substantial part connoted a part of such size, character and importance as to make it worth consideration for the purposes of the Act; that the commission had not misdirected itself and in the circumstances had rightly concluded that the reference area was sufficiently worthy of consideration R (Eisai Ltd) v National Institute for Health and Clinical Excellence [2008] EWCA Civ 438; (successful process review) During a consultation period, the applicant s were given a read only file showing the model the commission had used to reach certain conclusions. They requested a fully executable file and were refused. Appeal allowed The institute was subject to the general principles of procedural fairness in relation to the appraisal process and, in particular, had to act fairly in the consultation exercise. In conducting the appraisal process, the institute was discharging an important public function which engaged a strong public interest. The institute accepted the need for a very high degree of transparency in the process, with an exceptional degree of disclosure and consultation. That was the context within which the non-disclosure of the fully executable model had to be assessed. The importance of the model within the appraisal process was not in doubt. It was central to the appraisal committee's determination of a drug's cost-effectiveness. The robustness or reliability of the model was therefore a key question. For the thorough testing of reliability, a fully executable version was required R (Great North Eastern Railway Ltd) v Rail Regulator [2006] EWHC 1942 (An example of substantive review failing) R's approach was consistent with the Directive and the Regulations purposively construed as a whole. The underlying thrust of the Directive as implemented by the Regulations was that would-be operators who were able to pay for the costs that would be directly incurred as a result of their operations should be encouraged to use the rail infrastructure, not discouraged from using it. A very wide discretion was afforded to R as to the manner in which it dealt with applications for approval of directions in relation to track access agreements. Marcic v Thames Water Utilities Ltd [2002] EWCA Civ 64; [2003] UKHL 66. (Substantive review failing under both CL and HRA proportionality) Held, allowing that appeal, that a sewerage undertaker was subject to an elaborate scheme of regulation under the 1991 Act which included an independent regulator with powers of enforcement whose decisions were subject to judicial review; that the statutory scheme provided a procedure for making complaints to the regulator which the plaintiff had chosen 8

not to pursue; that a balance had to be struck between the interests of a person subject to sewer flooding and the interests of those, including other customers of the sewerage undertaker, who would have to finance the cost of constructing more sewers; that such a balancing exercise was better undertaken by an industry regulator than a court; that the common law should not impose on a sewerage undertaker obligations which would be inconsistent with the statutory scheme since that would run counter to the intention of Parliament; that a cause of action in nuisance would be inconsistent with the statutory scheme; that, given the need to balance competing interests and the availability of judicial review, the statutory scheme was compatible with the plaintiff's rights under the Convention; and that, accordingly, the plaintiff could sustain neither a claim in nuisance against the defendant nor a claim under the Human Rights Act 1998 R (Mabanaft Ltd) v Secretary of State for Energy and Climate Change [2009] EWCA Civ 224 (Substantive review failing at EU) The terms of the Directive showed that the overriding concern of the Community legislature was the desire to have a high level of security in the supply of oil and oil products within the Member States. The first sentence of art.3(2) provided that Member States had to ensure that fair and non-discriminatory conditions applied in their stockholding arrangements. Those conditions included conditions as to the allocation of the cost burden of holding stocks. The obligation imposed by art.3(2) conferred freedom on the Member States to choose the method by which they would comply with their obligations under the Directive. It followed that under Community law the court had to allow the secretary of state a large measure of discretion in choosing an appropriate method. M's contention that the secretary of state had to obtain so far as possible actual costs was at odds with art.3(2). Article 3(2) gave the Member State the freedom to decide how to implement compulsory stocking obligations and it was inconsistent with that freedom to hold that a Member State could in fact only exercise that option in one way. The