National Competition Policy Review of the Professional Standards Act 1994


1. Introduction

1.1 The Professional Standards Act 1994
1.1.1 Consumers use a variety of services provided by a range of occupational groups. There is generally an expectation that services supplied by these groups will be accessible, affordable and of a high standard. When these expectations are not met, there is a further expectation that there will be somewhere for consumers to seek redress.
1.1.2 Over time, members of occupational groups (eg. solicitors, accountants) were increasingly seen as having financial substance and holding professional indemnity insurance, and there was a rise in the number of actions taken against them and in the level of compensation awarded. As a result, premiums for insurance rose steeply. For many members of occupational groups, insurance became unavailable or unaffordable. This affected consumers who could be awarded unlimited damages but then have no real prospect of recovery.
1.1.3 The Professional Standards Act, in the words of its long title, is:

An Act to provide for the limitation of liability of members of occupational associations in certain circumstances and to facilitate improvement in the standards of service provided by those members.

1.1.5 The Act established the Professional Standards Council and enables the Council to approve schemes for limiting the occupational liability of persons who are members of an occupational association. Such schemes are legally binding and require members to have sufficient insurance and business assets to pay consumers for damages awarded as a result of a member’s wrongdoing. Additionally, the occupational association must implement a risk management program, including risk management training for members, and it must establish mechanisms for dealing with consumer complaints and for disciplining members. In turn, the Act allows schemes to include a limit (or cap) on the amount of damages that may be awarded against members.

1.1.6 To date, schemes have been approved for a range of occupational groups (eg. solicitors, accountants). The level of the cap on liability varies from scheme to scheme. Appendix A sets out information in relation to schemes currently in force, including the names of the occupational associations, caps on liability under the schemes, whether the schemes apply to all members of an occupational association or only to certain classes of members, and whether individuals have been exempted from the schemes.
1.1.7 The Professional Standards Act is general in nature in that it may potentially apply to any occupational association. There are also Acts, such as the Legal Profession Act 1987, that regulate particular occupations or professions.

1.2 The need for review of the Act

1.2.1 There are two reasons why the Professional Standards Act needs to be reviewed. First, the NSW Government is required to undertake a review of the Act as part of its obligations under the Competition Principles Agreement, which was endorsed by the Council of Australian Governments in April 1995. The review under National Competition Policy has two aims:

• to remove or improve regulatory restrictions to competition which harbour inefficiencies and unnecessary costs to the economy; and
• to ensure that competitive pressures in the economy are as strong as possible to provide a spur to innovation, lower costs and higher incomes for Australians.

1.3 Who does this review affect?

1.3.1 The Professional Standards Act potentially affects a wide range of occupational groups. Consequently, this review is likely to be of interest to a wide range of people. Despite the term “professional” in the Act’s title, the Act applies to any occupational group, which is defined to include a professional or a trade group.
1.3.2 The review will be of particular interest to:

• members of schemes approved under the Act;
• members of professions generally;
• members of other occupational groups;
• the insurance industry;
• the business community;
• users of services provided by professional and other occupational groups;
• consumers generally;
• governments; and
• researchers, academics and consultants.