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Publications 2
In New South Wales, Australia,
Government has legislated to deal with many of the contractual relationships
involving the public and private sector. It may be of interest to CAPSL members
outside NSW to be aware of some of the NSW initiative.
In that respect, the "Joint
Venture" provisions of PAFA were introduced in 2000.
Their operation has been, in my
opinion, somewhat problematic due to the wording of the original legislative
provisions. The provisions are so widely worded (see text extracted below) that
the wording could potentially catch (and so require Treasurer approval) of
transactions of wide-ranging nature, many of which, due to their relatively
minor size or their being ones involving other government agencies, involved
little or no real risk.
This has been recognised in the way
regulations were used over a number of years to clarify operation of the
provisions.
However, with the ever increasing
interface of Government and the private sector across a myriad of situations
involving shared and or joint activity, the frequency of relevance of the “joint
venture’’ provisions should not be overlooked.
Agency Specific Tailoring of
Joint Venture provisions
Various regulations have been made
over the years to tailor the operation of the Joint Venture provisions to range
of agencies and situations.
These included some which excluded
specific activity from the operation of the Joint Venture provisions, e.g.
Public Authorities (Financial Arrangements) Amendment (Education and Training)
Regulation 2002 and 2003 and the Public Authorities (Financial
Arrangements) Amendment (Department of Agriculture Joint Ventures) Regulation
2003 and the Public Authorities (Financial Arrangements) Amendment
(Excluded Entity) Regulation 2000.
Operation of the Provisions
Relevant provisions of PAFA are
Section 3 Definitions
joint venture
is defined in section 22K.
joint venture arrangements
means arrangements (as defined in section 22J) for or with respect to the
carrying on of a joint venture.
Part 2D Joint
ventures
22J
Definition
In this Part:
arrangement
includes a contract or understanding, and includes the constitution of a body
corporate referred to in section 22K (1) (b).
22K
Meaning of joint venture
(1) In this Act, a reference
to a joint venture is a reference to an activity:
(a) carried on jointly by two
or more persons, whether or not in partnership, or
(b) carried on by a body
corporate formed by two or more persons for the purpose of enabling those
persons to carry on that activity jointly by means of their joint control, or by
means of their ownership of shares in the capital, of that body corporate,
and includes a reference to an
activity or activity of a class prescribed by the regulations as being within
this section, but does not include a reference to an activity or activity of a
class prescribed by the regulations as not being within this section.
(2) An activity may be
regarded as carried on jointly even though some or all of the persons involved
carry on different aspects of the activity.
22L
Restriction on joint ventures
(1)
An authority must not:
(a) enter into an
arrangement with another person for the purpose of carrying on a joint
venture, or
(b) carry on a joint
venture under such an arrangement,
unless the Treasurer has
approved of the arrangement.
(2) The Treasurer’s
approval:
(a) may be given for a
specified arrangement or class of arrangements, and
(b) may be given in respect of
one or more specified authorities or in respect of a specified class of
authorities, and
(c) may be otherwise specific
or may be general, and
(d) may be given on such terms
and subject to such conditions as the Treasurer thinks fit.
(3) The Treasurer’s approval
must be in writing.
(4) The Treasurer’s
approval is required under this section even though the arrangement is, or is
entered into in connection with, financial accommodation authorised under Part
2, a joint financing arrangement authorised under Part 2B or some other
financial arrangement authorised under this Act.
Generalised Definitional
Specification
Following the series of specific
exclusions and tailoring over a number of years, the Public Authorities
(Financial Arrangements) Regulation 2005 (the PAFA Regulation) was amended
in July 2006 by the Public Authorities (Financial Arrangements) Amendment
(Joint Ventures) Regulation 2006. GG No 90 of 7.7.2006, better to specify
the activities that are to be considered "joint ventures" for the purposes of
PAFA (which will accordingly require Treasurer Approval under Part 2 D PAFA) and
to exclude some activity from the operation of the Joint Venture provisions of
PAFA.
The new provisions apply generally
across the board to all NSW "authorities" as defined for PAFA purposes.
Following those changes the
Public Authorities (Financial Arrangements) Regulation 2005 now
contains the following clause 55A (bolding is my emphasis)
55A Joint ventures
(1)
Activities
that are joint ventures
For the purposes of section 22K
of the Act (but subject to subclause (2)), an activity of a commercial nature
that
(a) is entered into for the
purposes of profit or gain, and
(b) is carried on jointly by an authority and another person, and
(c) involves a range of technical, managerial and financial resources or
other assets in the form of jointly controlled operations, assets and
entities (either within or outside of Australia, or both),
is prescribed as an activity
that is within that section.
(2) Excluded activities
For the purposes of section 22K of the Act, the following activities are
prescribed as not being within that section (but only if the activity is carried
on in New
South Wales or
is related to an activity carried on in
New South Wales):
(a)
an activity carried on by 2 or more authorities but with no other person
involved,
(b) an activity carried on by
an authority and an agency of the Commonwealth or of another State or Territory
but with no other person involved.
Treasury Circular
Consistently with the new clause
55A, NSW Treasury Circular (NSW TC 06/18) states that the aim of the amendments
was to narrow the operation of the provisions to include "..State
significant and high risk arrangements..".
The primary thrust of the
amendments seems to be to limit the operation of the provisions to transactions
of a commercial nature involving an intent by an authority to carry on or
conduct the activity jointly with "another person" to make profit or
gain by jointly conducted operations involving technical, managerial
or financial resource or asset contributions of the participating parties.
The provisions are such that the
"Joint Venture" provisions will not normally relate to activities carried on by
two or more NSW PAFA authorities together, provided the activity is carried on
in New South Wales or is
related to an activity carried on in
New South Wales.
What exactly is meant by "
related to an
activity carried on in New South Wales
" in context of any activity outside New South Wales,
remains to be seen.
Activities carried out with the
Commonwealth or another State or Territory entity, if carried on in NSW or if
related to an activity carried on there, would be exempt from report and the
need for Treasurer approval.
NSW Treasury Circular (NSW
TC06/18) outlines of format register of relevant joint ventures involving
contributions over $100,000. “Contribution” is defined in the Treasury Circular
in a way which is capable of including the value of agency / authority staff
time involved in providing resources or services to the joint operation.
These are to be maintained so as
to enable NSW Treasury to keep an eye on estimated contingent liability of State
authorities in respect of relevant joint ventures.
It is interesting that the PAFA
provisions do not talk in terms of anticipated risk or potential exposure which
might flow from the proposed activity but only in terms of "contribution",
though the format register attached to NSW Treasury Circular TC 06/18 plus havoc
on noting contingent liability issues, to the extent that they involve a
contingent liability on the Consolidated Fund.
An Authority's actual power to
enter into a "joint venture" must flow from some power it has apart from PAFA,
such as its own enabling Act.
Commercial + "Jointly” and
“Jointly"
Clause 55A (1) not only requires
that something of a "commercial" intent but twice uses the word "jointly", in
both subparagraphs (b) and (c).
The double use of the word will be
important in determining whether a particular arrangement falls within the
provisions.
It will involve detailed
examination of fact situations to determine whether particular existing or
proposed activity of an authority and another person is commercial activity
carried on "jointly" involving "joint" contributions.
It is not uncommon for state
agencies to be involved in transactions involving development and licensing of
intellectual property.
If the arrangements concerning the
development and licensed use of intellectual property (or even jointly owned
intellectual property being used commercially) involve royalties being paid
those arrangements could that not amount to an arrangement falling within the
provisions?
Indeed, the format register
attached to NSW Treasury Circular TC 06/18 envisages or gives an example of a
joint-venture as one involving "Research".
RESULT
With so much outsourcing,
‘partnering’, collaboration and the like between State Agencies and the private
sector, both within NSW and beyond, in the provision of “services”,
collaborative development of Intellectual property and the like, there would
seem to be a real need for careful consideration of any proposed transactions
before implementation to avoid inadvertent classification as “joint ventures”
which, in light of section 22L(4) PAFA, may, at the same time, also be subject
to PAFA’s “financial accommodation” and “joint financing arrangement”
requirements.
Greg Ross
Special Counsel,
Shaw Reynolds Bowen Gerathy
Lawyers
151 Macquarie Street
SYDNEY NSW 2000
AUSTRALIA
02 9271 3019 / 0413 544 106
greg.ross@srbg.com.au
Nothing in the
above is to be considered or taken as advice as to any particular situation but
is merely a general overview of the operation of relevant PAFA provisions.
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