Golden International Trading Pty Ltd v Independent Pricing and Regulatory Tribunal

[2018] NSWCATAD 189

Civil and Administrative Tribunal

New South Wales

Medium Neutral Citation:	Golden International Trading Pty Ltd v Independent Pricing and Regulatory Tribunal [2018] NSWCATAD 189
Hearing dates:	6 August 2018
Date of orders:	21 August 2018
Decision date:	21 August 2018
Jurisdiction:	Administrative and Equal Opportunity Division
Before:	N Isenberg, Senior Member
Decision:	The decision under review is affirmed.
Catchwords:	ADMINISTRATIVE LAW – merits review – failure to conduct audit as required – cancellation of accreditation – appropriate sanction
Legislation Cited:	Electricity Supply Act 1995
Category:	Principal judgment
Parties:	Golden International Trading Pty Ltd (Applicant) Independent Pricing and Regulatory Tribunal (Respondent)
Representation:	Applicant: Ms K Ye, Public Officer of the Applicant Respondent: Crown Solicitor’s Office
File Number(s):	2018/00129506
Publication restriction:	Nil

REASONS FOR DECISION

Background

1. The Applicant, Golden International Trading Pty Ltd (Golden), was an Accredited Certificate Provider (ACP) under the NSW Energy Savings Scheme (the Scheme) in relation to its Energy Efficient Lighting Upgrade accreditation. When businesses or householders reduce their energy use through the acquisition of energy saving devices, an ACP may be able to create energy savings certificates (ESCs) in relation to energy the project saves. Electricity retailers, who are mandatory Scheme participants, then buy the ESCs to meet their own legislated targets.

2. The Respondent, the Independent Pricing and Regulatory Tribunal, is the Scheme Administrator: s 153 of the Electricity Supply Act 1995 (the Act).

3. The Act, the Electricity Supply (General) Regulation 2014 (Regulation) and the Energy Savings Scheme Rule of 2009 (Rule) establish the Scheme. Under s 137(2) of the Act, the Scheme Administrator may cancel an accreditation on such grounds as may be specified in the Regulation. Clause 42(1)(c) of the Regulation relevantly provides that the Scheme Administrator may cancel an ACP's accreditation on the grounds that the Scheme Administrator is satisfied that the person has contravened a condition to which the accreditation is subject.

4. Clause 56 of the Regulation empowers the Scheme Administrator to conduct audits of ACPs, or require audits to be conducted, at any time.

5. The delegate of the Scheme Administrator (the Scheme Administrator) required Golden to conduct an audit, and when it failed to comply, cancelled Golden’s accreditation. That decision was affirmed on internal review. Golden now seeks review of that decision pursuant to s 171(2)(b) of the Act.

Was Golden obliged to undertake an audit?

6. The Scheme Administrator has the power to conduct an audit, or require an audit to be conducted in relation to, amongst other things, an ACP's eligibility for accreditation, and its compliance with any conditions of accreditation: s. 155(1) the Act, and cl 56(1) of the Regulation. The purpose of the audit may be to substantiate information provided to the Scheme Administrator or to determine whether the ACP has complied with the Act, the Regulation, Rule and conditions of accreditation: cl 56(2) of the Regulation.

7. The adequacy of its recordkeeping arrangements is a factor in an ACP's eligibility for accreditation: s 135 of the Act and cl 38 of the Regulation.

8. In addition to the statutory obligations, by paragraph 7 of its Accreditation Notice dated 7 April 2017, Golden was required, as a condition of its accreditation, to undergo an audit, relevantly, at any time it was required by the Scheme Administrator: paragraph 7(b) of the Accreditation Notice.

9. Further, Golden was obliged, as a condition of its accreditation, to provide any information and assistance necessary to comply with such an audit: cl 47 of the Regulation and paragraph 10(a) of the Accreditation Notice.

10. Golden disputed the Scheme Administrator's authority to require the audit. Golden contended that the audit was not justified. From the Respondent’s submissions and confirmed by Ms Ye, Golden’s Public Officer, Golden had undertaken little work in relation to the scheme since it received accreditation in March 2014. Golden, as part of its negotiations to avoid the audit suggested that it would surrender its unaudited ESCs.

11. The Scheme Administrator made detailed submissions about the process by which Golden had been identified as an ACP to undergo an audit. Such submissions were in my view unnecessary. Plainly, paragraph 7(b) of the Accreditation Notice provided for the Scheme Administrator to require audits to be conducted at any time. In addition, cl 56 of the Regulation provided for the Scheme Administrator to require audits from time to time. Golden was also required, as a condition of its accreditation, to render necessary assistance in relation to audits conducted under cl 56 of the Regulation. The Scheme Administrator’s reasons for requiring the audit are not a matter for this Tribunal.

Was Golden properly required to undertake an audit?

12. By written notice dated 19 July 2017 the Scheme Administrator required Golden to undergo an audit by 18 September 2017 (the written notice). The written notice referred to cl 56(1) of the Regulation and paragraph 7(b) of the Accreditation Notice. It provided an outline of the scope of the audit and specified that the detailed audit scope must be approved by the Scheme Administrator and that the auditor must be engaged from the panel of approved auditors: per cl 56(3)(b) of the Regulation.

Did Golden fail to undertake an audit, as required?

13. On receipt of the written notice, Golden requested not to be required to undergo the audit and attempted to negotiate with the Scheme Administrator. It said it had not engaged an auditor because its “volume [of business was] too small”. On 8 August 2017 the Scheme Administrator refused this request and explained that the audit would also assess Golden's record-keeping to determine its compliance with the legislative scheme and consequently Golden’s ongoing eligibility for accreditation, amongst other things. On 5 September 2017 Golden advised that it would be in a position to have the audit completed by 15 December 2017, and the Scheme Administrator consented to an extension of time to that date. Golden confirmed that it would engage an auditor to conduct the audit by that time. On 21 September 2017 Golden wrote to the Scheme Administrator advising that it would make an appointment with a panel auditor and complete the audit “as requested”.

14. The Scheme Administrator sent a reminder to Golden on 7 November 2017, noting that the detailed scope of the audit had not yet been provided. That day Golden said it would ‘chase up’. On 13 November 2017 Golden informed the Scheme Administrator that quotes from auditors were “far beyond what we believe reasonable …”, and asked if the audit could be postponed. In support of that request, Golden forwarded some documents to the Scheme Administrator such as its certificate of currency for its insurance and its contractor licence under the Home Building Act 1989.

15. On 27 November 2017 Golden was warned that failure to complete the audit by 15 December 2017 was a breach of an accreditation condition and could lead to cancellation of Golden’s accreditation.

16. On 29 November 2017 Golden asserted that it had made genuine efforts to engage an auditor, and reiterated that it was too expensive to conduct an audit. It claimed to have already undertaken a pre-registration ‘audit’. On 1 December 2017 Golden was reminded of the need to comply with the written notice. On 14 December 2017, Golden provided some further documents and stated that, it considered that the audit was not justified.

17. At the hearing and in written submissions on behalf of Golden, Ms Ye asserted that Golden had complied with its obligations by providing the Scheme Administrator with various business documents, having conducted an ‘internal audit’. Although the Scheme Administrator submitted that Golden did not forward the documents as evidence of an ‘internal audit’, but rather in support of its request not to be required to conduct the audit, it remains, that for whatever purpose they were provided, they did not meet the requirements for an audit, namely, one conducted by a panel auditor in accordance with the scope approved by the Scheme Administrator.

18. The Scheme Administrator submitted that, in any event, far from providing evidence of robust record-keeping practice, the company failed to include a number of documents that it was required to maintain in order to show it met its ongoing obligations. It is not for me to comment in this regard, because, provision of the documents did not amount to the required audit.

19. Ms Ye contended at the hearing that it was reasonable for Golden to refuse to undertake the audit on the basis that it considered the audit to be too expensive. Ms Ye referred to the Scheme Administrator, when originally accrediting Golden, had done so on payment of a relatively modest fee and production of limited information. The Tribunal rejects this contention; Golden should have provided for this as a business expense, given that the Act, the Regulation and Golden’s Accreditation Notice referred to the Scheme Administrator’s power to require an audit at any time.

20. It was also contended that it was open to the Scheme Administrator to conduct the audit itself, thereby alleviating the financial burden on Golden. Clause 155 of the Regulation however, makes it clear, that the cost of an audit is to be borne by the ACP.

Is cancellation the appropriate sanction?

21. When Golden failed to comply with the written notice, the Scheme Administrator considered the appropriate sanction. Other courses of action that were open to the Scheme Administrator were: variation of Golden's conditions of accreditation, the suspension of Golden's accreditation, and imposing a penalty or prosecution. In reaching the correct an preferable decision, the Tribunal, similarly, considered the appropriate sanction.

22. Not unreasonably, as a matter of policy, the Scheme Administrator considers all instances of noncompliance to be serious. I agree with this concern, especially as the Scheme, in common with all regulatory regimes, relies on public confidence in its integrity.

23. The Scheme Administrator ensures the integrity of the Scheme by monitoring and assessing the practices of ACPs. Audits are one of the main tools used by the Scheme Administrator for monitoring and assessing compliance. One of the fundamental duties of a participant in the Scheme is submitting to audits, when required by the Scheme Administrator.

24. Golden initially recognised its obligation to conduct the audit. It undertook to engage an auditor by the required time. It was made clear to Golden that failure to conduct the audit would amount to a contravention of its conditions of accreditation, as well as an offence under the Act. Nonetheless, Golden chose to not carry out the audit.

25. The Scheme Administrator has a Record Keeping Guide, with which ACPs are expected to comply. In the absence of an audit, the Scheme Administrator simply does not know if Golden complies with its obligations under the Scheme. The Scheme Administrator has been unable to verify Golden’s general compliance with the Scheme and, hence, its ongoing eligibility for accreditation. Cancellation removes Golden from the Scheme.

26. Golden’s failure to comply with the audit requirement was a straightforward refusal to comply with existing conditions of its accreditation. Placing further restrictions on Golden’s conditions of accreditation would not address the contravention.

27. It appears that the Scheme Administrator gave substantial consideration to the option of suspending Golden's accreditation in lieu of cancelling it. Cancellation was considered to be preferable to suspension because Golden had already been provided with an extension of time to conduct the audit and had already been provided with sufficient opportunity to conduct the audit. It had been clearly informed that the ramifications of refusing to conduct the audit included possible cancellation of its accreditation. I agree with the Scheme Administrator’s assessment that if it had merely suspended Golden’s accreditation, Golden would effectively have been granted a waiver of the audit requirement.

28. Further, I accept the Respondent’s submission that audits are the primary method by which the Scheme Administrator is able to detect non-compliance and that they are critical to the integrity of the Scheme, and that if Golden were permitted to continue as an ACP in the Scheme notwithstanding its refusal to comply with the audit requirement, this may encourage other ACPs to take a similar course in future. I regard cancellation as serving to deter other ACPs from engaging in similar conduct.

29. In all, I regard cancellation of Golden’s accreditation as the appropriate sanction.

DECISION

30. The decision under review is affirmed.

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I hereby certify that this is a true and accurate record of the reasons for decision of the New South Wales Civil and Administrative Tribunal.

Registrar

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.

Registrar

Decision last updated: 21 August 2018