Last week a new Treasury Circular (NSW TC 11/02) was issued clarifying the position with respect to ex gratia payments. The Circular confirms that only Ministers have the authority to approve ex gratia payments in accordance with the Circular. Ministers can do so as representatives of the Crown and the power cannot be delegated.

 Ex gratia payments (also known as act of grace payments) may be made to persons who Ministers consider have suffered a financial or other detriment as a result of the workings of government. The detriment must be of a nature which cannot be remedied through recourse to legal proceedings. In certain instances, applications for ex gratia payments are made in circumstances where legal action has also been commenced or threatened. In such cases, Ministers should consider taking steps to ensure that the Crown is protected from further action. In addition, in appropriate cases, consideration should be given to requiring the recipient of an ex gratia payment to enter into a deed of release agreeing to waive any claim related to the present circumstances or to undertake in writing to set off the ex gratia payment from any claim. In such a deed of release, confidentiality clauses should also be considered.

Ex gratia payments are entirely discretionary in nature and it is for Ministers to determine those cases in which payments will be made having regard to all the circumstances. There are no formal or mandatory criteria for determining when or if such payments should be made and every case should be considered on its own facts and in its own context. However, when a Minister is deciding whether to make an ex gratia payment, a relevant consideration is whether that action would have potentially wider implications for agencies or the Government.

It should be noted that payments which are made:

  1. to meet legal liabilities, or
  2. where legal advice is that the Government may be found liable to pay compensation

are not ex gratia in nature: for example, payments made to settle court proceedings against the Crown which have a real prospect of success. The Treasury Managed Fund will provide cover for legal liabilities for its member agencies.

In circumstances where ex gratia payments are being considered and legal proceedings have commenced, the relevant New South Wales Government agency should have regard to the Model Litigant Policy for Civil Litigation which applies to the conduct of civil claims and litigation involving the State or its agencies. A recent decision on the application of the Model Litigant Policy for Civil Litigation in New South Wales can be found here, and in a Commonwealth context with potential application in a New South Wales context, click here.