Professional Standards Act 1994

The Act primarily affects members of occupational associations that have an approved scheme in force. “Occupational association” is defined in s 4 as a body corporate representing the interests of persons in the same or related occupational groups (including professional and trade groups) whose membership is limited principally to that group. Once a scheme is gazetted, it applies to the classes of persons specified (s 17(1)). The limitation automatically extends to:

• each officer of a corporate member (s 18(1));
• each partner of an individual member (s 18(2));
• each employee of a member (s 19(1)); and
• prescribed associates under s 29(4) regulations (s 20).

Section 20A(1) further provides that the limitation on the member’s principal cause of action also limits liability of those associated persons for any related cause of action arising from the same event, whether or not their liability is itself occupational. The only carve-out is where the officer, partner or employee is eligible for but has not joined the association (ss 18(3), 19(2)).

Consumers of professional services are the intended beneficiaries of the improved standards and compulsory insurance requirements, although their direct right of recovery is capped once a scheme participant satisfies the insurance or asset test. The Crown is bound in all capacities (s 6). Interstate schemes that operate as schemes of New South Wales bind members in this jurisdiction (s 4 definition of “interstate scheme” and s 28).

The Professional Standards Council, occupational associations, their risk-management committees, and the Supreme Court in its supervisory role under s 15 are also directly affected. Legal practitioners acting in personal injury claims receive a partial carve-out: the Act does apply to their negligence in such matters (s 5(3)), meaning they may participate in schemes despite the general personal-injury exclusion in s 5(1)(a).

Occupational associations hold the right to prepare schemes (s 7(1)), apply for Council approval (s 7(3)), exempt members (s 17(2)), and compel insurance as a condition of membership (s 34). They must furnish risk-management strategies (s 36), report annually (s 37), and may establish claims-monitoring committees (s 35). When adopting the Model Code they gain disciplinary powers including expulsion (Schedule 1, clause 7(f)).

Members (and their associated persons) gain the right to have their liability capped once they satisfy the insurance, asset or multiple-of-fees test set by the scheme (ss 21–23). They cannot opt out except via an exemption granted under the scheme (s 28(4)). They must disclose the limitation on all relevant documents (s 33(1)) and are entitled to the procedural protections in the Model Code if adopted, including legal representation at hearings (Schedule 1, clause 9).

The Council has the duty to consider submissions, claim history, risk strategies and insurance availability before approving any scheme (s 10), to monitor compliance (s 43(1)(f)), and to determine the statutory floor under s 26. It holds the right to prepare schemes itself (s 7(2)), conduct public hearings (s 11), require information (s 44), refer complaints (s 44A), and institute proceedings for offences or injunctive relief without undertakings as to damages (s 43(1)(j) and (5)).

Consumers retain the right to bring proceedings but with capped recovery against scheme participants who meet the statutory tests. They benefit from the Council’s consumer-protection mandate (s 3(c)) and the statutory floor (s 26(2)(b)).

The Minister may direct the Council to review, amend or revoke schemes (ss 16, 16A(3)), authorise gazettal (s 13(1)), extend scheme duration once for up to 12 months (s 32(2)), and appoint Council members (s 40).

The Act creates two explicit offences. Contravention of the disclosure requirement in s 33(1) carries a maximum of 50 penalty units (s 33(2)). Failure by an occupational association to comply with a Council notice requiring information is punishable by 5 penalty units (s 44(2)). Regulations may create additional offences up to 50 penalty units (s 53(3)).

The Council is expressly authorised to institute proceedings in its own name for any offence against the Act or regulations or for injunctive or other relief (s 43(1)(j)). It has locus standi and need not give undertakings as to damages for interlocutory relief (s 43(5)). Complaints about non-disclosure or regulatory breaches may be referred by associations to the Council (s 44A).

Enforcement of the liability cap itself is by way of defence in civil proceedings. Once a defendant satisfies the court of the requisite insurance or assets, the court cannot award damages above the monetary ceiling or limitation amount (ss 21–23, 28). Section 26A prevents any argument that a defence-costs-inclusive policy reduces the cap. Challenges to the validity of a scheme itself are by Supreme Court application under s 15; the Court may stay commencement pending determination.

Disciplinary sanctions under an adopted Model Code are enforced internally by the association and may include expulsion, which indirectly enforces standards by removing the protection of the scheme from the expelled member.

The Act is declared substantive law of the State (s 48) and operates despite any other law to the contrary, except that Parts 3, 4 and 5 yield to any inconsistent statute (s 49(1)). It does not affect the operation of s 5 of the Corporations (New South Wales) Act 1990 (s 49(2)).

Heavy reliance is placed on the Interpretation Act 1987 for gazettal, disallowance and general interpretation (ss 13(2), 32(1A)(e), 4 note). The definition of “officer” in ss 18 and 20A cross-references the Corporations Act 2001 (Cth). Section 5(2) excludes liability that may be the subject of proceedings under Parts 13 or 14 of the Real Property Act 1900. The Act binds the Crown in all capacities (s 6).

Mutual-recognition amendments in 2007 inserted extensive provisions allowing interstate schemes to operate in New South Wales and vice versa (definitions of “interstate scheme”, “corresponding law”, “appropriate Council”; ss 12(2), 13(3), 14(3), 15(4), 16B, 16C, 32(1B), 43A). A scheme prepared in another jurisdiction that indicates an intention to operate in New South Wales is treated as a scheme of this jurisdiction once gazetted here.

Section 28(3) ensures the limitation runs with the cause of action irrespective of when proceedings are commenced, interacting with ordinary limitation statutes by preserving the cap even after the scheme expires. The Model Code in Schedule 1 may modify rules of evidence, oath-taking and appeals, thereby displacing ordinary procedural law to the extent approved by the Council.

No contracting-out is permitted (s 50), so contractual indemnities or waivers cannot circumvent the statutory cap or disclosure obligations. The confidentiality provision (s 50A) overlays general information-protection laws.

Although the provided text is a consolidated version, the amendment history reveals a clear legislative trajectory. The 1998 amendments (No 10) substituted key provisions on scheme commencement, review, duration and effect (ss 14, 16, 28, 32), introduced the power to amend or revoke schemes (s 16A), and expanded regulation-making powers. These changes were designed to give greater flexibility after early schemes proved difficult to operate within rigid five-year limits and narrow commencement rules.

The 2004 amendments (No 83) were the most substantial. They inserted s 4(1A) to include defence costs and policy excesses within the insurance amount, substituted ss 18 and 20A to extend protection to officers, partners, employees and associates, rewrote the limitation mechanisms (ss 21–25), raised the statutory floor language, and clarified that the cap is per claim not per event (s 29). The impetus was to close loopholes exposed by litigation in which claimants argued that only the individual professional, not the firm or directors, enjoyed the cap.

The 2006 Amendment (Defence Costs) Act (No 78) responded to insurer reluctance to issue policies that paid defence costs inside the limit. It inserted s 26A to ensure that a defence-costs-inclusive policy does not erode the statutory cap, and validated earlier schemes. The 2007 Mutual Recognition Act (No 10) inserted the interstate framework (ss 16B, 16C, 32(1B), 43A) to create a national market for professional-liability limitation, removing the previous requirement for separate NSW schemes. Later minor amendments refined Council delegation (2016), staff arrangements (2015) and annual reporting (2014).

Each wave of change was driven by practical experience: early schemes were too narrow, insurers withdrew, professionals in national practices faced duplication, and claimants exploited gaps. The statute has therefore evolved from a purely NSW-centric liability shield into a nationally interoperable risk-management and consumer-protection regime.

The Act itself provides the primary avenue for challenge: s 15 applications to the Supreme Court alleging want of compliance with the statutory procedure. The Court may declare a scheme void, stay commencement, give directions or make any other order. Section 15(4) limits challenges to interstate schemes to non-compliance with the preparing jurisdiction’s law, not Division 2 content rules. Section 15(5) expressly preserves other avenues of collateral attack.

Because the text is legislative only, it does not record specific judicial decisions. However, the structure of ss 15, 28 and 29 indicates legislative anticipation of arguments about whether a scheme applies to a particular defendant, whether multiple claims arising from one event can be aggregated, and whether the insurance or asset test has been met. The transitional provisions in Schedule 4 repeatedly preserve pre-amendment causes of action and earlier court orders, suggesting that litigation occurred over the temporal reach of each new limitation regime.

Controversies have centred on the balance between consumer protection and professional relief. Consumer groups have criticised the statutory floor (s 26) and the ability to use defence-costs-inclusive policies (s 26A note), arguing that claimants may be left under-compensated. Professional associations have pressed for higher multiples and broader associate coverage, leading to the 2004 expansions. The requirement for public notification and submission rights (ss 8–10) has occasionally produced disputes about whether the Council gave adequate weight to consumer submissions. The Council’s power to prosecute disclosure offences (s 33, s 43(1)(j)) has been used sparingly but remains a live compliance tool.

Most practitioners assume that once a scheme is in force the cap is automatic; it is not. The defendant must positively satisfy the court of the insurance policy, business assets, or multiple-of-charges test (ss 21–23). Failure to lead that evidence at trial leaves the cap unavailable even if the policy exists.

Section 20A is routinely overlooked. It extends the cap to related causes of action against partners, officers, employees and associates even where their liability is not strictly “occupational”. The definition of “related cause of action” in s 20A(2) is broad—any civil liability arising directly or vicariously from the same or substantially the same event. Pleading against the firm and the individual separately therefore does not circumvent the cap.

The disclosure obligation in s 33 is stricter than many realise. It applies to “all documents given by the person to a client or prospective client that promote or advertise the person or person’s occupation, including official correspondence ordinarily used… and similar documents”. Only business cards are excluded. Using letterhead without the prescribed statement risks 50 penalty units and potential Council prosecution.

Defence-costs-inclusive policies are now expressly contemplated (s 4(1A)), yet s 26A provides that the participant remains liable for any shortfall between the policy payout and the cap. Insurers may therefore pay defence costs first, leaving less for the claimant, but the professional must top up to the cap from personal assets. This “top-up” exposure is often not understood by insured professionals.

Interstate schemes create hidden traps. A scheme prepared in Victoria that operates in NSW is still subject to NSW gazettal and may be terminated unilaterally under s 16C. The duration rules differ slightly between interstate and local schemes (s 32(1A) vs (1B)), and the Council may review and terminate operation in NSW even if the scheme continues elsewhere.

Finally, the statutory floor in s 26 cannot be set below $500,000 but the Council’s determination takes effect only when the scheme is amended to specify it. Until that amendment, older schemes may still contain lower limits that are vulnerable to challenge under s 15 or under the consumer-protection limb of s 26(2)(b).

For occupational associations seeking a scheme: (1) prepare a detailed risk-management strategy and implementation plan (s 36); (2) draft the scheme to comply with Division 2, specifying classes, monetary ceilings or multiples, the statutory floor, insurance standards (s 27), and disclosure wording; (3) lodge with the Council; (4) respond to the s 8 newspaper notice and all submissions (s 10); (5) obtain Council approval; (6) submit to the Minister for gazettal; (7) once in force, monitor claims (s 35), report annually (s 37), and enforce insurance and disclosure obligations. If adopting the Model Code, ensure modifications are Council-approved and that procedural fairness is maintained.

For professionals and firms: confirm the scheme applies to your occupation and class (s 17). Maintain insurance that meets the exact standard set by the association and the scheme (s 27 and s 4(1A)). Calculate business assets at net current market value if relying on s 22. Include the exact prescribed statement on every letterhead, proposal, report, invoice and website (s 33). If an officer, partner or employee, ensure the firm’s membership brings you inside the scheme; non-membership removes protection (ss 18(3), 19(2)). When litigation arises, plead the cap early and lead evidence of insurance certificate, asset valuation or fee calculation at the liability hearing.

For the Council and its delegates: publish notices, consider every mandatory factor in s 10, determine floors under s 26 only after assessing claim history and consumer needs, monitor risk strategies (s 43(1)(f)), and maintain detailed records to defend s 15 challenges. When interstate schemes are involved, coordinate with the appropriate Council under s 43A.

For clients and claimants: obtain the professional’s disclosure statement; its absence may found a complaint to the association or Council. In proceedings, argue the precise scope of “occupational liability” (s 4), whether the act occurred during the scheme’s currency (s 28(1)), and whether associated persons are properly covered. Test the insurance policy against the exact wording of the scheme; a mismatch voids the cap.

General compliance tip: because the limitation runs with the cause of action (s 28(3)), retain proof of insurance and asset values for the entire limitation period plus any extension. Review every new or amended scheme against the transitional provisions in Schedule 4 to confirm which version governs a particular retainer. Annual file audits should include a checklist covering scheme membership, current insurance certificate, disclosure on all outgoing documents, and risk-management training records.

By following these steps—grounded in the precise language of ss 7–33, the definitions in s 4, and the procedural safeguards in Schedules 1–3—practitioners can lawfully obtain the liability protection the legislature intended while satisfying the countervailing consumer-protection and transparency obligations the Act imposes.