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Policy Research
'Responsive Regulation' 
& the Sale of Liquor in NZ

This investigation of ‘responsive regulation’ theory and its application to the Sale of Liquor Act 1989 was project funded by the NZ Health Research Council after a peer review process, and was completed in July 1998. This theoretical perspective had not previously been applied to alcohol issues. As a result of this work a set of recommended changes to the legislative will form part of the Alcohol & Public Health Research Unit’s contribution to the current review and amendment of the Act.

The project involved a review and critique of regulation theories and debates, focusing on Ayres and Braithwaite’s work on ‘responsive regulation'. Current legislation, case law and available research on regulatory practices in New Zealand were examined in the light of insights from the theoretical work, to identify factors which encourage or act as a barrier to effective regulation and to practices directed at encouraging compliance and reducing alcohol related harm. The three main areas of focus were the terms of the individual licence, powers of sanction under the Act, and community input into licensing decisions. A set of suggested amendments were present to 12 key liquor licensing informants for their responses, and their support for some changes rather than others shaped the amendments finally recommended in the report.
 
The theoretical work and the example of its application to liquor licensing has significance for other areas of public health concern which are regulated through legislation.
Summary of Findings
Recommended Amendments to the Sale of Liquor Act
Theoretical Background
Responses to the Amendment Bill
The full report of this project is available on request.
Hill, L. & Stewart, L. (1998) Responsive Regulation and Liquor Licensing in New Zealand

Other Publications:

Hill, L. & Stewart, L. (1998) "Responsive Regulation" Theory and the Sale of Liquor Act, Social Policy Journal of New Zealand, 11, 49-65

Hill, L. (1998) Liquor Act threatened with fatal flaw, New Zealand Local Government, December, 14-17.

Researchers: Linda Hill and Liz Stewart
Peeer review, International

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Summary of Findings

The aim of the 1989 Act is to ‘establish a reasonable system of control over the sale and supply of liquor to the public with the aim of contributing to the reduction of liquor abuse, so far as that can be achieved by legislative means’. In this project, the Alcohol & Public Health Research Unit has drawn on regulatory theories developed from research on a wide range of business activities to propose ways in which that ‘legislative means’ may be maximised.

The project began with a review and critique of regulatory theories, in particular the ‘responsive regulation’ theories of Ian Ayres and John Braithwaite (1992). Relevant insights were used to review legislation, case law and available research on liquor licensing in New Zealand. This was used to develop suggested amendments to the Act which were presented to 12 expert informants working at all levels of the licensing system. Their comments and support for some approaches and changes but not others are documented in the full report of the project. Their responses are also reflected in the Recommended Amendments.

The Recommended Amendments to the Sale of Liquor Act arising from this project relate to licence criteria and conditions; the deletion of a sub-clause limited the grounds of public objections to new applicants in existing licensed premises, and a slightly expanded set of sanctions to given higher profile by presentation in the Act as a separate clause. These amendments are recommended as minor changes that can increase the ‘responsiveness’ of the licensing system to the proposal of licensees as well as any concerns raised by local statutory officers and neighbouring communities.

Regulation theory

Regulation theorists have noted that economic liberalisation and the devolution of state responsibilities is associated with an increase in state regulation and industry self regulation of business activities.

Three models of interaction between regulators and firms emerge from regulatory debates: an ‘enforcement’ model assuming self-interest and confrontation; a ‘compliance’ model assuming cooperation and responsible citizenship, and an ‘educative’ model assuming a need for information and training. Practices reflecting aspects of these models will be readily identifiable in the field of licensed hospitality and other areas of public health regulation.

In their ‘Responsive regulation’ theory Ayres and Braithwaite identify key ingredients in cost-effective regulation strategies that can respond to the needs of both state and industry. These are:

  • firm specific agreements with negotiated but enforceable conditions,
  • a hierarchy of sanctions, to match the degree of infringement,
  • a role for the community in regulatory decisions and in ongoing monitoring.

The framework for a ‘responsive regulation’ approach is already in place with the sale of liquor: a liquor licence is an individual agreement between the state and the seller. Regulatory theories suggest that licensee involvement in details about how the law is to be complied on his premises will increase commitment to compliance.

Responsive regulation theorists place high value on the involvement of community groups in regulatory decision making, and argue that their ‘watchdog’ role can help stretch regulatory resources. In 1996 and 1997 the Liquor Licensing Authority reported to Parliament that a ‘gap’ between planning and licensing and the restrictions of the present Act leave it unable to decline a licence or to respond to the genuine and reasonable concerns of local communities.

Application of theory to liquor licensing in New Zealand

Ayres and Braithwaite’s strategies above can be related to sections of the Sale of Liquor Act on:

  • the criteria and conditions under which each licence is granted,
  • the right of objection by members of public to the grant or renewal of a licence, and
  • the Liquor Licensing Authority’s powers of sanction.
A detailed review of these aspects was undertaken in the light of insights from ‘responsive regulation’ theory, based on case law, available research on licensing practices and other documentation.
 
This indicated a similarity between the approaches recommended by regulatory theory and the informal regulatory practices being developed at local level. Conversely, those provisions in the legislation which the theory suggests could provide the key mechanisms for ‘responsive regulation’ are just those aspects of the licensing system which are giving rise to most difficulty and least satisfaction for statutory officers seeking to enforce the law and encourage high standards of management in licensed premises.
 
The liquor licence, which may be granted, varied or cancelled, is both the basis of regulatory power over the sale of liquor, and a contractual agreement between the seller of alcohol and the regulating state. Licence dispensation is not supported by the theoretical literature, as it gives away regulatory power.
‘Responsiveness’ through licence conditions

The Act lays down a limited set of matters that the Liquor Licensing Authority may consider in granting a licence or setting enforceable conditions on certain matters (age restrictions, food, hours of trading). Permitted criteria and conditions are more limited than in comparable countries.

The Recommended Amendments propose minor additions to existing clauses on licence criteria and licence conditions. These would help tailor the licence to a particular business or address problems related to a particular site or neighbouring community by permitting the attachment of an additional condition specific to the situation.
 
As a licence condition, this would be legally enforceable in the event of non-compliance. The licence with conditions listed is posted where it is visible to the public and to front line police. Formal conditions are likely to be carried over to a new licence, should the premises change hands.
 
Such an additional condition would be proposed either (i) by the licensee himself in his application or (ii) in the course of a public hearing, which is occurs where an application is opposed by local statutory officers or by objectors with an interest ‘greater than the public in general’.
Licensees’ ‘host responsibility’ policies as a licence conditions
In the licence application, licensees set out management policies to ensure liquor is not sold to minors and intoxicated patrons. Legal commentators have suggested that these could be made a condition of the licence under the Act as currently written.
 
In many areas licensees are also being encouraged or required to write fuller ‘host responsibility’ policies for the management of their premises. Some recent agreements negotiated between licensee and neighbours to resolve a problem are not legally unenforceable because they cannot be made a formal licence condition.
 
Amendments to clauses 13 and 14 of the Act could allow such agreements and ‘host responsibility’ policies to be considered as part of the licensee’s application and attached to the licence.
Taking account of neighbouring land use and public objections
Many public objections are dismissed as relating to land use matters, not liquor licensing. At present, neighbouring land use is a permitted criteria only in relation to setting hours of trading.
 
Proposed amendments including neighbour land use and objections as criteria for licensing decisions will help close the current ‘gap’ between planning decisions about zones and community concerns about particular sites. Not infrequently, practical solutions are suggested which, as an additional enforceable licence condition, could satisfy objectors or local officers. Existing case law sets the parameters of ‘neighbouring land use’ and who may lodge an objection.
 
Reports from local informants indicate the importance of local communities ‘bringing matters to the attention’ of inspectors and police. This verifies Ayres and Braithwaite’s positive perception of community involvement in regulatory decision-making and in a monitoring role as a contributing to cost effective regulation.
 
It is suggested by the researchers that the credibility of objection procedures and responsiveness to community concerns is important to this community participation, in the same way that licensee involvement in deciding licence type and conditions, backed by credible enforcement, is important to willing compliance to the Sale of Liquor Act.
Support for full rights of objection and local authority policies

The expert informants supported full rights of public objection on all occasions on which the Liquor Licensing Authority and its local statutory officers consider the grant or renewal of a licence. This would mean the deletion of clause 10(4) limiting objections to matters of licensee ‘suitability’ when the application is for an existing premises.

Support was also given to formally recognising local authority policies on licensing issues, as part of planning decisions which precede licensing decisions under the Act.

Demonstrating appropriate enforcement

While cooperation is preferred to confrontation, Ayres and Braithwaite argue that willing compliance is increased by occasionally demonstrating an ability to apply sanctions. They recommend having ‘sticks’ of different sizes available to match infringements of varying seriousness. The more credible the enforcement process, the less likely that sanctions will need to be applied, in their view, and the most cost-effective the regulatory system.

Informants supported greater visibility being given to sanctions, and the inclusion of some actions already within the Authority’s powers which are being used as informal sanctions. They approved the increased use of short suspensions since 1996. Local informants reported favourable responses from licensees in their area.

The impact of case law on licensing decisions
The Sale of Liquor Act allows wide powers of appeal against liquor licensing decisions. However, the specialist understanding developed by the Authority, grounded in the work of its statutory officers, differs from the legal expertise of the High Court and legal profession, harnessed by a few licensees to push the boundaries of ‘reasonable control’ over licensed premises.
 
A strong conclusion from the case law was that the wide powers of review by higher courts have had a restrictive effect on the Authority’s interpretation and enforcement of the Act, its pursuit of policy objectives, and its ability to support ‘responsive’ strategies by local officers.
 
However, the impact of case law on licensing decisions works through the way appeals reinforce the restrictive rigidity of the Act itself. Once written into the legislation, any change to criteria or conditions to allow greater responsive would be recognised and respected by the higher courts.
 
Recommended Amendments to the Sale of Liquor Act
Responses to the Amendment Bill
The Bill: Licence criteria and conditions

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