Fettering of Discretion: Policy, Consistency and the Duty to Keep an Open Mind

📖 British Oxygen Co. Ltd. v. Board of Trade, [1971] AC 610

Facts: The Board of Trade had a statutory discretion to make investment grants towards approved capital expenditure on plant and machinery. It adopted a policy of not making grants for items costing less than twenty-five pounds each. The appellant had spent a very large sum on gas cylinders, each costing about twenty pounds, and its application was refused by reference to the policy. It contended that the Board had unlawfully fettered its discretion by adopting a rule and applying it without regard to the circumstances.

Held: The House of Lords held the refusal lawful, and stated the principle that has governed since. Lord Reid held that an authority entrusted with a discretion may adopt a policy or a limiting rule as to the future exercise of that discretion, and there is nothing objectionable in doing so, provided the policy is a reasonable one; the authority is entitled to promote consistency and to avoid deciding each case afresh. But the authority must not shut its ears to an application: it must be always willing to listen to anyone with something new to say, and must genuinely consider whether the case before it is one in which the policy should be departed from. On the facts the Board had considered the appellant's representations and had adhered to its policy after doing so, which was a lawful exercise of the discretion and not a surrender of it.

Ratio: An authority may adopt a policy limiting the future exercise of a discretion, provided it does not shut its ears and remains always willing to listen to anyone with something new to say. Consistency is legitimate; refusal to consider an exception is not.

📖 Shri Rama Sugar Industries Ltd. v. State of Andhra Pradesh, (1974) 1 SCC 534

Facts: The State Government had a discretion under the sugarcane cess legislation to exempt a factory from payment of the cess. It adopted a policy of granting exemption only to factories in the co-operative sector, on the view that co-operatives served the interests of cane growers and required encouragement, and refused exemption to a company in the private sector on that basis. The refusal was challenged as an unlawful fetter on the discretion.

Held: The Supreme Court upheld the refusal by majority. It held that where a discretionary power is conferred in wide terms, the authority is entitled to formulate a policy to guide its exercise, and the adoption of such a policy is not by itself an abdication or a fetter: a policy furthers consistency and enables the discretion to be exercised on a rational and stated basis rather than case by case at pleasure. The Court held that the policy of confining exemption to the co-operative sector bore a rational relation to the object of the provision, and that the Government having applied that policy to the case before it had exercised and not surrendered its discretion. The minority view emphasised that the discretion must nonetheless remain available in an appropriate case, and the later authorities have taken that as the governing qualification.

Ratio: An authority exercising a wide discretion may formulate a policy to guide it, and doing so is not an abdication provided the policy is rationally related to the object of the power and the authority applies its mind to the case before it.

It must be within the power

A policy cannot achieve what the statute does not permit

It must be rationally related to the object of the power

Otherwise it substitutes an extraneous criterion for the statutory one (Rama Sugar)

It must not be a rule in disguise

An authority given a discretion was not given power to legislate

It must be published or made known

A person cannot address a policy he does not know of, and secrecy invites arbitrariness

The authority must consider representations

It must be always willing to listen to anyone with something new to say (British Oxygen)

Departure must remain possible

A policy admitting of no exception has ceased to be a policy

Reasons should be recorded where a case is refused

Otherwise it cannot be shown that the case was considered at all

A change of policy must be applied fairly

Those affected by a settled practice may be entitled to be heard before it is altered

Fettering by policy

The authority applied its own rule without considering the case

Acting under dictation

The authority applied somebody else's decision

Non-application of mind

The authority considered nothing, whether or not a policy existed

Unlawful delegation

The authority transferred the power to another

Improper purpose

The authority exercised the discretion for an object the statute does not permit

Irrelevant considerations

The authority considered the case but on the wrong material

Legitimate expectation

The authority departed from a policy or practice without fair consideration

⚠ A policy is lawful until it is applied without listening

The distinction the cases draw is not between having a policy and not having one, and an authority that decides each case afresh with no stated approach is more vulnerable to challenge rather than less, since inconsistency and arbitrariness are themselves grounds. The line falls at the point of application. A policy that is rational, published and honestly applied after considering what the applicant has to say is a lawful and desirable way of exercising a wide discretion. The same policy, applied to a file without reading the representation, becomes a fetter. That is why the record matters so much in this field: what distinguishes the two situations is usually not the terms of the policy but whether the authority can show that it considered whether this case was an exception.