Thursday, 14 July 2016

The validity of agreed penalties in the civil jurisdiction

In October 2015 the High Court handed down its much anticipated decision in Commonwealth v Director, Fair Work Building Industry Inspectorate & Ors (2015) 326 ALR 476 (Cth v FWBII) on the validity of agreed penalties in the civil jurisdiction.  For regulators such as Australian Securities and Investment Commission (ASIC), the Australian Competition and Consumer Commission (ACCC), the Fair Work Building Industry Inspectorate (FWBII) and Comcare, the stakes were high.

If the High Court held Barbaro applied to them, it would fundamentally change the way regulators police their beats and deal a major blow to many already stretched regulators.    

Civil Penalty?
While civil penalties are broader than their criminal cousins, they are generally less well understood.  Civil penalties are penalties that can be imposed by a court for breaking a law.  Examples include:
  • penalties for breaching the Corporations Act 2001 (Cth), the Australian Consumer Law or the Australian Securities and Investments Commission Act  2001 (Cth)
  • penalties for breaking tax laws and,
  • penalties for breaching workplace health and safety laws.  

Civil penalty cases are brought by a regulator rather than the Director of Public Prosecutions.  ASIC, the ACCC, the Fair Work Building Industry Inspectorate and Comcare all apply for civil penalties as part of their regulatory role.

Barbaro v R
The agreed penalties saga began with the High Court’s decision in Barbaro v R (2014) 253 CLR 58.  In that case, two individuals plead guilty to a number of serious drug offences in the Supreme Court of Victoria with an understanding that the prosecution would seek a certain penalty.  The sentencing judge refused to take submissions on penalty and handed down terms of life imprisonment with a 30 year non-parole period for one offender, and 26 years imprisonment with a non-parole period of 18 years for the other.  These penalties were significantly more than the individuals (and the prosecution) expected.  The individuals appealed on the basis that the sentencing judge made an error by not taking submissions on penalty. 

After the Court of Appeal upheld the sentencing judge’s decision, the High Court (French CJ, Hayne, Kiefel and Bell JJ) held that the prosecution submitting a penalty range to a judge is not a submission of law, but just the opinion of the prosecutor.  Further, the opinion of a prosecutor is irrelevant in a courtroom.  It is the job of a judge to decide penalty, not the prosecution.  

Barbaro now sets the law in criminal sentencing; but does it apply to agreed civil penalties?

After Barbaro, the Federal Court quickly referred a prosecution of the Construction, Forestry Mining and Energy Union (CFMEU) by the FWBII to its Appeal Court.  The question was, could the FWBII and CFMEU agree on a set of facts about a breach of the Fair Work Act, and a penalty, and take this agreed penalty to the Court?  It was a common occurrence before Barbaro, but now the practice was in doubt. 

The Full Court of the Federal Court found that Barbaro applied and that it was inappropriate for the regulator to submit agreed penalty statements.  

On appeal however, the High Court maintained the status quo by rejecting the reasoning of the Full Court.  The High Court found that it was acceptable in the civil penalty context for parties to submit penalties.  The Court held that: 
‘there is an important public policy involved in promoting predictability of outcome in civil penalty proceedings and that the practice of receiving and, if appropriate, accepting agreed penalty submissions increases the predictability of outcomes for regulators and wrongdoers.’  
The High Court also pointed out that:
‘…there are basic differences between a criminal prosecution and civil penalty proceedings and it is they that provide the ‘principled basis’ from excluding the application of Barbaro from civil penalty proceedings.’
The End Result
The end result of the civil penalty story is…that nothing has changed.  A regulatory authority and a wrongdoer can still agree on a set of facts and the penalty that they want.  

Whether this is the right legal outcome is an issue open to debate, but it does make things much easier for both the regulator and the wrongdoer. 

From the perspective of the regulator, agreeing to penalties saves an enormous amount of its scarce resources by avoiding a lengthy court battle with the wrongdoer.  This frees up the regulator to investigate more in their sphere of regulation. 

From a wrongdoer’s point of view, it also saves time and money, as well as creating certainty of outcome.  A ‘commercial’ outcome can be achieved.  Of course, the wrongdoer still has the right to fight the regulator if they don’t think they’re in the wrong. 

The question is though, do you want to take the risk and fight it through the Courts?

Patrick O'Brien
+61 7 3233 5829

1 comment:

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