Australia High Court Unanimously Endorses Agreed Penalties In Civil Penalty Proceedings.

15 December, 2015

 

In brief 

 

The High Court has unanimously upheld appeals by the Commonwealth of Australia and the CFMEU and CEPU from a decision of the Full Federal Court that had overturned the established practice of parties settling civil penalty proceedings, which included parties making joint submissions as to penalties.1

 

Following the Full Federal Court’s decision, there was widespread concern that settlements between regulators and respondents would be made materially more difficult. The High Court’s decision restores certainty to the practice of respondents agreeing facts and penalties with a regulator in civil penalty proceedings. 

 

In three separate judgments, their Honours held that the decision in Barbaro (in which the High Court held that criminal prosecutors cannot make a submission as to the appropriate sentence or sentencing range) does not apply to civil penalty proceedings and a court is not precluded from receiving and, if appropriate, accepting an agreed or other civil penalty submission. 

 

Their Honours held that there were “basic differences” between a criminal prosecution and a civil penalty proceeding which made the application of Barbaro to civil proceedings incorrect. The nature of criminal prosecutions and civil penalty proceedings are fundamentally different and the penalties imposed in each serve different public functions. Further, the role of a prosecutor in a criminal proceeding is different from the role of a regulator in a civil penalty proceeding. 

 

The High Court observed that there is an important public policy involved in promoting predictability of outcomes in civil penalty proceedings and that “the practice of receiving and, if appropriate, accepting agreed penalty submissions increases the predictability of outcome for regulators and respondents.”

 

However, this does not mean that agreements will just be “rubber stamped” by the courts. The High Court emphasised throughout its decision that a court is not bound by the figure suggested by the parties and could only accept an agreed penalty if it considered that the penalty was appropriate.

 

Background

 

In proceedings in the Federal Court, the Director of the Fair Work Building Industry Inspectorate had alleged that the Construction, Forestry, Mining and Energy Union (CFMEU) and the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia (CEPU) (together Unions) had contravened the Building and Construction Industry Improvement Act 2005 (Cth) and sought pecuniary penalties against them. The parties subsequently filed an agreed statement of facts and submissions as to the amounts of civil penalties which should be imposed.

 

The primary judge raised a concern about the possible application of the recent High Court decision in Barbaro v The Queen (Barbaro)2 to the proceedings. As a result, the matter was referred to the Full Federal Court under its original jurisdiction and the Commonwealth was given leave to intervene.

 

In Barbaro the High Court had held that criminal prosecutors should not be permitted to make submissions to the sentencing judge on the specific sentencing result or the range within which it should fall. Subsequent (single judge) Federal Court decisions had declined to apply Barbaro to civil penalty proceedings.3

 

The Full Federal Court in the proceedings against CFMEU and CEPU unanimously concluded that the reasoning in Barbaro was applicable to civil proceedings. Despite recognising differences between criminal and civil proceedings, the Full Federal Court held that there was no “principled basis” for declining to apply the reasoning in Barbaroto proceedings for the imposition of a civil pecuniary penalty. 

 

The implication of this was that in determining the amount of the penalty to impose, the Court should have no regard to agreed penalty figures, other than to the extent that the agreement demonstrated a degree of remorse or cooperation on the part of each respondent. The Court held that this did not prevent parties from making submissions as to the relative seriousness of the relevant misconduct, to refer to comparable decisions or to explain the relevant principles but that neither party could make submissions on what the pecuniary penalty amount ought to be (whether agreed or not).

 

Prior to the Full Federal Court’s decision, it had been the common practice of regulators to negotiate with respondents in civil penalty proceedings and make submissions to the courts, often jointly, on the actual figure to be adopted or the range within which the penalty should fall. The courts generally endorsed any such penalty, provided that it fell within the permissible range for a particular contravention, and provided the agreed statement of facts presented the court with a complete and accurate picture.4

 

The Commonwealth and the Unions both appealed against the Full Federal Court’s decision to the High Court on separate, but related, grounds.

 

Decision of the High Court

 

The High Court unanimously upheld the appeals by the Commonwealth and the Unions from the Full Federal Court’s decision.5

In three separate judgments, their Honours held that the decision in Barbaro does not apply to civil penalty proceedings and a court is not precluded from receiving and, if appropriate, accepting an agreed or other civil penalty submission. 

 

The High Court endorsed the practice which has been followed in relation to agreed facts and penalties in civil penalty proceedings in accordance with the Federal Court’s decisions in NW Frozen Foods Pty Ltd v ACCC6 and Minister for Industry, Tourism & Resources v Mobil Oil Australia Pty Ltd.7

 

The plurality did not consider it appropriate to determine the appropriate penalty to be applied to the Unions and remitted the proceeding to the Federal Court for determination according to law. 

 

Issues addressed by the High Court

 

Barbaro limited to criminal proceedings

 

Each of the plurality and separate judgments emphasised that Barbaro was specific to the role of criminal prosecutors and judges in sentencing processes. 

 

The plurality explained that “basic differences” between a criminal prosecution and civil penalty proceedings provided the “principled basis” for excluding the application of Barbaro from civil penalty proceedings.8 Accordingly, nothing said in Barbaro was “antithetical to continuing the practice of agreed penalty submissions in civil penalty proceedings”.9

 

First, a criminal prosecution is an accusatorial proceeding whereas civil penalty proceedings are an adversarial contest in which the “issues and scope of possible relief are largely framed and limited as the parties may choose”.10 Secondly, criminal penalties are often imposed for the purpose of retribution and rehabilitation. By contrast, the purpose of civil penalties is primarily to promote the public interest in achieving compliance and avoiding criminality. Finally, sentencing in a criminal proceeding is a “uniquely judicial exercise” and in that context it is inappropriate for the sentencing judge to consider the opinion of the prosecutor (acting as an officer of the executive) as to an appropriate length of sentence.11

 

Similarly, Justice Gageler (in a separate, but concurring, judgment) stated that Barbarohad “nothing to say about the conduct of any party to a civil penalty proceeding” and was narrowly confined to the appropriate role of a prosecutor in assisting a criminal court.12

Nature of civil penalties and role of statutory regulators

 

The plurality distinguished criminal proceedings from civil proceedings where “there is generally very considerable scope for the parties to agree on the facts and upon consequences…and for them to agree upon the appropriate remedy and for the court to be persuaded that it is an appropriate remedy.”13

 

Their Honours dismissed the Full Federal Court’s concern that a regulator in a civil penalty proceeding is “not disinterested”. In their view this fact supported, rather than detracted, from the correctness of a court receiving joint submissions as to facts and penalties.

 

This is because the regulator, by virtue of their statutory function, could be expected to be in a position to make submissions as to the appropriate level of penalty necessary to achieve compliance. 

Justice Keane (again in a separate, but concurring, judgment) held that the willingness of the Commissioner in this case “to accept a particular sum by way of civil penalty in discharge of the Commissioner’s claim against the defendant can be expected to reflect a considered estimation that, given the hazards and expense of litigation, satisfaction of the Commissioner’s claim against the defendant on such terms is apt to advance the public interest in the enforcement of the regulatory regime more effectively and efficiently than the continued prosecution of the claim.”14

 

Public policy advanced by negotiated outcomes

 

In TPC v Allied Mills Industries Pty Ltd (No 4)15 the Federal Court recognised that, uninformed by agreed penalty submissions, a court might select a different penalty figure. However, referring to this decision, the plurality stated that subject to the court being “sufficiently persuaded of the accuracy of the parties' agreement as to facts and consequences, and that the penalty which the parties propose is an appropriate remedy in the circumstances thus revealed, it is consistent with principle and for the reasons identified in Allied Mills, highly desirable in practice for the court to accept the parties' proposal and therefore impose the proposed penalty.”16

 

The plurality endorsed previous decisions of the Federal Court holding 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 outcome for regulators and wrongdoers”.17

 

Again referring to previous decisions, the plurality held that “such predictability of outcome encourages corporations to acknowledge contraventions, which, in turn, assists in avoiding lengthy and complex litigation and thus tends to free the courts to deal with other matters and to free investigating officers to turn to other areas of investigation that await their attention.18

 

Appropriate role of judges in accepting agreed penalties

 

The plurality emphasised that previous decisions make plain that “the court is notbound by the figure suggested by the parties” and that the court “must satisfy itself that the submitted penalty is appropriate.”19

 

They dismissed any suggestions that a judge would not fulfil their duty and reject any agreed penalty submission if not satisfied that what is proposed is appropriate. The plurality stated that it “would be a travesty of justice if that were not the case” and that the “public may have confidence” that judges would act in accordance with their statutory duties.20

 

Implications

 

Following the Full Federal Court’s decision, there was widespread concern that settlements between regulators and respondents would be made materially more difficult. This was on the basis that respondents would be less willing to admit liability if there was reduced confidence around the ultimate outcome. The inability to agree on penalties may have shifted emphasis to agreed facts. 

 

The High Court’s decision restores certainty to the process by endorsing the previous approach and allowing parties to agree a penalty to put forward to the court.

 

Of course, it remains open for a judge to reject the parties’ agreed penalty as inappropriate and impose one he or she considers appropriate. There are instances of that occurring, including courts that have more than doubled the amount of the agreed penalty.

 

Nevertheless, while it should be expected that courts will closely review agreed facts and penalties, the High Court’s decision will assist the settlement of civil penalty proceedings. Finally, the plurality also suggested that, if a court is not disposed to accept an agreed penalty, it may be appropriate to give the parties an opportunity to withdraw their consent or otherwise be heard on that matter.21

This article was written by Andrew Eastwood (Partner, Sydney), Bruce Ramsay (Partner, Sydney) and Sarah Lynch (Solicitor, Sydney).

 

Endnotes

 

1. Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate & Ors; Construction, Forestry, Mining and Energy Union & Anor v Director, Fair Work Building Industry Inspectorate & Anor [2015] HCA 46.
2. (2014) 253 CLR 58.
3. ACCC v Energy Australia Pty Ltd (2014) ATPR ¶42-469; ACCC v Mandurvit Pty Ltd (2014) ATPR ¶42-471.
4. NW Frozen Foods Pty Ltd v ACCC (1996) 71 FCR 285; see our update regarding ASIC v Ingleby for the different approach adopted by the Supreme Court of Victoria.
5. Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate & Ors; Construction, Forestry, Mining and Energy Union & Anor v Director, Fair Work Building Industry Inspectorate & Anor [2015] HCA 46.
6. (1996) 71 FCR 285.
7. (2004) ATPR ¶41-993.
8. at [51].
9. at [50].
10. at [53].
11. at [56].
12. at [77].
13. at [57].
14. at [109].
15. (1981) 37 ALR 256.
16. at [58].
17. At [46], referring to the decisions of ACCC v Energy Australia Pty Ltd (2014) ATPR ¶42-469 and ACCC v Mandurvit Pty Ltd (2014) ATPR ¶42-471.
18. at [46].
19. [at 48], referring to NW Frozen Foods Pty Ltd v ACCC [1996] FCA 1134 and Minister for Industry, Tourism & Resources v Mobil Oil Australia Pty Ltd (2004) ATPR ¶41-993.
20. at [49].
21. at [65].

 

 

For further information, please contact:

 

Andrew Eastwood, Partner, Herbert Smith Freehills

andrew.eastwood@hsf.com