04 May 2015

Full Federal Court restates position on use of agreed penalties

This article was written by Peta Stevenson, Trish Henry and Aarthi Sridharan.

A decision handed down 1 May 2015 is set to change the landscape of pecuniary penalty proceedings.

The decision in Director, Fair Work Building Industry Inspectorate v CFMEU [2015] FCAFC 59 means that the Federal Court can no longer receive or act upon an agreement as to penalties or on submissions by a regulator as to the appropriate amount or range of penalties.

A common practice has developed in civil proceedings where statutory regulators have made submissions to the Court, either as an agreed joint submission with another party or alone, as to the amount of the appropriate pecuniary penalty, or the range within which a pecuniary penalty should fall.

The Full Federal Court has now ruled that this is not permitted, with implications for all those subject to the jurisdiction of an Australian statutory regulator that has the power to seek pecuniary penalties.

This case follows the High Court in Barbaro v R, which held that the prosecution should not be able to nominate a sentencing range or outcome, because to do so impinges on the judicial discretion to impose penalties based on findings of fact and the weighing of those facts by the judge. The High Court also held that any submissions by a prosecutor on penalty is inadmissible opinion evidence.

Until the CFMEU case, it was unclear whether the Barbaro reasoning also applies to pecuniary penalty cases in civil proceedings. The recent decision confirms that it does.

This case will reduce certainty of outcomes for parties, likely leading to an immediate chilling effect on the resolution of proceedings by agreement with regulators.

Prior to CFMEU

In Barbaro, the defendants had entered guilty pleas to serious Commonwealth drug charges. During negotiations, the prosecution indicated to the defendants what it considered to be an appropriate sentencing range. The Court refused to hear the prosecution’s views on the range and sentenced the defendants to longer terms of imprisonment than indicated during pre-hearing negotiations.

On appeal, the High Court unanimously held that the refusal to hear submissions on the sentencing range did not deny the defendants procedural fairness and that the prosecution should not be permitted to make statements regarding sentencing range to the sentencing judge.

CFMEU

In CFMEU, the applicant regulator alleged that the two respondent unions had contravened the Building and Construction Industry Improvement Act 2005 (Cth) and sought pecuniary penalties and declaratory relief. The penalties were agreed between the regulator and the unions, and the Court had to determine whether those agreed penalties should be imposed.

The Court rejected submissions that penalty proceedings were distinct from criminal sentencing proceedings (as in Barbaro), stating that any breach of law “must be seen as an affront to the dignity of the community in which the law operates,” and that all penalty proceedings have the similar purposes of punishment, deterrence and rehabilitation.

The Court held that the process of fixing civil and criminal penalties is very similar and the reasoning from Barbaro applied equally in assessing pecuniary penalties. Relevantly, it found that:

  • The Court, and the Court only, is entrusted with the unfettered discretion to fix pecuniary penalties, criminal or civil.
  • Submissions by a statutory regulator can only address the evidence and the law and cannot include statements of opinion.
  • Any agreements as to the quantum or range of penalties were “no more than an expression of a shared opinion, and therefore inadmissible”.

The Full Court conceded that the judicial system depends to a significant extent upon agreement between the parties. Nonetheless, the judgment emphasises that the Court must perform the functions imposed upon it by law, and must be seen to do so in accordance with public expectations concerning the judicial process.

The Court also commented on the application of the “totality” principle in assessing pecuniary penalties and, in particular, the practice of assessing one penalty for a “course of conduct”. The Court confirmed that the correct approach in setting penalties for a number of contraventions is to fix a penalty for each contravention and only then adopt the totality principle to consider whether the total sum is just and appropriate. It made clear that it is only once the penalties for each contravention are determined that the Court should consider whether the offences were part of a single course of conduct or should otherwise be grouped together in some way.

The Court has listed the matter for further hearing.

Implications

As a result of the decision, a statutory regulator will not be permitted to make submissions to a Court on penalty – whether agreed or not. This has major implications for all regulators and respondent entities given the widespread use of both agreed penalties and submissions as to the appropriate range of penalty where penalty is not agreed.

It will still be possible for parties to put forward an agreed statement of facts (including in relation to the extent of any cooperation with the regulator’s investigation) and submissions relating to comparative case law on penalties. But submissions by a regulator or a respondent as to what discounts or amounts should apply will not be allowed.

The Commonwealth put forward evidence in CFMEU on the likely consequences if regulators could no longer make submissions as to the appropriate penalty amount. Evidence included that:

  • ACCC: approximately 70% of civil penalty cases brought and decided since 1 January 2010 involved agreed penalties.
  • ASIC: approximately 20% of civil penalty cases involve agreed penalties.[1]
  • Australian Tax Office: 25% of civil penalty cases have involved agreed penalties.
  • Fair Work Ombudsman: at least 75% of civil penalty cases have involved agreed penalties.[2]

Evidence before the Court set out the ACCC’s view that a majority of respondents “would not agree to resolve matters if the ACCC was not in a position to agree to put joint submissions to the Court on the recommended appropriate quantum of penalty,” thereby avoiding the cost of a contested hearing at least in relation to penalty, if not liability as well.

It is therefore expected that this case will result in a chilling effect on negotiated settlements, with changes required to the process undertaken by many regulators to resolve investigations into potentially unlawful conduct. By way of example, in its Immunity and Cooperation Policy for Cartel Conduct, the ACCC indicates that where parties cooperate in both civil and criminal matters they may be allowed to provide evidence to the ACCC about the value of their cooperation and the ACCC may subsequently recommend a penalty discount to the Court.[3] Following CFMEU, recommendations by a regulator as to the percentage penalty discount for cooperation will no longer be permitted.

The long standing practice of resolving proceedings on the basis of an agreed penalty or having submissions made by both sides as to the appropriate penalty in a case, gave respondents some certainty with an indication as to the likely range of outcomes.

Proceedings will now be run without any clear guidance or certainty as to the penalty being sought by the regulator and less prospect of agreement on that issue. In circumstances where there are no guidelines on setting penalty and no process of calculating amounts, the outcome on penalty will solely depend in each case upon the Court’s view of the circumstances put before it.

While we anticipate that this decision may be appealed to the High Court, for those parties in the midst of regulatory investigations, negotiations or proceedings, the game for now has changed.


[1] 59 of 85 civil penalty cases brought and now decided involved agreements with at least a significant number of respondents as to relief including pecuniary penalties.

[2] 2 out of 8 cases brought have involved agreements. This is a new enforcement tool of the ATO with relevant legislative provisions only recently adopted. The ATO stated that it would ordinarily include submissions as to amount of penalties regardless of whether there is an agreement.

[3] ACCC immunity & cooperation policy for cartel conduct, September 2014, p11-12. Similar statements are seen in “Cooperating with ASIC, Info 172” April 2013.

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