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The Return of Certainty: Negotiated Resolutions in Civil Penalty Proceedings
- The High Court has determined that regulators can reach agreement with defendants on the amount of civil penalties to be jointly submitted to the Court.
- Consequently, corporates and individuals can now reach agreement with ASIC, the ACCC, the ATO and other regulators over civil penalties to be imposed as a result of enforcement action. This provides greater certainty in resolving disputes with regulators.
- The High Court’s decision resets the position which prevailed prior to the Full Federal Court decision which had placed the agreed penalty regime in doubt.
The High Court of Australia has handed down a unanimous judgment in Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate1 (Commonwealth v Director) that has restored a level of certainty for regulators and those who seek to enter into settlements with them. The High Court overturned the decision of the Full Federal Court in Director v CFMEU2 and held that, in civil penalty proceedings, courts are not precluded from considering and, if appropriate, imposing penalties that are agreed between the parties.
As discussed in our previous update, the Full Federal Court in Director v CFMEU held that it cannot receive, or act on, an agreement as to penalty figures or receive submissions from a regulator or other party as to the appropriate penalty range. The practical implication of the decision was that civil penalty proceedings could no longer be resolved by approaching the Court with an agreed penalty or an agreed penalty range. The Full Federal Court’s decision was based on the High Court’s judgment in Barbaro v The Queen3, which held that, in criminal proceedings, the prosecution should not nominate the specific sentencing result or the range within which it should fall. The Full Federal Court in Director v CFMEU rejected the submission that there was a sharp distinction between civil and criminal proceedings and ultimately held that Barbaro v The Queen applied to civil penalty proceedings as well.4
The High Court has now held that its decision in Barbaro v The Queen does not apply to civil penalty proceedings, meaning that the Court can receive and, if appropriate, accept agreed penalty submissions in civil penalty proceedings.5
Implications for regulators, companies and individuals
The High Court’s decision in Commonwealth v Director will have the following implications:
- For companies and individuals that are currently a party to a civil penalty proceeding bought by a regulator, the High Court’s decision will return the level of certainty they were previously afforded in relation to the likely outcome of the proceedings.
- Parties to civil penalty proceedings will be able to resolve civil enforcement matters by proposing an agreed penalty figure or range by way of joint submissions to the Court (subject to the proposed penalty being accepted by the Court as appropriate).
- In the absence of an agreement between the regulator and the company or individual as to the appropriate penalty figure, the parties to the proceeding can make their own submissions to the Court nominating an appropriate civil penalty.
Commonwealth v Director
The High Court's reasoning in its judgement was based on several principles:
(a) Distinction between criminal and civil penalties
The High Court rejected the Full Federal Court’s decision that Barbaro v The Queen applies to civil penalty proceedings. This is because criminal proceedings are governed by the protection of the accused, with the Crown having to prove all elements of its case beyond reasonable doubt. On the other hand, civil proceedings allow the parties to frame and limit the issues as they choose, allowing parties to compromise and agree on an appropriate remedy that is subject to the Court’s approval.6 On this basis, the High Court found that Barbaro v The Queen should be confined to criminal proceedings.
(b) Policy considerations in relation to allowing the regulator make submissions
The High Court discussed two main policy considerations in finding that it was in the public interest for regulators to take an active role in assisting the Court to impose an appropriate penalty. First, regulators are in a position to offer informed submissions about the effects of a contravention on the industry, as well as the level of penalty necessary to achieve compliance.7 Second, by increasing predictability of outcome for regulators and wrongdoers, agreed penalty submissions encourage contravening corporations to acknowledge contraventions, assist in avoiding lengthy litigation, and free the Court to deal with other matters.8
(c) The Court is not bound to accept the agreed penalty figure suggested by the parties
The High Court firmly rejected the submission that in accepting agreed penalty submissions, the Court would be acting as a ‘rubber stamp’. The High Court stated that the public could have ‘full confidence’ that judges would do their sworn duty and would reject any agreed penalty if they were not satisfied that it was appropriate in the circumstances.9
The High Court has affirmed that the principles to be applied in civil penalty proceedings where parties have made submissions as to an agreed penalty are those stated in NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission10 and Minister for Industry, Tourism & Resources v Mobil Oil Australia Pty Ltd.11 These cases found that because determination of a civil penalty is not an ‘exact science’, the Court should not ask itself whether it would have arrived at exactly the same penalty as that proposed by the parties. Rather, it should determine whether the parties’ proposal could be accepted as fixing an appropriate penalty, and, if so, the Court should accept the proposed penalty.12
Important considerations for the formulation of agreed penalty submissions
The Court is not bound by the penalty figure suggested by the parties. Therefore, the parties’ submissions will need to persuade the Court that the “proposal can be accepted as fixing an appropriate amount”13 and provide sufficient reasons as to why the submitted penalty is appropriate in the circumstances.
For businesses and individuals seeking to agree facts and an appropriate pecuniary penalty figure with a regulator, it is important to ensure that the submissions to the Court and supporting statement of facts are accurate and provide adequate evidence or information in support of the agreed penalty submission. The Court will scrutinise the material presented to it carefully in order to satisfy itself that it has sufficient information to determine whether the agreed penalty is appropriate. If the submissions lack sufficient information or evidence the Court may request additional evidence, information or verification and, if that is not forthcoming, may decline to accept the agreed penalty.
1 Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate  HCA 46 (Commonwealth v Director).
2 Director, Fair Work Building Industry Inspectorate v Construction, Forestry, Mining and Energy Union  FCAFC 59.
3 Barbaro v The Queen  HCA 2.
4 Commonwealth v Director at .
5 Director, Fair Work Building Industry Inspectorate v Construction, Forestry, Mining and Energy Union  FCAFC 59 at .
6 Commonwealth v Director at , .
7 Ibid at .
8 Ibid at .
9 Ibid at .
10 NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285.
11 Minister for Industry, Tourism & Resources v Mobil Oil Australia Pty Ltd (2004) ATPR 41-993.
12 Commonwealth v Director at .
13 NW Frozen Foods (1996) 71 FCR 285 at 291.