Litigation notes No. 25

Number 25
19 June 2015
 

In this issue

Application of Barbaro: resolving civil penalty proceedings by agreement

Tim Begbie
Senior General Counsel Dispute Resolution
 

Katrina Close
Senior Executive Lawyer
 

Application of Barbaro: resolving civil penalty proceedings by agreement

On 1 May 2015, the Full Court of the Federal Court handed down its decision in Director, Fair Work Building Industry Inspectorate v CFMEU [2015] FCAFC 59 (CFMEU).¹In a detailed judgment it held that the High Court's decision in Barbaro v The Queen (2014) 305 ALR 323 (Barbaro)applied to the imposition of civil pecuniary penalties. The Commonwealth has been grantedspecial leave to appeal to the High Court.

In the civil penalty context the practice of regulators and respondents has been to make submissions on proposed penalty amounts; this has been done jointly on an agreed basis when possible. This practice has been adopted for more than 30 years and was endorsed by the Full Federal Court in NW Frozen Foods Pty Ltd v ACCC (1996) 71 FCR 285 (NW Frozen Foods) and Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd (2004) ATPR 41–993 (Mobil Oil). The ability to put these submissions has been found by regulators and respondents to be a useful and efficient way to present their respective positions to the Court. Additionally, in circumstances where agreement as to proposed penalty amounts could be reached, the scope for such submissions has been found to be an important factor in negotiations between regulators and respondents as to admissions, facts and penalties. In Barbaro a majority of the High Court held that, in criminal sentencing proceedings, the prosecution was not permitted to make submissions on the 'available range' within which the sentence should fall (that is, the upper and lower bounds beyond which appellable error might later be found).²

The decision in Barbaro gave rise to immediate questions about whether this practice could continue. Since Barbaro, more than 15 first-instance decisions of single judges of the Federal Court have held that the reasoning in Barbaro does not apply to civil penalty proceedings. Consistent with previous practice, judges in numerous other cases have received and acted upon submissions from the parties on penalty amounts.

However, CFMEU was the first time the Full Court had considered the application of Barbaro. The Full Court stated unequivocally that Barbaro does apply to civil pecuniary penalty submissions. Following the CFMEU decision, the position is that the Court should not have regard to submissions on what is said to be the appropriate penalty amount, whether agreed or not. Submissions on these matters are now impermissible (with one limited exception, discussed below).

This judgment is likely to affect all Australian statutory regulators with the power to seek pecuniary penalties and has heralded a significant change in the way parties approach the resolution of civil penalty proceedings.

Background

In CFMEU, the Director commenced the proceeding on 23 May 2013 alleging that the 2 respondent unions had contravened the Building and Construction Industry Improvement Act 2005 (Cth). The parties filed an agreed statement of facts and submitted to the Court penalty amounts that the parties agreed were appropriate.

On 10 April 2014, the Chief Justice directed the Full Court of the Federal Court, exercising the Court's original jurisdiction, to consider whether the reasoning in Barbaro applied to the proceedings. The Commonwealth was granted leave to intervene on that question and funded counsel to appear as contradictor to the Commonwealth's arguments.

The Full Court's reasoning

The Full Court (Dowsett, Greenwood and Wigney JJ) delivered a joint judgment. The decision covers a broad range of considerations, summarised below.

Receipt of submissions on appropriate penalty

Applying the High Court's reasoning in Barbaro, the Full Court held that submissions from the parties on an appropriate penalty amount to be imposed, or the range in which that penalty might fall, were merely opinion and neither evidence nor submission. Consequently, such submissions could not be made by the parties or received by the Court (at [239]–[241]). In coming to its decision, the Full Court analysed and departed from a number of previous cases:

• The Full Court gave detailed consideration to the leading Full Court cases of NW Frozen Foods and Mobil Oil, which supported the making of submissions (in particular on an agreed basis) on the appropriate penalty amounts. While the Court ultimately stated that it departed from those decisions only because Barbaro required it (see [243]), its discussion of NW Frozen Foods and Mobil Oil indicated substantial reservations about aspects of the reasoning in those cases in any event (see [43]–[63]).
• The Full Court did not accept the reasoning in Australian Competition and Consumer Commission v Energy Australia Pty Ltd [2014] ATPR 42-469³ and Australian Competition and Consumer Commission v Mandurvit Pty Ltd [2014] FCA 464 (which had followed NW Frozen Foods and Mobil Oil and held that Barbaro did not apply to civil penalty proceedings). The Full Court also departed from the subsequent firstinstance decisions made by single judges over the past 14 months that have taken the same approach (see [117]–[143]).
• The Full Court considered the decision of the Victorian Court of Appeal in Matthews v R [2014] VSCA 291 (Matthews). In that case the majority judges, Warren CJ and Nettle and Redlich JJA, took a more confined view of the effect of Barbaro than
  minority judges Priest JA and Lasry AJA. The Full Court indicated that it preferred the view of the minority judges (see [99]–[106]).(It is interesting to note that the majority in Matthews expressed the view (at [29]) that Barbaro did not apply in civil penalty proceedings. The Full Court did not expressly address this but clearly disagreed.)

The Full Court's decision does not mean that parties cannot make any submissions at all concerning penalty. Rather, the Full Court held that:

• there may be relevant considerations for which expert evidence is necessary and this expert evidence may be given by agreed statement (at [21])
• this expert evidence may include evidence based on the regulator's expertise, provided it is properly put into evidence (at [130])
• the parties may submit statements of agreed facts and joint submissions but not opinions or views that are neither evidence nor submission (at [47] and [53])
• the parties may still make submissions, including joint submissions, that identify relevant comparable cases and the proper approach to fixing penalty (see [98], [237]).
   

The judgment further observed that courts may have regard to agreed penalty amounts 'to the extent that the agreement demonstrates a degree of remorse and/or cooperation on the part of each respondent' (at [3], see also [115], [158], [231]). Submissions of the contravenor, separately, on its willingness to accept a substantial penalty may also be relevant to contrition but not determinative of the appropriate penalty amount (at [241]).
 

Parallels between criminal sentencing and civil penalty proceedings

In considering whether Barbaroapplied to civil pecuniary penalty submissions, the Full Court held that a number of parallels between criminal sentencing proceedings and civil penalty proceedings meant that there was no basis for distinguishing Barbaro (see [3], [239], [242]). In particular, the Court considered that there were important similarities in the following respects:

• Purposes of sentences/penalties: The Court started from the proposition that pecuniary penalties were penal in nature (see [10]–[14]). It then held that, as criminal sentencing and civil penalties both involved punishment, in fixing pecuniary penalties the 'recognised goals of punishment' from the criminal context would apply to differing degrees depending on the case and the legislation. These goals include deterrence, retribution, education and rehabilitation (see [64]–[75]) The significance of this approach was its rejection of one of the Commonwealth's arguments as to why submissions on penalty amounts were consistent with parliamentary intention. The Commonwealth had relied upon the approach taken by French J in Trade Practices Commission v CSR Ltd (1991) ATPR 41–076 (CSR) (followed in numerous cases and civil penalty regimes, including at Full Court level before Barbaro) that the primary purpose of pecuniary penalties was deterrence as opposed to other criminal sentencing objectives such as retribution and rehabilitation. The Commonwealth submitted that the Building and Construction Industry Improvement Act 2005 (Cth), like other civil regulatory statutes, provided for a range of discrete remedies, each with their own recognisable purposes (for example, reform, compensation and prevention). Unlike criminal prosecutors, civil regulators were required to identify, plead and pursue the particular kinds of orders that were to be sought. Parliament had therefore given them a different role from that of a prosecutor. The Commonwealth argued that to treat civil penalties as engaging the same purposes and approach as criminal sentences would not respect the parliamentary choice of these remedies as an alternative to criminal prosecution. In rejecting these arguments the Full Court distinguished this aspect of CSR and signalled a departure from the cases that have followed it.
• Instinctive synthesis: The Court found it to be significant that both criminal sentencing and the imposition of pecuniary penalties involves an instinctive synthesis of various factors to derive a final sentence/penalty (see [3], [139], [192], [239]).
• Perceptions of the sentencing/penalty process: The Full Court found that concerns raised in Barbaro about the appropriateness of the prosecution nominating sentences also applied to the practice of regulators agreeing or separately recommending penalty amounts or ranges. In particular, the judgment emphasised that the imposition of pecuniary penalties involved an exercise of coercive power by the Court that should be unfettered and entirely independent and should be seen by the public to be so (see [62], [82], [133], [145], [165], [183], [190], [206], [214], [239]–[241]). Their Honours held that the practice of parties agreeing or recommending penalty amounts was an inappropriate intrusion on the exercise of this discretion.
• Other concerns that the Court raised in this regard included that it is difficult for the Court to properly understand the method by which any suggested penalty amount was formulated. It further indicated that any agreed amount would not reflect a dispassionate view of an appropriate penalty; rather, it would reflect the interests of the parties (see [139]–[141], [205], [238]–[239]).

Other issues

In the course of its reasons the Full Court made observations on other issues that regulators should be aware of:

• Course of conduct: The Court expressed concerns about the parties' proposal that a single penalty amount be imposed for a course of conduct. It indicated an initial view (subject to hearing further submissions) that the legislation required the Court to fix a penalty amount for each contravening act by a respondent and only consider whether those acts were part of a single 'course of conduct' at the time of applying the totality principle (see [40]–[45]). 
  
  If this view were to be affirmed on further hearing, it would seem to represent a departure from the current approach to the law on courses of conduct and totality.⁴ In particular, it would seem to prevent the practice of imposing single penalty amounts for courses of conduct – a practice that has been applied in many civil penalty cases, including by the Full Court and the High Court.⁵
   
• Comparable cases: The Full Court decision also appears to heighten the role to be played by submissions of the parties in making comparisons with penalties in earlier cases (see [182], [237], [246]). It contrasts this with 'the not infrequent suggestion, in pecuniary penalty cases, that earlier decisions are of little value': see [252]–[253]. Such cases include earlier Full Court decisions.⁶
  
  Although the present Full Court decision suggests a departure from these earlier Full Court decisions, the earlier decisions have not been found to be 'plainly wrong' or overruled. Therefore, there may now be some tension in Full Court authority on this point. There may also be a question about the guidance that can be provided by past penalty cases where the penalties were imposed in accordance with joint submissions of the parties.

Implications for regulators

An aspect of the evidence from regulators in the CFMEU proceedings was that the capacity to make submissions on penalty
amounts, including on an agreed basis, was important in th efficient and effective resolution of civil penalty proceedings; an inability to negotiate by reference to penalty amounts could lead to longer, contested hearings and an inability to bring as many cases. The Full Court stated that it could not disregard the application of Barbaro 'simply because it may make negotiation and mediation easier' (at [182]). Their Honours stated that they did 'not expect that such additional cost will be significant' (at [239]).
 

For regulators falling within the ambit of the decision, the immediate consequences are various:

• Cases presently reserved, or approaching hearing, in which submissions on quantum of penalty have been made cannot now be decided by reference to those submissions. Issues arise as to whether parties will wish to, or should be able to, make further or different submissions.
• Cases that have proceeded by agreement on the basis of a shared view on the submissions to be made on the appropriate penalty can no longer proceed to finality on that basis. Issues arise as to whether the inability to give effect to the parties' underlying agreement means that those parties should be given an opportunity to revise pleadings, admissions, evidence, agreed facts, submissions and the like.
• Agreement cannot now be reached with respondents on an amount of penalty to jointly recommend to the Court as appropriate in all the circumstances. Accordingly, settlements with respondents will need to be confined to agreements on facts rather than facts and penalty amount. Issues arise as to how best to pursue those negotiations.
• The regulator cannot make submissions on the amount of penalty that it considers appropriate for the Court to impose, including submissions that explain the proposed approach to multiple contraventions, courses of conduct and totality.
  Although submissions on appropriate penalty cannot be made by reference to particular proposed amounts, in some cases they will be able to be made by reference to other numeric factors, such as the scale set by the maximum penalty and the profit made from the wrongdoing.
• The regulator can make submissions on the factors, applicable legal principles, comparative cases and other considerations relevant to penalty without nominating a penalty amount. While it remains open in theory for these submissions to be made jointly, without the option of specifying a penalty amount this seems unlikely to be done in practice.
• There may still be some scope to accommodate submissions of the respondent on the penalty it would be prepared to submit to as an indicator of contrition. The form this takes, and the regulator's ability to respond to these submissions, are matters to
  be explored.

The Full Court's decision is binding on single judges and parties. Single judges in reserved cases are already taking steps to ensure that decisions are in line with CFMEU. Likewise, for existing and anticipated proceedings, regulators and respondents are seeking to take steps to ensure consistency with the Full Court decision. A number of civil penalty decisions since CFMEU already show the various ways in which the Court may manage some of the above questions.⁷

Subject to any change in the law, it remains to be seen now:

• how inclined respondents will be to seek to resolve civil penalty proceedings other than by way of fully contested liability and relief hearings
• the impact of the new approach on hearing time, costs and other resources
• the extent of any impact on regulatory action overall.

Responding to the decision

In CFMEU, AGS acted for the Commonwealth on instructions from a number of key regulatory agencies (including the Australian Competition and Consumer Commission, the Australian Securities and Investments Commission, the Australian Taxation Office
and the Fair Work Ombudsman) and the Attorney-General's Department.

The Commonwealth applied to the High Court for special leave to appeal the decision. The application was made on an expedited basis and special leave was granted to the Commonwealth on 18 June 2015. The appeal is likely to be heard in October 2015. AGS
continues to represent the Commonwealth in relation to the appeal. The CFMEU has separately applied for special leave to appeal.
 

Pending developments in the High Court, careful consideration is being given to how best to address issues arising from the CFMEU decision in other cases. AGS is providing ongoing assistance to regulators on these matters.
 

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Endnotes

¹ Available at http://www.austlii.edu.au/au/cases/cth/FCAFC/2015/59.html.

² For further details see AGS Express Law, Submissions on penalty ranges – High Court's view and implications for civil regulators,
11 March 2014: http://www.ags.gov.au/publications/express-law/el209.html.

³ This was the first civil penalty judgment where detailed consideration was given to Barbaro: see AGS Express Law, Submissions
on penalty post Barbaro – update for civil regulators, 16 May 2014: http://www.ags.gov.au/publications/express-law/el215.html.
'... submissions from the parties on an appropriate penalty amount to be imposed, or the range in which that penalty might fall,were merely opinion and neither evidence nor submission.'

⁴ See Clean Energy Regulator v MT Solar Pty Ltd [2013] FCA 205 [75]–[89]; and Registrar of Aboriginal and Torres Strait Islander
Corporations v Matcham (No 2) [2014] FCA 27 [195]–[201].

⁵ See, for example, NW Frozen Foods at 285, 295–296; Singtel Optus Pty Ltd v ACCC (2012) 287 ALR 249, 266 [71]; ACCC v TPG Internet Pty Ltd (2013) 250 CLR 640, 658 [60]–[61], 660 [70] (restoring the primary judge's orders).

⁶ See, for example, NW Frozen Foods at 285, 295–296; Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith (2008) 165 FCR
560, 563–564 [12]–[14], 573 [56]–[57], 579 [87]; Plancor Pty Ltd v Liquor, Hospitality and Miscellaneous Union (2008) 171 FCR 357,
368–369 [36], 376 [60]; Singtel Optus Pty Ltd v ACCC (2012) 287 ALR 249, 264 [60].

⁷ See, for example, Tax Practitioners Board v HP Kolya Pty Ltd [2015] FCA 472 [89]–[102]; Director, Fair Work Building Industry
Inspectorate v Foxville Projects Group Pty Ltd [2015] FCA 492; and Comcare v Transpacific Industries Pty Ltd [2015] FCA 500 and
ACCC v Chopra [2015] FCA 539.

About the authors

Tim Begbie has a busy counsel practice, appearing for Commonwealth agencies in civil penalty
proceedings and regulatory and enforcement matters in the Federal Court. He also appears in national
security, administrative law and other public law matters.

Katrina Close handles complex civil penalties litigation and advice for clients including the Australian
Competition and Consumer Commission (ACCC) and the Australian Communications and Media
Authority (ACMA).
 

AGS contacts

AGS has a team of lawyers specialising in civil regulatory litigation. For further information on the articles in this issue, or on other civil regulatory litigation issues, please contact Tim Begbie or Katrina Close.

Tim Begbie
Senior General Counsel Dispute Resolution
tim.begbie@ags.gov.au

Katrina Close
Senior Executive Lawyer
katrina.close@ags.gov.au

For information on general litigation and dispute resolution matters and services, please contact any of the lawyers listed below.

National Group Leader Dispute Resolution
Matthew Blunn
T 02 6253 7424

Chief Solicitor Dispute Resolution
Simon Daley PSM 
T 02 9581 7490

Chief Counsel Dispute Resolution
Tom Howe PSM QC 
T 02 6253 7415

ISSN 1448-4803 (Print)
ISSN 2204-6283 (Online)
 

The material in these notes is provided for general information only and should not be relied upon for the purpose of a particular matter. Please contact AGS before any action or decision is taken on the basis of any of the material in these notes.