In brief

The recent decision of the Full Court of the Federal Court of Australia in FWBC v CFMEU1 has significant implications for regulators and respondents seeking to agree on a penalty in civil penalty proceedings.

Applying the 2014 decision of the High Court in Barbaro, which related to submissions as to penalty in criminal sentencing hearings, the Full Court found that it could not receive, or act on, submissions from parties on an agreed penalty or the range within which a penalty should fall in the case of civil penalty proceedings.

The Full Court was exercising its original (not appellate) jurisdiction, meaning its focus was the approach to be taken in the case before it, not to establish general rules as to the conduct of all such proceedings. Nonetheless we anticipate the decision will establish a precedent for similar proceedings.

The decision is likely to alter the long-standing practice for negotiated outcomes with regulators. It had become common in proceedings brought by regulators, including the Australian Competition and Consumer Commission (ACCC) and the Australian Securities and Investments Commission (ASIC), to reach a resolution between the parties by way of negotiated settlement. This would be achieved by the regulator and the respondent approaching the court with an agreed statement of facts and an 'agreed penalty', requesting that the court convert that penalty into formal orders. While the decision on penalty remained a matter for the Court, the position agreed between the regulator and the respondent would be given significant weight by the Court. However, given the Full Court’s view that any agreement on the appropriatepenalty figure is no more than an expression of a shared opinion, and thus inadmissible, this practice will unlikely be permitted in future Federal Court cases.

Regulators and respondents can still reach agreement as to factual matters, identification of relevant comparable cases and the proper approach to fixing the penalty for submission to the Federal Court. Parties are still entitled to make submissions as to the relative seriousness of the contraventions, explain the relevant principles, and refer to comparable decisions.

While the decision does not rule out the possibility of reaching a settlement with a regulator, the uncertainties in terms of ultimate outcome are materially greater. It is likely that in the negotiations there will be even greater focus on the content of agreed facts.

The Full Court’s decision may not be the final word on the matter. The prospect of the Commonwealth seeking special leave to appeal to the High Court is high. Given the serious implications of the decision, there is a real prospect of the High Court granting leave. Even if the High Court refuses special leave or grants special leave but affirms the decision on appeal, legislative reform is a real possibility to allow for agreed penalties.

Background

The applicant, the Director of the Fair Work Building Industry Inspectorate, had alleged that the respondents contravened the Building and Construction Industry Improvement Act 2005 (Cth) and sought pecuniary penalties against them.

Relevantly, the Commonwealth of Australia intervened in relation to issues arising out of the decision of the High Court in Barbaro. The High Court held in Barbaro 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.

The ACCC led the Commonwealth’s intervention and argued that the reasoning in Barbaro should not apply to the imposition of civil penalties. Evidence relating to policy arguments was also presented from ASIC, the Australian Taxation Office and the Fair Work Ombudsman.

Issues addressed in the decision

The effect of the Barbaro decision on pecuniary penalties

The Full Court held that the Barbaro reasoning applies to civil pecuniary penalty cases. This means that in determining the amount of the penalty to impose, the Court should have no regard to the agreed penalty figures, other than to the extent that the agreement demonstrates a degree of remorse or cooperation on the part of each respondent. This is contrary to reasoning in other Federal Court decisions where judges had considered the issue and held that the reasoning in Barbaro did not apply to civil penalty proceedings.

The Full Court emphasised that submissions as to agreed penalty figures, and the range within which the penalty should fall, are 'equally as inappropriate' in pecuniary penalty cases as in criminal sentencing.2 It was noted that any agreement on the appropriate penalty figure is no more than an expression of a shared opinion, and is therefore inadmissible.3 The Full Court considered that the amount of the agreed penalty may simply reflect the point at which the regulator and respondent considers that it is in its interest to agree.4

As to an agreed penalty, the Full Court held that any admission of liability or willingness to submit to the imposition of a substantial penalty may be a relevant consideration in imposing a pecuniary penalty.5 It may therefore be a mitigating factor in determining an appropriate penalty figure.

The Federal Court’s practice in fixing pecuniary penalties

Relevantly, it is a long-standing, common practice of regulators to negotiate with respondents and make a submission to the Federal Court, often jointly, on the actual figure to be adopted or the range within which the penalty should fall. The Federal Court has generally endorsed any such penalty provided that it fell within the permissible range for a particular contravention, and provided the agreed statement of facts presents the court with a complete and accurate picture.6

The Full Court considered it is at least unorthodox to suggest that the parties may come to the Court with an agreed penalty, on the basis that if the Court is not willing to adopt it, they can go away and assemble information which may persuade the Court to change its mind. The Full Court accepted that while this may occasionally occur, it should not be encouraged and parties should not expect that the Court will proceed in that way.7

The role of a statutory regulator compared with a prosecutor

The practice criticised by the High Court in Barbaro was specific to prosecutors in the criminal sentencing context. Whilst the Full Court in this case accepted that the duties of the prosecution are not simply to be imposed upon a regulator, the Full Court did not accept that criminal procedure is necessarily different from civil procedure. In fact, the Full Court considered that the similarities between the sentencing process and that for imposing a pecuniary penalty are 'obvious and compelling'.8 The Full Court held that the Barbaro decision is relevant to the conduct of pecuniary penalty proceedings because it concerns the proper content of submissions, having regard to the nature of the discretion to be exercised, the mechanics by which such discretion is to be exercised, the public interest and public perceptions.9

The Full Court did not accept arguments based on the distinct roles and interests of prosecutors and regulators nor did it accept arguments focused on the pre-eminence of deterrence as a rationale for civil penalties as distinct from the focus on punishment in criminal penalties. Although the regulator has a specialist role, with different interests and distinctive functions from a criminal prosecutor, the Full Court did not accept that this meant that the Barbaro reasoning would not apply in a civil penalty context. Specifically, the Full Court concluded that both processes address punishment by the State.10 The Full Court considered that even if the penalty in a civil proceeding goes to the Commonwealth and not the regulator, the latter may be driven by governmental pressures to maximise results.11

Policy arguments for negotiated outcomes

The regulators emphasised in evidence put before the Full Court that their ability to make joint submissions with respondents as to penalty is critical to their capacity to efficiently conduct negotiations and resolve enforcement proceedings. Although the Full Court conceded that the judicial system depends upon agreement between opposing parties,12 it considered that it cannot ignore the reasoning in Barbaro simply because it 'may make negotiation and mediation easier'.13

Whilst the Full Court acknowledged that it should adopt practices designed to achieve efficiency in the dispatch of its work, the Court said that such practices must not derogate from the proper performance of its duties.

Implications

This decision has significant implications for current and future negotiations with regulators on penalties.

Parties are unlikely to be able to make submissions to the Federal Court on the appropriate penalty figures or ranges in future. However, the Full Court stated that it expects regulators and offenders to continue to seek to reach agreement as to factual matters, identification of relevant comparable cases and the proper approach to fixing the penalty. Specifically, it was noted that parties are entitled to make submissions as to the relative seriousness of the contraventions, explain the relevant principles, and refer to comparable decisions.14

While the decision does not rule out the possibility of reaching a settlement with a regulator, the uncertainties in terms of ultimate outcome are materially greater. It is likely that in the negotiations there will be even greater focus on the content of agreed facts.

The Full Court’s decision may not be the final word on the matter. There is a significant prospect that the Commonwealth will seek special leave to appeal to the High Court. Given the serious implications of the decision to the resolution of civil penalty cases with regulators, there is also a real prospect of the High Court granting leave to hear the matter.

However, even if the High Court refuses to grant special leave or grants special leave but affirms the decision on appeal, legislative reform is a real possibility to allow for agreed penalties in order to facilitate negotiated outcomes.