The High Court has today unanimously held that regulators and parties can make submissions to the Court regarding penalties in civil penalty proceedings. With this decision, the long and established practice of negotiating “settlements” with regulators and making joint submissions on an agreed penalty has been reinstated.

In addition to accepting that these penalty submissions can be made, the High Court also confirmed that it is the Court’s task to determine in all the circumstances whether an agreed or proposed penalty is an appropriate penalty.

The High Court’s decision in Construction, Forestry, Mining and Energy Union & Anor v Director, Fair Work Building Industry Inspectorate [2015] HCA 46 overturns the decision of the Full Court earlier this year which drastically changed the landscape of civil penalty proceedings by holding that submissions as to agreed or proposed penalties were not permissible.

The High Court’s decision is a welcome one as it provides more certainty and greater incentives for parties who engage in settlement or leniency discussions with a civil regulator. It should also facilitate the efficient allocation of both court and regulator resources.

Background

Prior to the Full Court’s decision earlier this year, it was established practice for parties to civil penalty proceedings to reach a settlement and make submissions to the Court as to the appropriate amount of the penalty to be paid by the contravening party. In fact, the Federal Court had previously considered that such submissions were relevant and would assist the Court when determining penalties.

The CFMEU proceedings involved alleged contraventions of the Building and Construction Industry Improvement Act 2005 (Cth), in respect of which the Director of the Fair Work Building Industry Inspectorate sought pecuniary penalties and declaratory relief.

The Full Court in CFMEU was required to consider whether the principles in Barbaro v R [2014] HCA 2 (a criminal case which held that a Court is not permitted to receive or act upon penalty submissions as they impinge upon the judicial discretion to impose a criminal penalty) applied more broadly to civil penalty matters.

The Full Court in CFMEU said that it did apply, on the basis that civil penalty proceedings are also penal in nature. Although CFMEU was in an industrial context, the decision affected all persons subject to the jurisdiction of Australian statutory regulators empowered to seek civil pecuniary penalties, including the ACCC.

Most significantly, the Full Court’s CFMEU decision meant that regulators were not permitted to make submissions on any penalty agreed between the parties or, for example, any penalty discount that should apply in exchange for a party making certain admissions or cooperating with the regulator (including in accordance with the ACCC’s Immunity and Cooperation Policy for Cartel Conduct).

Read our previous alert on the Full Court’s judgment here.

Rationale for the High Court’s decision

In overturning the Full Court’s decision, the High Court recognised that there is an important public policy interest in promoting the predictability of outcome in civil penalty proceedings. It found that the practice of receiving agreed penalty submissions increases the predictability of outcome for parties.

Although the High Court accepted that Courts in criminal and civil penalty proceedings often play a similar role, it distinguished Barbaro from civil penalty proceedings on a number of bases, including the important distinction between the roles of criminal prosecutors and civil regulators. In doing so, it confined the reach of Barbaro to criminal proceedings.

The High Court also had regard to the fact that settlements in civil proceedings involving agreements on penalties are commonplace, noting that there is generally scope for parties to agree on the facts and the appropriate remedy, and for the Court to be persuaded as to its appropriateness.

Consistent with the position prior to the Full Court’s decision, the High Court also confirmed that the task of the Court is to ask whether the penalty submitted (whether on an agreed basis or not) is an “appropriate amount”. In doing so, the Court must satisfy itself, having regard to all relevant matters, that the penalty is within the permissible range. This means that submissions as to penalty, whether or not made by agreement with the regulator, will need to be supported by evidence and submissions.

Implications

The High Court’s decision puts an end to the uncertainty that arose following the Full Court’s CFMEU judgment and restores the practice of negotiated settlements and agreed penalties in civil penalty proceedings that had developed over the last 35 years. Courts will again be entitled to receive submissions from parties as to agreed or proposed penalties, and then exercise their independent role in deciding whether to accept or reject those submissions.

Respondents to civil penalty proceedings will once more be free to engage in settlement discussions or extensively cooperate with regulators knowing that the Court will consider any agreed penalty figure and take it into account when assessing whether it is within the permissible range.

The High Court’s judgment also reinstates the incentive for companies potentially subject to cartel investigations under the Competition and Consumer Act 2010 (Cth) to become second- and third-in leniency applicants.