In a controversial decision overturning two decades of accepted practice, the Full Federal Court of Australia in Fair Work Building Industry Inspectorate v Construction, Forestry, Mining and Energy Union  FCAFC 59 (CFMEU case) has held that it is impermissible for regulators to make submissions to the court about the amount of an appropriate pecuniary penalty in civil penalty proceedings (whether on an agreed basis or otherwise).
Until this decision, it was common practice for parties to agree on penalties as a way of settling civil investigations commenced by Australian regulators, including those conducted by the Australian Competition and Consumer Commission (ACCC). Proceedings were then commenced requesting the award of penalties by the court. In those proceedings, the parties would make submissions to the court on the agreed penalty amount or recommended range. The court frequently gave significant weight to these submissions, and, almost invariably, adopted the agreed penalty amount sought by the parties at least where the quantum of the penalty fell within the applicable range for the contravention in question (as reflected in the case law and as against the maximum statutory penalty), and where the court was satisfied that the statement of agreed facts presented to the court was complete and accurate.
The decision in the CFMEU case has, at least for now, significantly curtailed the ability of multiple Australian regulators to negotiate agreed penalty amounts with respondent parties in advance of the commencement of proceedings. However, the Full Federal Court’s decision will not be the last word on the issue. Reflecting the significant impact of the CFMEU case on regulatory enforcement activity, the Commonwealth of Australia was recently granted leave to appeal the Full Federal Court’s decision to the High Court of Australia, Australia’s highest court, on an expedited basis. We expect the High Court will hear the case later in 2015.
In the meantime, all current or contemplated negotiations with the ACCC and other Australian regulators in civil penalty cases remain in limbo. While it is still possible to reach agreement about factual matters, and make submissions about comparable cases and the proper approach to determining a penalty, the practical consequence of the CFMEU case, pending any different decision by the High Court or legislative reform, is that parties have little or no certainty about the ultimate outcome.
Background to the CFMEU case
The Fair Work Building Industry Inspectorate (FWBII) had alleged that two unions had contravened the Building and Construction Industry Improvement Act 2005 (Cth), and sought pecuniary penalties against them. The unions had agreed to pay penalties in agreed amounts to the Director of the FWBII, and the Director had commenced proceedings in the Federal Court requesting the court to award penalties against the unions in those amounts, subject to the court’s discretion.
At pre-trial stage, the case was transferred to the Full Federal Court and the Commonwealth of Australia was granted leave to intervene and make submissions on the practice of pre-agreeing and making submissions on the penalty or the range within which a penalty should fall. This was as a result of the court’s concerns about the application of the decision in Barbaro v R (2014) 253 CLR 58. In Barbaro, the High Court had held that in criminal sentencing proceedings, submissions from the prosecution on the sentencing result or the range in which a sentence should fall were inadmissible and should not be received by a court. That decision was based on concerns that to do otherwise impinged on the court’s role in determining facts and weighing those facts in exercising its discretion to impose a sentence. A number of single judge decisions subsequent to Barbaro in the Federal Court, and in some state supreme courts had, however, proceeded on the basis that the principles in Barbaro did not apply in civil penalty cases.
Evidence from Commonwealth regulators
A number of Commonwealth regulators − the ACCC, the Australian Securities and Investments Commission, the Australian Taxation Office and the Fair Work Ombudsman (together, the regulators) − provided evidence on the practice of agreeing penalties prior to proceedings. The ACCC emphasised that the practice was integral to its capacity to conduct effective negotiations and resolve enforcement proceedings, particularly to avoid the cost of a contested hearing. It gave evidence that approximately 70 percent of civil penalty cases it had brought and which had been decided since January 2010 had involved agreed penalties. The Fair Work Ombudsman had similar statistics; each of ASIC and the ATO had smaller, but still significant, percentages, of civil penalty cases which had taken that path.
All the regulators identified multiple negative consequences that would likely flow from applying Barbaro. Those consequences included an increase in contested hearings in relation to penalty, liability or both, resulting in higher costs for both parties, and greater delays in resolving matters. The regulators considered this drain on regulator resources could ultimately result in fewer investigations being run, and a reduction in specific and general deterrence as a consequence. Further, it could mean parties had less incentive to cooperate with the regulators through the course of any investigation.
The Full Federal Court’s decision
The Full Court, while accepting that applying Barbaro would cause some inconvenience and increased expense to regulators and respondents in cases where agreed penalties had already been identified, did not accept that this was a significant or persuasive factor. It stated that it did "not expect that such additional cost will be significant", although the foundation for this expectation was not identified. It was generally dismissive of the regulators’ evidence and the Commonwealth’s arguments, and held that Barbaro applied to civil penalty proceedings, for the following reasons:
- The sentencing process in criminal proceedings, and the imposition of civil pecuniary penalties are very similar in nature: both involved punishment by the state and both required an assessment of a wide range of considerations, using the same "instinctive synthesis" as sentencing in criminal proceedings.
- The discretion to decide penalties, both civil and criminal, was one of the coercive powers of the state to punish or sanction wrongdoing which should be unfettered by submissions and agreements as to the extent of the punishment. While parties were free to put forward agreed facts, emphasise relevant evidence from comparable cases and make submissions on the general approach on fixing the penalty, the court had the ultimate responsibility to determine the appropriate penalty.
- The responsibility of deciding punishment is reserved for the court. Such responsibility must be seen to be entirely dispassionate and uphold faith in the judicial process. The regulator’s involvement in the investigation and negotiations renders it unlikely to hold a dispassionate view of all the circumstances. Further, their submissions as to agreed penalties demonstrated no established legal method in forming an opinion on the appropriate penalty to present to the court. This increased the risk of such opinions compromising the sentencing process or creating a negative public perception of the process.
Special leave to the High Court
The Commonwealth sought special leave to appeal to the High Court of Australia from the Full Federal Court’s decision, on the issue of whether the decision in Barbaro should apply to civil pecuniary penalties under the Act, so as to constrain the making or consideration of submissions as to the amount of the penalty. The Commonwealth clarified that it was not seeking a finding that a court was bound to accept a proposed or agreed penalty, but rather whether it was able to receive submissions on agreed penalty amounts.
The Commonwealth’s arguments on the special leave application emphasised again the differences in nature between criminal sentencing and pecuniary penalty proceedings. It also pointed to:
- the civil regulatory regime created under the Act, which operated against a backdrop of civil rather than criminal practices and procedures
- substantial differences in the nature of the submissions in Barbaro (which were about the "available range" of sentences that could be imposed, not about an appropriate and agreed penalty as was the case here) and
- the broad consequences of the Full Federal Court’s decision, including the disruption of decades of previously settled practice and the likely impact on the number of contested civil penalty proceedings and on regulators’ resources.
The High Court granted leave to appeal on an expedited basis.
Where does this leave negotiations with Australian regulators in the meantime?
Pending the High Court’s decision, all current and contemplated negotiations with Australian regulators to resolve civil penalty proceedings are affected by the considerations that the regulators identified in their evidence in the CFMEU case, and others:
- both regulators and respondents will face increased costs and uncertainty of outcome, relative to the position that existed prior to the Full Federal Court’s decision
- there will likely be a chilling effect on negotiated settlements
- respondents may more frequently elect to contest issues of penalty or even liability
- in turn, regulators may be less willing to commence proceedings with lower prospects of success, or may choose to litigate only those cases involving particularly serious conduct and
- even where parties do negotiate on the content of agreed statements of facts (which are still permitted), the uncertainty of outcome means that even greater focus will be given to the content of those statements as a remaining avenue for informing court determinations as to penalty.