Despite recent successes by regulators, decision-makers should carefully consider the burden of proof, any available defences, and whether there is a contradictor before bringing undefended proceedings.

What is the problem decision-makers face?

When making decisions about whether to commence undefended civil penalty proceedings it would be easy to overlook some key issues. Bringing undefended proceedings could seem like an easy win but can be more complicated that it first appears.

This article walks administrative decision-makers through some of the key pitfalls before they commence proceedings.

How did the Gallop and Cornerstone cases affect this?

The Federal Court recently handed down the largest penalty ever imposed for a breach of the Australian Consumer Law, of $26.5M, against a vocational training college (Australian Competition and Consumer Commission v Cornerstone Investment Aust Pty Ltd (in liq) (No 5) [2019] FCA 1544). The college had gone into liquidation, and the proceedings were not defended.

Earlier in the same week, the Federal Court found in favour of ASIC in civil penalty proceedings against Gallop International Group Pty Ltd, and those proceedings were also undefended (Australian Securities and Investments Commission v Gallop International Group Pty Ltd, in the matter of Gallop International Group Pty Ltd [2019] FCA 1514).

However, regulators should not become complacent because of those successes, as there are a number of pitfalls associated with bringing undefended civil penalty proceedings.

  • The fact that proceedings are not defended does not change the burden of proof. The regulator must still prove all of the elements of the civil penalty offence on the balance of probabilities. In the Gallop case, the court noted "The principle stated in Jones v Dunkel does not otherwise operate to fill gaps in ASIC’s case, nor does it operate to “convert conjecture and suspicion into inference." This can create difficulties in undefended proceedings, because the usual sources of evidence, such as evidence obtained by compulsory process is not available. This means that Regulators need to look carefully at the sources of evidence that are available, and make sure that there is evidence to support each element of the offence.
  • Do not assume that exceptions or defences cannot apply just because the defendant does not raise them. The Gallop case is a good illustration of this. While in many cases a defendant will have an evidentiary burden in relation to proving the existence of a defence or exception, in some cases the Plaintiff will be required to prove that the exception does not apply.Careful consideration should be given to the words of the provision to determine whether it will be necessary to bring evidence in relation to the exception or defence.
  • It may be necessary to arrange a contradictor. In some circumstances the Court may require a contradictor to be appointed (and funded) by the Regulator. In the Gallop case Justice Charlesworth was content to consider the named defendant to be a 'proper contradictor' notwithstanding that it was in liquidation and the liquidator made no submissions.The general principle for obtaining declaratory relief requires "someone presently existing who has a true interest to oppose the declaration sought" although all that is required is to identify someone who has such an interest – it is not necessary for them to exercise it.

After Gallop and Cornerstone here's what you need to remember

So long as a regulator is aware of the possible risks of taking undefended proceedings, these recent cases show that these proceedings can be successful, and can have a place in the regulator's arsenal. But it is important to go into such proceedings with eyes open, having considered:

  • what elements will the regulator need to prove on the balance of probabilities?
  • is it necessary to address the availability of defences or exceptions? and
  • is there a proper contradictor in this proceeding?