The recent decision of ASIC v Ingleby1 in the Victorian Supreme Court of Appeal signals a new approach by Victorian courts to negotiated settlements of civil penalty proceedings.
The court of Appeal held that the generally accepted approach regarding negotiated settlements, which was endorsed by the Full Federal Court in NW Frozen Foods Pty Ltd v ACCC2(NW Frozen Foods), is ‘plainly wrong’3.
The decision may lead to courts in different jurisdictions taking different approaches to approval of agreed penalties. This may in turn affect regulators’ decisions about which jurisdiction (being in the Federal Court or State Supreme Court) they choose to prosecute civil penalty proceedings.
It has become common practice for proceedings brought by various regulators, including ASIC, to be resolved between the parties by way of negotiated settlement.
The regulator and the defendant then approach the court with an agreed statement of facts and an ‘agreed penalty’, and request that the court convert that penalty into formal orders.
The Federal Court approach – NW Frozen Foods
In NW Frozen Foods, the Full Federal Court held that the court will ordinarily impose the penalty agreed by the parties, provided it is within ‘the permissible range’ for the particular breach. Furthermore, the court will not depart from an ‘agreed penalty’ merely because it might have selected a different penalty.
In determining whether or not an agreed penalty is within ‘the permissible range’ the court will have regard to various matters, including pecuniary penalties imposed in other cases and in similar circumstances.
To adopt this approach, the court must be satisfied that it has been given accurate, reliable and complete information to enable it to determine whether the agreed figure is within the permissible range.4 If the court is not satisfied that it has sufficient information to support the agreed penalty, it can request additional evidence or information. If that is not provided, then the court may decide to impose a different penalty from that agreed between the parties.
The approach does not oblige the court to fix the penalty which has been agreed between the parties, but acknowledges that there is a public interest in promoting settlement of litigation and thereby encouraging parties to reach agreement.
In the vast majority of cases however, the agreed penalty is in fact approved by the court. This had led to concern that the court merely ‘rubber stamps’ agreements and simply ratifies what has been agreed between the parties.
The approach of the Victorian Supreme Court of Appeal – ASIC v Ingleby
A different approach was taken by the Full Court of the Victorian Supreme Court in ASIC v Ingleby. The decision concerned a breach of director’s duty and section 180 of the Corporations Act 2001 (Cth), by the CFO of AWB Limited with regards to the ‘Oil for Food’ program.
The maximum pecuniary penalty prescribed by the Act for a breach of section 180 is $200,0005. However ASIC and the defendant instead agreed to a pecuniary penalty of $40,000 and that Mr Ingleby be disqualified from managing a corporation for 15 months.
The trial judge rejected the agreed penalty and instead imposed a penalty of $10,000 together with a disqualification for approximately 4 and a half months. This was based on the set of agreed facts and evidence provided to the judge, which showed that Mr Ingleby had little involvement in the scandal, which led the trial judge to decide that the agreed penalty was too harsh.
On appeal, ASIC sought nothing more than the imposition of the agreed penalty. As a result, Mr Ingleby chose not to participate in the appeal.
The Victorian Court of Appeal however held that the agreed facts presented to the trial judge were inadequate and did not present an accurate assessment of Mr Ingleby’s involvement in the enterprise. Accordingly, the Victorian Court of Appeal found that the trial judge should have instead sought more evidence from the parties before determining the appropriate penalty. The Victorian Court of Appeal decided that the agreed penalty of $40,000 was inadequate and noted that they would have fixed a penalty in excess of that amount.
Ultimately however, the Victorian Court of Appeal imposed only the agreed penalty, due to the fact that Mr Ingleby was entitled to assume that the court would not impose a penalty exceeding that amount, as that was all that was sought by ASIC on appeal.
Nonetheless, the decision represents a new approach to the way in which courts might approach negotiated penalties.
In reaching its decision, the Victorian Court of Appeal departed from the well-established principles in NW Frozen Foods on the basis that its approach to agreed penalties is ‘plainly wrong’. It therefore decided that it was not bound to follow that decision.
A new approach?
The Victorian Court of Appeal took a new approach to the treatment of negotiated penalties. The court confirmed that it should not simply impose the figure agreed by the parties if that figure is within the ‘permissible range’, but instead that the court must independently arrive at its decision as to the appropriate penalty, unfettered by what the parties have agreed, but giving weight to the agreed penalty.
The Victorian Court of Appeal considered that the approach in NW Frozen Foods, in requiring the trial judge to consider whether an agreed penalty is within the appropriate ‘range’, to be exercising an appellate role. Instead, the trial judge should be independently deciding the penalty, albeit it may be informed by what is agreed between the parties.
In reaching that decision, the Victorian Court of Appeal noted that civil penalties are designed to operate as sanctions and be punitive, and that there are important similarities between the fixing of a civil penalty and the criminal sentencing process.
It emphasised that the penalty regime is an exercise of judicial power, and that the current approach in NW Frozen Foods ignored the important role that courts must play in ensuring that serious contraventions are adequately punished.
However, the Victorian Court of Appeal maintained that an agreed penalty will remain highly relevant to the court in its assessment as to what penalty to impose, but noted that the court should not be dictated by any such agreement or ‘rubber stamp’ that agreement, even if it falls ‘within the range’. It reiterated that the penalty is to be imposed by the court, and not by the regulator as agreed between the parties.
In addition, it confirmed that it is preferable for the parties to agree to a ‘range’ of penalty, rather than submitting a precise figure.
The decision emphasises that the power to assess and impose penalties is the responsibility of the court, and that it should be unrestrained by what has been agreed between the parties.
The decision also suggests a possible divergence, at least for now, in the approach to negotiated settlements in the Federal Court and the State Supreme Courts.
This may in turn affect a regulator’s choice of where to prosecute civil penalty proceedings. For instance, it may decide to prosecute in the Supreme Court as the court may decide that an agreed penalty is inadequate and instead impose a harsher one. Similarly, defendants may prefer to be prosecuted in the Federal Court where the courts will generally impose the agreed penalty unless it is outside the ‘permissible range’.
This apparent divergence in approach should be settled, so that the approach is consistent irrespective of the jurisdiction in which the penalty is prosecuted.