News

Negotiating civil penalties with regulators – High Court changes stop to go

18.12.2015

After a year of uncertainty, the High Court’s decision in CFMEU v Director, Fair Work Building Industry Inspectorate & Anor (“the CFMEU case”) has restored and validated the long held practice in regulatory matters for parties to agree on a civil penalty to submit for approval by the Court. The CFMEU case is significant for any businesses and directors facing prosecution from regulatory bodies across Australia, especially as they consider whether they can (and should) negotiate with the regulatory body. In this Litigation Monitor, Senior Lawyer Emily Murphy reviews the CFMEU case and considers its application to Australian businesses responding to regulatory investigations.

Removing the right to negotiate

It was common practice in many prosecutions by the Australian Competition and Consumer Commission, and other regulatory bodies, for almost twenty years for the parties to agree on the penalties. Those penalties would then be submitted to the court for approval. The process encouraged businesses under investigation or prosecution to acknowledge responsibility in exchange for a degree of certainty in the consequences. This practice limited the need for lengthy and costly litigation, and also allowed businesses to limit the negative publicity that comes with prosecution by a regulatory body. This was an essential risk management and damage limitation mechanism for Australian businesses.

Significant doubt was cast over the validity of this practice after the High Court decision in 2014 in the criminal matter Barbaro v The Queen (“the Barbaro decision”). In the Barbaro decision, the High Court said that police prosecutors could no longer submit a range of sentence lengths in criminal sentencing proceedings.

Despite being a decision limited to criminal procedure, the Barbaro decision was then considered and applied in several civil proceedings throughout 2014 and 2015 – although this was not without some controversy. The controversy peaked in the Full Court of the Federal Court’s decision in May 2015 in Director, Fair Work Building Industry Inspectorate & Anor v CFMEU (“the CFMEU Federal Court decision”). In the CFMEU Federal Court decision, the CFMEU had agreed with the Fair Work Commission to make a declaration that the CFMEU engaged in unlawful industrial action and would pay a $105,000 fine. The Full Court of the Federal Court refused to consider this penalty submission citing the Barbaro decision.

Since the CFMEU Federal Court decision the law has been in limbo as to whether or not negotiating penalties in civil proceedings was still allowed. As a result, many Australian businesses under prosecution by regulators have been uncertain as to whether they can or should make a deal with a regulatory body regarding the civil penalty.

Negotiating and agreeing on a penalty with a regulator will not ensure that the Court will definitely accept that agreed penalty. However, prior to the Barbaro decision, Australian businesses were able to manage regulatory prosecutions with a degree of certainty and predictability by pre-agreeing a suitable penalty. This led, in many cases, to prosecutions being resolved more swiftly and efficiently.

Reinstating certainty in negotiations with regulators

The CFMEU Federal Court decision was quickly appealed to the High Court by the CFMEU to seek clarity on this issue. The Commonwealth of Australia also appealed this decision to the High Court in order to determine whether the Barbaro decision applied in civil proceedings.

Last week, the High Court confirmed that:

A court is not precluded from receiving and, if appropriate, accepting an agreed or other civil penalty submission.

In practice, the High Court stated that the Barbaro decision does not apply to civil proceedings.

In the reasons for its decision, the High Court stated that:

There is an important public policy involved in promoting predictability of outcome in civil penalty proceedings and that the practice of receiving, and if appropriate, accepting agreed penalty submission increases the predictability of outcome for regulators and wrongdoers.

The High Court confirmed that negotiations between businesses and regulators are critical to both the legal process and commercial realities:

Such predictability of outcome encourages corporations to acknowledge contraventions, which, in turn, assists in avoiding lengthy and complex litigation and thus tends to free the courts to deal with other matters and to free investigating officers to turn to other areas of investigation that await their attention.[1]

The High Court’s decision ends the uncertainty and makes it clear that Australian businesses and directors can again negotiate penalties with regulatory bodies. Importantly, the Court still retains the discretion to not approve a penalty on the basis that it is inadequate in the circumstances – this safeguard remains to ensure that penalties are appropriate and in the public interest.

The ability to negotiate a penalty to submit for approval by the Court is a significant incentive to resolve matters with regulatory bodies. The High Court’s decision restores that incentive and will be welcomed by many Australian businesses currently engaged with regulatory investigations and prosecutions as the New Year approaches.

Moulis Legal’s dispute resolution team represents Australian and international organisations across various domestic and international jurisdictions, including managing and responding to regulatory and compliance matters. For more information, please contact Emily Murphy (+61 7 3367 6900 or emily.murphy@moulislegal.com).

This memo presents an overview and commentary of the subject matter. It is not provided in the context of a solicitor-client relationship and no duty of care is assumed or accepted. It does not constitute legal advice.

[1]  CFMEU v Director, Fair Work Building Industry Inspectorate & Anor [2015] HCA 46 at 46