High Court decides maximum civil penalties are not just for ‘worst’ conduct

In an important decision impacting enforcement actions initiated by regulators seeking civil penalties, the High Court of Australia has held that maximum penalties are not reserved for only the ‘worst’ category of contravening conduct.

The Court’s recent decision in Australian Building and Construction Commissioner v Pattinson [2022] HCA 13 will be relevant to enforcement actions brought against organisations or individuals by a range of state and federal regulators, including the ATO, ASIC, APRA, the ACCC, AUSTRAC and the Australian Building and Construction Commissioner (ABCC).

The non-application of ‘proportionality’ in civil penalty proceedings is something which regulators have argued for in a variety of ways and cases, but the fact is that, ever since courts started trying to apply concepts relevant to criminal penalty analysis in civil penalty proceedings, it has resulted in inconsistent analyses.

The High Court’s decision will certainly assist the ABCC in seeking significant penalties against repeat offender unions. The decision will also likely have a flow on effect to other regulatory matters – emboldening regulators such as ASIC, the ACCC, APRA, AUSTRAC and the ATO to push more often for higher penalties – and to give courts the comfort to go there.  

Background

The appeal to the High Court in Australian Building and Construction Commissioner v Pattinson [2022] HCA 13 arose from the commencement of penalty proceedings against both the Construction, Forestry, Maritime, Mining and Energy Union (CFMMEU) and one of its officers by the ABCC.

The proceedings concerned misrepresentations made by an officer of the CFMMEU. The officer had visited a construction site, and made misrepresentations to two non- union employees of a subcontractor that they would be required to join the CFMMEU before they would be permitted to work at the site. Those representations were admitted to have contravened section 349 of the Fair Work Act 2009 (Cth) (Act). Section 546 of the Act allowed for a maximum penalty of $3,000 for an individual, and $31,500 for a union for each contravention.

The CFMMEU had a history of prior contraventions of section 349 of the Act, and also with other provisions the Act. Since 2000, the CFMMEU had committed at least seven contraventions of section 349 of the Act, and 150 other contraventions of the Act which attracted civil penalties. The CFMMEU ‘had form’ in not complying with the Act.

Maximum civil penalty awarded against CFMMEU in Federal Court 

At first instance in Australian Building and Construction Commissioner v Pattinson [2019] FCA 1654 Snaden J in the Federal Court of Australia imposed a $63,000 penalty on the CFMMEU and a $6,000 penalty on the official. The $63,000 penalty imposed on the CFMMEU was the maximum available to the Court. Notably, his Honour held at [2019] FCA 1654 at [33]:

“The [CFMMEU’s] history of prior contravention of [the Act] and its predecessors is a matter of some notoriety. The [CFMMEU] is a ‘serial offender’ that has, over a long period, exhibited a willingness to contravene workplace laws in the service of its industrial objectives; and one that appears to treat the imposition of financial penalties in respect of those contraventions as little more than the cost of its preferred business model.”

CFMMEU successfully appeals maximum penalty to the Full Federal Court

The CFMMEU and the official both appealed the first instance decision. Sitting with a five judge bench, the Full Court of the Federal Court of Australia upheld the appeal (Allsop CJ, White and Wigney JJ; Besanko and Bromwich JJ agreeing). The Full Court imposed lower aggregate penalties on the CFMMEU and the official: $40,000 and $4,500 respectively.

In the Full Court's view, a case could not be in the worst category merely by reason of the contravener having a history of prior contraventions: to impose the maximum penalty in such a case would be to impose a penalty disproportionate to the nature, gravity and seriousness of the instant contravention.

In relation to repeat offenders such as the CFMMEU the Full Court said that courts may have regard to wilful recidivism and intentional disobedience of the law. The Full Court (incorrectly) emphasised, however, that any demonstrated attitude of non‑compliance of a contravenor was relevant only to the extent that it coloured the nature, gravity and seriousness of the contravention.

ABCC successful in High Court – maximum penalty against CFMMEU restored

Determining an appropriate penalty - criminal and civil penalty proceedings

A body of jurisprudence has built up over the years which identifies the factors to be considered (in addition to any expressly stated in the legislation) and the process to be followed in determining the appropriate civil ‘penalty’. To a large extent, the analysis in civil penalty proceedings draws from the analysis in criminal proceedings, but not fully.

The ‘penalty’ serves a different purpose in criminal proceedings and in civil penalty proceedings. In criminal proceedings, the concepts of punishment, retribution (i.e. making the punishment ‘fit the crime’) and rehabilitation are relevant.

In civil proceedings, the guiding principle is that the object of civil penalties is entirely protective, in that they are aimed at promoting compliance through general and specific deterrence to promote the public interest in compliance. Concepts of punishment, retribution and rehabilitation from the criminal law have no role to play.

High Court overturns Full Court’s approach to ‘proportionality’ in civil penalty proceedings

The High Court held (Kiefel CJ, Gageler, Keane, Gordon, Steward and Gleeson JJ, Edelman J agreeing) that the Full Court fell into error in taking into account the concept or notion of ‘proportionality’, which is relevant to the criminal law considerations of retribution.[1] 

The Full Court had taken references to ‘proportionality’ in other Full Court decisions but had misapplied that concept. The High Court said that such cases[2] require the Court to ensure that the penalty it imposes is ‘proportionate’, where that term is understood to refer to a penalty that strikes a reasonable balance between deterrence and oppressive severity. The High Court’s decision has drawn a line under two competing Full Court decisions which took differing views in relation to ‘proportionality’ and the consideration of prior contravening conduct.[3]

In the case of a repeat offender being penalised for a new contravention, the High Court made clear that that an ‘appropriate’ penalty is one that strikes a reasonable balance between oppressive severity and the need for deterrence in respect of the particular case. A contravention may be a ‘one‑off’ result of inadvertence by the contravenor rather than the latest instance of the contravenor's pursuit of a strategy of deliberate recalcitrance in order to have its way. 

There may also be cases, for example, where a contravention has occurred through ignorance of the law on the part of a union official, or where the official responsible for a deliberate breach has been disciplined by the union. In such cases, a modest penalty, if any, may reasonably be thought to be sufficient to provide effective deterrence against further contraventions.[4]          

In this case, whilst the conduct may not be the ‘worst case’ the High Court said that considerations of deterrence, and the protection of the public interest, justify the imposition of the maximum penalty where it is apparent that no lesser penalty will be an effective deterrent against further contraventions of a like kind. 

Where a contravention is an example of adherence to a strategy of choosing to pay a penalty in preference to obeying the law, a court may reasonably fix a penalty at the maximum set by statute with a view to making continued adherence to that strategy in the ongoing conduct of the contravenor's affairs as unattractive as it is open to a court reasonably to do.

This has been stated differently in a range of matters dealing with corporate conduct that breaches legislation such as the Corporations Act and the Competition and Consumer Act. Cases have referred to whether the repeat offender has treated the payment of penalties as a ‘cost of doing business’,[5] and that a civil penalty "must be fixed with a view to ensuring that the penalty is not such as to be regarded by [the] offender or others as an acceptable cost of doing business".[6]

The High Court also made clear that, when determining the appropriate penalty, the nature of the contravening conduct is not the primary driver. The seriousness of the contravening conduct as well as the circumstances of the contravener need to be considered. 

For example, a greater financial incentive will be necessary to persuade a well‑resourced contravenor to abide by the law - to encourage compliance, it will be appropriate and necessary to impose a higher penalty on a well-resourced party than a poorly resourced party.[7]

Further, conduct which is of only ‘mid-range’ seriousness will not necessarily be appropriate for a ‘mid-range’ penalty, nor vice-versa. As always, there must be some reasonable relationship between the theoretical maximum and the final penalty imposed.[8]

What does this mean for entities subject to regulator enforcement?

The non-application of ‘proportionality’ in civil penalty proceedings is something which regulators have argued for in a variety of ways and cases, but the fact is that it has resulted in inconsistent analyses - ever since courts started trying to apply concepts relevant to criminal penalty analysis in civil penalties. 

The High Court’s decision will certainly assist the ABCC in seeking significant penalties against repeat offender unions. It should also be considered in light of a promise by Industrial Relations Minister Michaelia Cash, made on 19 April 2022, to double fines which can be imposed on construction unions and their officials. If the Coalition Government is returned in the May Federal Election the increased penalties would cover offences including unlawful industrial action, coercion and unlawful picketing.[9] 

As with the Act, legislation administered by other regulators also imposes maximum penalties for contraventions – whether they be contravention of criminal provisions (i.e. offences) or of civil prohibitions. 

The High Court’s decision will likely have a flow on effect to other regulatory matters – emboldening regulators such as ASIC, AUSTRAC, the ACCC, APRA and the ATO to push more often for higher penalties – and to give courts the comfort to award maximum penalties.