Warburton, Cathie --- "Civil & Administrative Penalties" [2000] ALRCRefJl 31; (2000) 77 Australian Law Reform Commission Reform Journal 51

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Reform Issue 77 Spring 2000

This article appeared on pages 51 – 56 & 89 of the original journal.

Civil & administrative penalties

Civil and administrative penalties are common in federal legislation in a broad range of areas including corporations law, tax, competition and consumer protection, customs, the environment, civil aviation, nursing homes, social security and broadcasting. Examples of administrative penalties can range from the revocation of a broadcasting licence to a charge for late payment of tax. Cathie Warburton* outlines some of the issues the ALRC will explore as part of its inquiry into civil and administrative penalties in Australia.

The Attorney-General has asked the ALRC to consider the arrangements for civil and administrative penalties within our legal system, including the relationship between criminal, civil and administrative penalties and the principles that should guide the formulation and application of civil and administrative penalties. The terms of reference for the inquiry reflect the expanding and developing field of regulatory activity. While there is a developed jurisprudence and hence a common understanding of the arrangements for criminal sanctions, there are variable procedures applying to civil and administrative penalties.

The ALRC’s inquiry will explore how circumstances and conduct giving rise to administrative and civil penalties are expressed as well as the procedures for, and the imposition of, penalties. These procedures involve important decisions relating to the selection of non-compliant individuals or entities to whom penalties are applied, and issues about who should administer the imposition of the penalties. The ALRC is specifically asked to develop principles relevant to:

• the investigation, negotiation and enforcement of penalties;

• the issue of infringement notices;

• the determination and setting of maximum penalties; and

• the relevance and applicability of the general principles in Chapter 2 of the Commonwealth Criminal Code to civil, administrative and criminal penalties and processes.

The ALRC’s reference is directed to a general review of compliance arrangements. As an initial step, the ALRC is ‘mapping’ the penalty provisions in federal legislation to document and analyse their range. The ALRC intends to publish a discussion paper in May 2001 analysing the current penalty arrangements and advancing options for debate and reform. The final report is due to be submitted to the Attorney-General in March 2002.

Penalties & procedures

The term ‘penalty’ is generally understood to imply a punishment. It is clearly the case that a criminal penalty is a punishment, but there has been a working assumption that civil and administrative penalties are essentially different in nature from punishments meted out through the criminal process.

There are no rules concerning how ‘wicked’ conduct must be before it becomes a criminal matter. It has been argued that there are ‘truly criminal acts’ and others that ‘are not criminal in any real sense, but are acts which in the public interest are prohibited under a penalty’.¹

‘Regulatory law is primarily concerned to facilitate the achievement of collectivist goals by discouraging behaviour which is considered to be inimical to those goals and thus detrimental to collective welfare. The punishment of regulatory offences is a practical means of controlling activity, without necessarily implying the element of social condemnation which is characteristic of traditional crimes.’²

The characterisation of a penalty carries significant practical consequences. Criminal conviction carries a social stigma and may result in a person being barred from serving as a company director or public official, or having restrictions on travel overseas and insurance.

Legislation often treats the distinction between criminal and civil penalties as significant. The Trade Practices Act 1974 (Cth) makes a clear distinction between civil ‘pecuniary penalties’ and criminal ‘fines’.³ Similarly, in the Environment Protection and Biodiversity Conservation Act 1999 (Cth), civil and criminal penalties may apply to the same actions, the distinction being that criminal penalties require culpability as set out in the Commonwealth Criminal Code. These distinctions are important because of the procedural differences between criminal and civil proceedings.

Where a criminal penalty is involved, this generally:

• places a higher burden and standard of proof on the prosecution;

• imposes greater ethical obligations of candour, fairness and disclosure on the prosecution;

• confers a privilege against self-incrimination, a right to silence and protection against double jeopardy upon the accused; and

• extends the range and severity of sentencing powers.

Civil proceedings, including civil penalty proceedings, are characterised by a variable standard of proof at or above the balance of probabilities, mutual discovery and pleadings. Whereas the Director of Public Prosecutions undertakes most criminal prosecutions, a range of government agencies and regulators can seek court orders for civil penalties. Many of these agencies and regulators have broad investigative powers.

Administrative penalties are imposed by legislation or by a regulator without the need for court intervention. However, most administrative penalties carry a right of review (merits and judicial review).

Another approach to regulation is the negotiation of enforceable undertakings, used by the Australian Securities and Investments Commission (ASIC) and the Australian Consumer and Competition Commission (ACCC). Businesses and individuals giving enforceable undertakings, generally after investigation by the regulator and extensive negotiations, undertake, for example, to cease certain conduct; to repair damage or publish retractions; and often to implement a compliance program to prevent recurrences. Although enforceable undertakings are not, strictly speaking, penalties, they can cover similar matters to the orders a court could make, and address the same behaviour. In suitable cases they can provide a very efficient tool of regulation as they cover a broader and more flexible range of solutions, and to some extent can relieve pressure on the regulators by requiring the person or entity who has contravened the law to fund, to some extent, its own rehabilitation and future compliance. The ALRC intends to study the operation and appropriateness of enforceable undertakings in a variety of contexts.

The flexibility afforded by enforceable undertakings can be contrasted with the strictness of the majority of administrative penalties, which normally involve absolute liability. Administrative penalties are increasingly used to force compliance and cooperation from the ‘regulated community’, to secure environmental or consumer protection and the timely rectification of market problems. There are important constitutional and due process issues associated with the use of administrative penalties, which will be addressed by the ALRC.

Principles of regulation

There have been long-standing calls for the development of clear and consistent principles governing regulatory conduct, to guide regulators and those subject to regulation.

It is an elementary principle of justice that appropriate safeguards should accompany the imposition of penalties. Standards for regulators emphasise principles of fairness, openness and accountability. Michael Mann, a former director of the US Securities and Exchange Commission, observed that ‘clear principles that are predictably implemented are the building blocks of good regulation’.⁴ Effective principles concerning the general imposition and application of civil and administrative penalties should be enunciated by parliament and apply to all regulators and agencies.

Principles governing regulatory conduct are the foundation upon which agency practices are based. The principles to be articulated and developed have a legal character but evolve from community values and practices. Among other things, they have an educational role for agencies and the public. Principles set the direction for compliance action and for negotiation between players. They can accommodate a variety of players and their values, interests and goals.⁵ The current review is directed to the development of such general principles.

The principles of accountability and fairness are important issues for civil and administrative penalty arrangements. In one recent assessment of such matters, the Auditor-General found ‘scope for improvement in the ATO’s [Australian Tax Office’s] administration of the penalty regime ... the ATO lacks appropriate control structures to oversight the accountability, consistency and effectiveness of its penalty administration.’⁶ In the Australian Broadcasting Authority’s (ABA) final report on the ‘cash-for-comment’ affair, the lack of transparency was seen to be one of the system’s major failings.⁷ A newspaper article on the ABA’s report stated that ‘its underlying presumption is that the greatest evil of the system that has now been disgraced was its secrecy ... the essential remedy is transparency.’⁸

There is substantial variation between the approaches of the various agencies, departments and regulators. Some operate under formal rules of procedure set down in guidelines, protocols and policy directives; others do not. There are few systemic principles governing procedures for investigating and sanctioning contraventions of regulatory legislation. Justice Gibson’s description of Canadian administrative agencies as ‘a large structure, which is beautifully made in parts but entirely lacking in overall design’ may also be applicable to Australia.⁹ It may be necessary to consider the effectiveness of the procedures and compliance strategies implemented by various agencies.

Penalties: relationships & distinctions

There are a number of issues relevant to the relationship between criminal, civil and administrative penalties, including how such penalties are applied, and issues of practice and principle that arise when a contravention is subject to both civil and criminal penalties.

The sharp dichotomy between civil and criminal procedures and penalties may no longer be helpful. As Heriot noted, ‘the distinction between the two was probably never as clear in the law as it seemed in the public mind’.¹⁰ A more easily recognisable distinction is between court-imposed sanctions, civil or criminal, and administrative penalties or related procedures, which are imposed by the agency or department (although they may later be challenged or enforced by a court). Administrative penalties are negotiated or imposed in the shadow of the formal legal system.

Even if the distinction between civil and criminal penalties is clear in theory, regulators and the courts may not be able to maintain the distinction in practice. In a recent study, certain officers commented that:

‘they would like the courts to express a clearer view on how they regard civil penalties and they felt that some judges placed almost a criminal standard of proof with regard to civil penalty provisions, even though the statutory test is the balance of probabilities.’¹¹

The articulation of principles governing the distinction between civil and criminal penalties could help in this regard.

Overlapping civil & criminal penalties

In some cases where criminal and civil liability may arise from the same conduct, legislation dictates how the criminal and civil proceedings can proceed; that is, whether one proceeding bars the other or whether they can be undertaken simultaneously or sequentially.¹² In such cases the regulator and the Commonwealth DPP each may have an interest in deciding whether and when to initiate proceedings. Decisions about whether to proceed under criminal, civil or administrative penalty arrangements are matters of judgment for regulators and prosecutors. A number of factors direct such decisions, including the nature of the conduct, the availability of resources and risk management evaluations. Regulators generally have enforcement strategies. Speed can be a major priority. For these reasons the ACCC and ASIC often seek injunctions to stop the prohibited conduct, and then obtain redress and long-term orders where necessary and appropriate.¹³

To assist with decision making in such matters, agencies have formulated memorandums of understanding or protocols setting down guidelines on investigations, joint or associated proceedings and information sharing. The ALRC has identified the arrangements between and among regulators, government departments and the DPP as one area where there is a need for clearer cooperative practices.

In cases that can be dealt with as either criminal, or civil or administrative proceedings, some enforcement officers have expressed concern at the ‘risks as a law enforcement agency of being oppressive’:

‘[T]here’s an element of double jeopardy ... so from the law enforcement agency’s point of view, you choose the path you want to go down early on ... I don’t think it’s appropriate to take fairly substantial action against someone and if you fail, then take other different substantial action against them, possibly 4-5 years after their misconduct.’¹⁴

Justice Deane voiced similar concerns in Hammond v Commonwealth of Australia [1982] HCA 42; (1982) 152 CLR 188, 206:

‘... it is fundamental to the administration of criminal justice that a person who is the subject of pending criminal proceedings in a court of law should not be subjected to having his part in the matters involved in those criminal proceedings made the subject of a parallel inquisitorial inquiry by an administrative tribunal with powers to compel the giving of evidence and the production of documents which largely correspond (and to some extent, exceed) the powers of the criminal court.’

The ALRC will consider the applicability of the double jeopardy principle. This issue is of growing importance as the use of civil pecuniary penalties is increasing in a number of areas.

Conclusion

The ALRC’s examination of the penalty provisions used by Commonwealth government agencies raises certain fundamental issues relevant to our justice system. The review considers the basic assumptions of our criminal and civil justice systems, including the protections afforded to citizens and corporate entities when dealing with government agencies by considering issues of accountability, transparency, fairness and the enforcement process. At the same time, the review is directed to underscore the effectiveness of regulation – the sustained and focused control exercised by government agencies to varying degrees over activities valued by the community. These activities are wide-ranging, and the ALRC will seek to identify principles that underpin the fair and effective operation of the full range of Commonwealth regulatory regimes. The ALRC will be consulting widely with business, government, lawyers and members of the public. It welcomes submissions and comments on this important review.

*Cathie Warburton is a Legal Officer, working for the Australian Law Reform Commission on the inquiry into civil and administrative penalties.

Endnotes

1. See, for example, comments in Sherras v De Rutzen [1895] 1 QB 918.

2. K Yeung ‘Quantifying regulatory penalties: Australian competition law penalties in perspective’ [1960] MelbULawRw 18; (1999) 2 Melbourne University Law Review 440, 458.

3. Pecuniary penalties are civil penalties imposed under s 76 of the Trade Practices Act 1974 (Cth) (TPA), with civil standards of proof. Fines are criminal penalties with criminal standards of proof and are imposed under s 79 of the TPA. Pecuniary penalties are only applicable in relation to contraventions of Pt IV (restrictive trade practices) and s 75AU (price exploitation in relation to the New Tax System). Criminal penalties are applicable to contraventions of Pt V (consumer protection).

4. M D Mann ‘What constitutes a successful securities regulatory regime?’ (1993) 3(2) Australian Journal of Corporate Law 178, 182.

5. See discussion on these issues in J Braithwaite & P Drahos ‘Global business regulation’ Paper Research School of Social Sciences Australian National University 2000, 47-50 <http://lawrsss.anu.edu.au/> (5 April 2000).

6. Audit Report No 31, para 14.

7. Australian Broadcasting Authority Final Report of the Commercial Radio Inquiry 2 August 2000 <http://www.aba.gov.au/what/investigate/commercial_radio/reportindex2.htm> (28 August 2000).

8. ‘Cleaning up radio’ The Sydney Morning Herald

7 August 2000 p12.

9. J Gibson ‘Legal procedure: Access to justice: 1883-1983’ (1984) 9 Dalhousie Law Journal 3.

10. G Heriot ‘An essay on the civil-criminal distinction with special reference to punitive damages’ (1996) 7(1) Journal of Contemporary Legal Issues 43, 44-45.

11. G Gilligan, H Bird and I Ramsay ‘Regulating directors’ duties — How effective are the civil penalty sanctions in the Australian Corporations Law?’ Research Study Centre for Corporate Law and Securities Regulation, University of Melbourne 1999, 43 (CCLSR Study).

12. See, for example, s 1317N(2) of the Corporations Law.

13. CCLSR Study and ACCC Consultation Brisbane 13 June 2000.

14. CCLSR Study, 53.