No automatic rubber stamps from courts

  • Date:01 Jun 2013
  • Type:Company Director Magazine
Professor Bob Baxt believes the regulators should carefully craft settlement agreements if they wish the courts to endorse them.


The dramatic costs of litigation and delays resulting from complex litigation has led our regulators, such as the Australian Competition and Consumer Commission (ACCC), the Australian Securities and Investments Commission (ASIC) and the Australian Taxation Office (ATO), to often negotiate a "settlement" of the matter under investigation. This can happen even where serious allegations have been made, but where the matter is not serious enough, or perhaps too difficult, to go to the courts.

The courts are asked to approve the agreed settlement of the matter. These will usually involve the individual companies, directors or others alleged to have breached the law paying a not insignificant penalty and sometimes the directors and/or officers agreeing to a period of disqualification to resolve the matter under dispute.

Federal regulators such as the ACCC, ASIC and ATO do not have the power under the Australian constitution to impose penalties themselves. While we are seeing more and more power vested in them to help them resolve disputes with corporations and individuals (for example, the powers to issue infringement notices), these involve the company or individual reaching a basic agreement where they agree to pay a penalty or enter into some other arrangement.

For some years, the ACCC in particular – and more recently ASIC – has been reasonably successful in negotiating settlements and arrangements with defendants in cases brought in such a way as to ensure that the courts (usually the Federal Court, but also the state and territory Supreme Courts in the case of company law matters) approve the settlements agreed to between the parties. When the regulator and the parties go to the court, they must have before the court a statement setting out the details of the alleged breaches, descriptions of how the regulator has dealt with the matter vis à vis the particular company and individuals, and an agreed penalty regime that may include disqualification in some cases.

Generally, the courts have gone along with the arrangements brought before them. But there have been cases where courts have found it difficult to accept the arrangements they were asked to approve. The Victorian Court of Appeal in ASIC v Ingleby [2013] VSCA 49 has made some very strong statements criticising a perhaps too lax approach taken by the regulator in dealing with what the court described as a very serious matter involving breaches of the corporations legislation.

Ingleby had been the CFO of the Australian Wheat Board (AWB). ASIC alleged that Ingleby and a number of other officers and directors of AWB had not acted with appropriate care and diligence in certain matters conducted by them on behalf of the company in dealings with the Iraqi Government. In particular, it was alleged that Ingleby had not acted with appropriate care and diligence and had breached section 180 of the Corporations Act 2001. After some years of investigation and discussion, ASIC and Ingleby agreed to settle the matter with a penalty regime being imposed. Ingleby agreed he would pay a penalty of $40,000 and would be disqualified from managing a corporation for 15 months in recognition of the breaches ASIC alleged had been committed.

When the matter was brought before the Victorian Supreme Court, Justice Robson refused to endorse the settlement. In his view, the penalty was too harsh. He recognised Ingleby’s good character; he referred to the statements made in support of his personality and character and rather than accepting the arrangements put forward by ASIC (together with Ingleby’s agreement), substituted a monetary penalty of $10,000 and disqualified him for four and a half months.

In reaching this conclusion, Justice Robson nevertheless made reference to the agreed statement of facts and the negotiations conducted between the parties in reaching the particular conclusion.

ASIC appealed this rejection of the arrangements that had been reached. The Victorian Court of Appeal, consisting of justices Weinberg, Harper and Hargrave, on 19 March 2013 allowed ASIC’s appeal. In doing so, however, the court made strong statements about the nature of the role of the court in approving such arrangements.

Ingleby did not appear in the appeal. It was agreed that he would at least not have a greater penalty imposed on him than that agreed on between ASIC and him, but the court insisted that the Victorian Bar and the administrators of the pro bono scheme conducted by the relevant government organisation appear to argue the case before it.

Two major judgments were delivered by the Victorian Court of Appeal. Justice Weinberg, who had served on the Federal Court and dealt with a number of cases involving breaches of the Trade Practices Act and the Competition and Consumer Act, noted that he had been less than satisfied in the past with some of the settlements reached between the ACCC and parties, and approved by the court. He was keen to see that the role of the court was properly recognised in this particular context. He made some pertinent comments: "There may be a disconnect between the rhetoric of judicial independence, and the practical operation of ‘an agreed penalty’… There is a danger that the courts will [if presented with both agreed statements of fact and agreed penalties which are routinely approved] be seen, perhaps unjustifiably, as nothing more than rubber stamps" (at para 18 of the judgment).

Justice Weinberg was critical of the way in which ASIC had categorised the conduct of Ingleby in this particular matter. He described the whole enterprise as a "disgraceful one". And he hoped that his judgment would "send a message [about] the seriousness with which such conduct should be viewed, and to provide some guidance to judges who may be faced with such issues in the future" (at para 44).

In his concurring judgment, Justice Harper was even stronger in his criticism of the way in which ASIC had conducted the particular settlement arrangements and the implications this had for the way in which the role of the court was treated. At paragraph 69 he noted: "Courts resolve disputes. Unless the parties to a dispute are under a relevant visibility, the courts are generally content to remove themselves from these disputes that the parties have resolved. Unnecessary litigation and unnecessary uncertainty about the outcome of litigation is in the interest of no one. While the responsibility for the assessment of penalties must remain firmly with the courts, they will be greatly assisted by statements of agreed facts sufficient to form a sound, fully informed basis for such assessment. And if a statement of agreed facts meets that criteria, the courts will accord ultimate respect to any agreement about penalty which is consonant with the facts as … put forward."

Having stated the matter in these general terms, Justice Harper went on to emphasise the need for the regulator (whether it was ASIC in this case or another regulator in another case) to deal with the matter more seriously. He noted at para 70-71: "With the exception of such rights as reside in the Parliament to deal with those whom the Parliament has found to be in contempt of it, and possibly some limited rights and in other bodies – rights reviewable by the courts – only the courts have power to punish for breaches of the law. ASIC does not have that power. And if, as is essential, the rule of law is to be maintained, the courts must be astute to ensure that agreements of the kind reached in this case do not simply incorporate a transfer from the courts [of the ability to investigate and the responsibility to impose penalties]."

In his view, ASIC had not done a particularly brilliant job in evaluating the relevant facts in the matter because this was one in which Ingleby had committed a most serious breach of his obligations under section 180 of the Corporations Act. "It is in these circumstances also necessary to allow the appeal and make the orders sought by the parties in the statement of agreed facts."

These statements from two very senior judges of the Victorian Court of Appeal will no doubt be seen as a clear message to our regulators and advisers. If you wish the courts to rubber stamp an agreed settlement of facts and penalties, reached after a serious investigation into a matter and which you do not believe warrant the use of the court system for the elucidation of the facts and the consideration of matters of guilt, then make sure you come to the court with a proper and detailed statement of all the relevant facts, and recognise the importance of the sanctions that the Parliament has enacted in dealing with these matters.

We have seen other cases in recent times where our judges have become less patient with parties who wish to negotiate lesser penalties or try to escape the imposition of the significant penalties on the basis of the white collar crime scenarios that do warrant various significant considerations by the courts.