Potential setbacks

  • Date:01 Jul 2015
  • Type:Company Director Magazine
Curtailing the power of regulators to arrange court approval of settlements of litigation is a growing and significant issue, writes Professor Bob Baxt.


Corporate regulators who are responsible for the administration of various Commonwealth laws, such as the Australian Securities and Investments Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC), in pursuing a potential breach of the law, often reach an accommodation with the potential defendant to settle the case, and take that settlement either to the Federal Court or the relevant state/territory Supreme Court for approval. Some judges have tried to reject this approach, but by and large the courts have approved these settlement arrangements.

A good illustration of these arrangements in the corporate law area is the recent decision of the Federal Court of Australia in ASIC v Newcrest Mining Limited [2014] FCA 698. ASIC did not issue an infringement notice against the company in this case and it indicated that litigation was the preferred option.

However, the company was able to persuade ASIC to negotiate a settlement, which they took to Justice Middleton in the Federal Court of Australia. His judgment proved a very useful one, with the judge able to make some comments about the continuous disclosure regime.

The Victorian Court of Appeal, however, was critical of this approach in ASIC v Ingleby [2013] VSCA 49.  Also relevant on this point is an interesting article by Samantha Teong entitled Stamping Out Rubber Stamp Penalties? Determining an Appropriate Response to Agreed Penalties and Certain Penalty Settlement (2014) 43 ABLR 48, which was recently referred to in the full Federal Court decision (Director, Fair Work Building Industry Inspectorate v CFMEU [2015] FCAFC 59).

Significant development
The CFMEU case dealt with a certain settlement that had been reached by the Director of the Inspectorate with the relevant union arising out of the operation of certain industrial laws. The settlement was taken to the Federal Court for approval and then referred to the full Federal Court.

The full Federal Court’s decision is most important. The propriety of this approach to “settle/dispose of” cases had become increasingly significant because of the decision of the High Court of Australia in the Barbaro case (Barbaro v The Queen [2014] HCA 2). It was argued by the Commonwealth in the CFMEU case that, following the Barbaro decision, a prosecutor was not able to submit a recommended range of penalties (punishment) to the court in settling a particular piece of litigation.

In the full Federal Court’s view this in effect was to ask the court to treat the submission on sentencing/penalty as merely an opinion of the regulator. To give it greater weight ran the risk of leading to the perception that an independent judgment was being made by the court in dealing with questions of sentencing/penalties. The full Federal Court reviewed and rejected the approach in earlier full Federal Court decisions, commencing with the NW Frozen Foods case (NW Frozen Foods Pty Ltd v ACCC [1996] 141 ALR 640), which approved the settlement arrangements in that matter.

The full Federal Court also rejected the suggestion that later cases should be followed.

In particular, it suggested that Justice Middleton in ACCC v Energy Australia Pty Ltd [2014] FCA 336, in treating the Barbaro decision as being limited to criminal trials, was adopting an incorrect assessment of the law.

In dismissing these arguments the full Federal Court made at least two very interesting observations, which are worthy of being reproduced. It stated initially, at paragraph 139, the following:

“Any agreed penalty is, at best, a shared opinion as to the effect of previous more or less comparable penalties, having regard to the circumstances of the case in hand. However, it is likely that an agreed sentence will also reflect the particular interests of the regulator and the respondent in question, leading to the real possibility, or perhaps probability, that the opinion is not based on a dispassionate view of all the circumstances.

The agreed figure may simply reflect the point at which each party considered that is in its best interest to agree.

Further, such an approach invites the court to start with the agreed penalty, rather than with its instinctive synthesis of the relevant circumstances.”

The court also reflected on the public perceptions of the work of the courts in dealing with these matters in these further comments:

“The [parties] submit that the practice of making submissions as to [an] agreed penalty or range of penalties does not restrict or undermine the independence of the court’s ultimate discretion as to penalty … the submission says little or nothing about public perception of the court’s role or the involvement of the prosecution in fixing the quantum of any penalty.

“It says nothing about the public interest in the open administration of justice, and it says nothing about the extent to which such submissions may tend to limit the discretion conferred upon the judge as explained in Barbaro. These risks cannot be discounted or dispelled simply by paying lip-service to the principle of judicial independence.”

Barbaro outcome
The fact that Barbaro was a criminal case was heavily relied upon by the parties. The full Federal Court rejected these arguments. In the view of the full Federal Court these arguments contradicted the notion that regulators somehow occupied a unique position and should be able to propose a preferred penalty regime and that extra weight should be given to its views.

The decision has sent out a very clear message to our major regulators that they cannot proceed with this policy of an agreed set of penalties/results being proposed to the court for approval.

My understanding is that a number of cases which were proceeding along those lines, both in the competition law area and in the corporate area, have now been rearranged to proceed as though the parties were going to the courts to argue the cases. That will clearly involve much more expense to the parties, delays and many arguments concerning the cost of justice.

It will be surprising if the case is not appealed. One would have thought that the director, or the Commonwealth which was invited to appear in this case, would have the right to seek leave to appeal from the High Court of Australia.

I would be surprised if the High Court did not grant leave to appeal but, of course, the High Court will decide this on the basis of how such applications should be treated. If the High Court were to confirm the approach taken by the Full Federal Court then this is a matter that will clearly be one to which the Federal Government should give urgent attention.

This is an area of vital importance. The governments of the day are relying more and more on the power of regulators to deal with many issues without having to go through the normal processes of pursuing allegations of breaches of the law through the courts. If the agreed settlement procedure is seen as nothing more than “rubber stamping” (although the judges will tell you that is not what happens), of these arrangements, it is not surprising that critics argue that less and less judicial independence is being observed in the administration of our major pieces of regulation.

In my view, our courts do take these matters very seriously; but I worry about the ability of courts to be influenced by the submissions made by the parties and to refrain from imposing harsher penalties in appropriate cases than they otherwise might have done.