Connors, Kate --- "Principled Regulation - the ALRC Report" [2003] ALRCRefJl 9; (2003) 82 Australian Law Reform Commission Reform Journal 44

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Reform Issue 82 Autumn 2003

This article appeared on pages 44 – 50 of the original journal.

Principled regulation: the ALRC report

By Kate Connors*

The Australian Law Reform Commission has recently completed a major review of the use of civil and administrative penalties in federal legislation. In many areas of federal regulation, including trade practices, customs, corporate and environmental law, legislation provides for civil and administrative penalty regimes, either separate from, or in conjunction with, more traditional criminal enforcement measures. In conducting the review, the ALRC has considered the range of regulatory penalties available to regulators and government departments to promote compliance and enforce sanctions for non-compliance, including negotiated agreements such as enforceable undertakings.

The ALRC commenced its review of civil and administrative penalties in March 2000. The scope of the reference was wide-ranging, with the ALRC asked to develop a set of general principles covering such matters as:

• the kinds of areas in which civil and administrative penalties are appropriate;

• the limitations on such penalties and how the circumstances and conduct giving rise to administrative and civil penalties should be expressed;

• whether principles relating to criminal liability should apply to liability for administrative and civil penalties;

• the relationship between civil penalties and criminal liability in respect of the same conduct, including joint proceedings, double jeopardy, elections and bars to proceed;

• processes for the payment of administrative penalties;

• the principles for setting maximum penalties, and for determining penalties in particular cases;

• issues concerning the enforcement of administrative and civil penalties, including the use by the Commonwealth of specialised State and Territory infringement notice enforcement procedures;

• limitations that should apply to the recovery of the costs of investigating contraventions of administrative and civil penalty provisions; and

• the effect of insolvency upon the liability to pay a penalty.

The Terms of Reference also required the ALRC to consider in particular the remarks of the New South Wales Court of Criminal Appeal and the High Court of Australia in Comptroller of Customs v D’Aquino Bros Pty Ltd.¹ These remarks highlight the difficulties that have emerged in identifying clearly the boundaries between criminal and civil penalty actions and, in particular, the problems created when they are consciously blurred in the creation of hybrid actions.

As part of the Commission’s program of research and consultation for the reference, a conference Penalties: Policy, Principles and Practice in Government Regulation was held in June 2001. The contributions of a broad range of leading Australian and international experts in regulatory theory and practice at the conference assisted the ALRC greatly and provided a significant contribution to the body of work in this area. To coincide with this conference, the ALRC published Background Paper 7, Review of Civil and Administrative Penalties in Federal Jurisdiction.

In April 2002, the Commission released a discussion paper, Securing Compliance: Civil and Administrative Penalties in Federal Legislation (DP 65). Over the course of the reference, the Commission consulted widely with government agencies and departments, legal professional bodies, community and business groups, compliance officers and academics, as well as receiving submissions commenting on specific proposals made in DP 65.

The final report of the reference Principled Regulation: Federal Civil & Administrative Penalties in Australia (ALRC 95) was released on 19 March 2003, containing over 110 separate recommendations across a broad range of issues. Below is a summary of some of the major recommendations contained in the Report.

Maintaining the civil/criminal distinction

The Report considers in some depth the theory of penalties and their role in government regulation. It looks at why penalties are used, how they vary and, importantly, the distinction between criminal penalties on one hand and civil and administrative penalties on the other.

The decision to label conduct as deserving of a criminal or civil penalty involves public policy and political dimensions. DP 65 noted that the jurisprudential basis for the criminal/civil distinction is not always easy to discern in the regulatory area. The primary distinction between the regimes is not the type of conduct but rather the procedure under which a prosecution is taken, the standard of proof and punishment. The justification for the lesser protections for the defendant and enhanced capacity to prove a contravention by the regulator in civil proceedings is the lack of the ‘criminal’ label and stigma where the contravention is proved. The levels of monetary penalties available may, for example, be the same.

One option open to the ALRC was to recommended abolition of the concept of ‘criminal’ and ‘civil’ penalties and adopt a scale of procedural protections according to the severity of the penalty so that the most serious penalties would attract the strongest procedural protections.

This approach had limited support amongst the submissions to the Inquiry. Although many submissions cautioned against the over-use of criminal sanctions for less serious offences on the basis that it would diminish the power of criminal law as an indication of society’s condemnation, it was felt that there was still a role for criminal law in the case of serious offences. Civil penalties were supported as an effective tool for regulatory control across a wide range of areas, particularly where the focus of the contravention was on the physical elements (for example, the fact of pollution) rather than the intention of the person committing the contravention. Civil penalties are in this way well suited for penalising corporations as they do not generally require proof of the corporation’s intent.

The ALRC concluded that there was no compelling reason to do away with the criminal/civil distinction and develop a single continuum of offences. The Report affirms as a statement of principle that the distinction between criminal and non-criminal (civil) penalty law and procedure is significant and adds to the flexibility of regulatory law. This distinction should be maintained and, where necessary, reinforced. It is also expressly recommended that Parliament should exercise caution about extending the criminal law into regulatory areas unless the conduct being proscribed clearly merits the moral and social censure and stigma that attaches to conduct regarded as criminal.

A Regulatory Contraventions Statute

The overall task imposed by the Terms of Reference of the Inquiry was a consideration of the many disparate federal regulatory and penalties schemes that had developed over the last three decades or so to identify those areas where changes could be made to allow for greater clarity, transparency and consistency.

The ALRC quickly recognised that any attempt to develop a single style of penalty provision would be unsustainable. Government regulation, and the penalties schemes used to reinforce it, must be adapted to meet the particular demands and communities which each scheme seeks to regulate. Submissions to the Inquiry echoed this theme, with regulators stressing that a ‘one size fits all approach’ would not be acceptable. In addition, many of the older regulatory schemes looked at by the ALRC had developed their own mature jurisprudence. It would be unacceptable and counter-productive to sweep away that learning and experience in an attempt to achieve strict uniformity.

However, there are numerous aspects of the imposition and recovery of civil and administrative penalties on which the law is presently silent, incomplete or confused. With the caveats noted above in mind, the ALRC has sought to introduce a greater degree of consistency across the various regulatory schemes by recommending the enactment of a Regulatory Contraventions Statute of general application. Such a statute would provide a consistent basis of certain fundamental provisions relating to regulatory law — but would also allow for flexibility in that Parliament could provide for divergence from the default provisions contained in the Statute where such divergence was required. The importance of requiring a clear, express statutory statement of that divergence is that it becomes a matter of public debate and public statement, and, as a consequence, public justification. If the law provides for default provisions on a number of basic issues — the right to appeal and review, the right to proper notice of various forms, the recovery of investigative costs, certain principles of corporate responsibility, to name a few — while at the same time permitting particular regulatory legislation to depart from the default position by clear express statement, the law should become clearer, easier to locate and more consistent, but remain adaptable.

Other principles that would be embodied in a Regulatory Contraventions Statute include that:

• the procedures for the imposition of a civil penalty be in accordance with the usual practice and procedure of the court in civil cases or in accordance with the directions of the court or a judge;

• contraventions for which a civil penalty is imposed may contain fault elements as defined under the Criminal Code, although generally they would not;

• if a physical element of a non-criminal contravention is committed by an employee, agent or officer of a body corporate acting within the actual or apparent scope of his or her employment, or within his or her actual or apparent authority, the physical element must also be attributed to the body corporate;

• individuals should have available to them a privilege against self-exposure to a penalty (similar to the privilege against self-incrimination in criminal matters).

Multiple proceedings and multiple penalties

The ALRC was asked to report on the relationship between civil and administrative penalties and criminal liability in respect of the same conduct, including joint proceedings, double jeopardy, elections and bars to proceedings. Some of the legislation considered in the Inquiry already allows criminal and civil proceedings to be undertaken simultaneously or sequentially in respect of the same conduct. In other legislation, criminal and civil penalties are contained in entirely separate schemes.

The ALRC acknowledged that there may be circumstances in which it is appropriate for legislation to allow for multiple or parallel criminal and civil proceedings for the same conduct, allowing regulators to tailor actions to the circumstances of a particular alleged contravention. Where this is permitted, certain principles of fairness should be applied, including that:

• civil proceedings should be stayed if criminal proceedings are in progress for the same conduct;

• civil proceedings should not continue, or not be commenced, if the person is convicted of a criminal offence for the same conduct; and

• civil proceedings may be commenced or resumed if the person is not convicted of the criminal offence.

The Report also noted that the ability to pursue a number of enforcement options presents risks in relation to the potential use of evidence gathered for one proceeding in other proceedings. For this reason, the ALRC recommended that evidence of information given or documents produced in the civil penalty proceedings should not be admissible in the criminal proceedings. To avoid issues of ‘double jeopardy’, it was also recommended that a person should not be liable for more than one civil penalty in respect of the same or substantially the same conduct.

Greater use of guidelines

The Report considers the various forms of legislation, delegated legislation and guidelines that might be used, as appropriate, as the tools of regulation when more or less rigidity or flexibility is required. A major area for reform was identified in relation to the need for greater standardisation and publication of the overall parameters within which regulators operate.

Some disparity in the ways in which different agencies work can be explained by the differences in their objectives, their tasks and the nature of the communities and activities that they regulate. However, the ALRC believes their methods and overall approaches to their tasks should be transparent, and that statements of them should be readily accessible to the public. The inevitable variations will be of much less concern to particular regulated communities and their legal advisers, and to the public at large if it is clear where the differences arise, and why.

The ALRC recommends that statements or guidelines be published by regulatory agencies setting out their approaches to various aspects of their work, notably those where the exercise of discretion is most important. The major areas where the Commission has recommended that such guidelines be adopted are:

• regulators’ enforcement polices, including the types of action open to a regulator and the criteria involved in the decision to pursue one or none of these actions;

• where multiple penalties may be used to punish the same offence, including choice of penalties and limits on the use of evidence in multiple proceedings;

• the negotiation of penalty-related settlements;

• the use and acceptance of enforceable undertakings; and

• the exercise of regulators’ powers in relation to the granting of leniency, immunity and remission of penalties.

A model infringement notice scheme

The Terms of Reference required the ALRC to report on any limitations that apply or should apply to the use of state and territory infringement notice enforcement procedures in the federal jurisdiction.

Infringement notice schemes are used as an administrative process aimed at keeping the enforcement of lesser criminal offences and non-criminal contraventions out of the court system. An example of the most common use of infringement notice schemes is in relation to parking and traffic offences. The attraction for the person issued with the infringement notice is that it is generally quick, easy and inexpensive to pay the amount specified in the notice without question. Not paying the amount specified in the notice and contesting the offence is made less attractive by the prospect of a heavier penalty if a court finds the offence proved, in addition to the cost and inconvenience of the proceedings themselves. Infringement notices are also attractive for regulators as they allow offences to be officially ‘noticed’ and penalised without the need to prove any of the elements of the offence to the relevant standard.

Infringement notice schemes are becoming increasingly a part of the Commonwealth regulatory framework. The ALRC identified more than 15 pieces of Commonwealth legislation that have provision for the issue of infringement (or penalty) notices, including the Corporations Act 2001,² the Environment Protection and Biodiversity Conservation Act 1999 and the Fisheries Management Regulations 1992. In the federal sphere there are limitations on the use of infringement notices as constitutional considerations prevent non-judicial officers from considering, deciding on and imposing penalties. For this reason a breach is dealt with administratively where the regulator imposes, without discretion, a penalty that arises automatically wherever the regulator identifies the set of facts or circumstances that give rise to a breach. The penalty is predetermined by law; all the regulator does is document the breach and collect the penalty.

The use of infringement notices as a way to deal with minor offences and contraventions was supported in several submissions to the Inquiry. The ALRC recommends the development of a model scheme for the imposition of infringement notice schemes, designed to ensure that the they are a useful tool of enforcement but not open to coercion. Amongst other things, the ALRC recommends that:

• in criminal penalty schemes an infringement notice scheme should only apply to minor offences of strict and absolute liability;

• in civil penalty schemes, an infringement notice scheme should apply only to minor contraventions in which no proof of a fault element or state of mind is required;

• the payment of the amount specified in an infringement notice should act as a bar to proceedings in respect of the alleged offence or contravention.

Penalty setting and the use of non-monetary penalties

As asked by the Terms of Reference, the ALRC has considered whether universal criteria can be developed and applied to assist in determining the appropriate amount of a monetary penalty in a particular case.³ The Report argues that comprehensive factors governing all civil penalties should be included in the proposed Regulatory Contraventions Statute. Such factors should include:

• the deterrent effect of the penalty;

• the nature and extent of the contravention;

• any loss or damage suffered, or gain made, as a result of the contravention;

• the circumstances in which the contravention took place, including the deliberateness of the conduct and the period over which it extended;

• whether professional advice had been obtained in relation to the contravention prior to the breach;

• whether the person has previously been found by a court to have engaged in any related or similar conduct;

• the degree of cooperation with the authorities; and

• in the case of a natural person, the attitude of the offender.

Where the respondent is a body corporate, the courts should also consider:

• at what level in the organisation the contravening conduct occurred;

• whether the corporation exercised due diligence; and

• whether it has a corporate culture conducive to compliance.

As well as being classified as criminal, civil or administrative, penalties may also be categorised according to whether they impose a direct financial burden (monetary penalties) or not (non-monetary penalties). The range of non-monetary penalties available in various federal regulatory schemes is extensive. Imprisonment is available for criminal offences. Probation and community service orders may be made in relation to both criminal offences (under the Crimes Act 1914 (Cth)) and non-criminal contraventions (under the Trade Practices Act 1974 (Cth) (TPA) and Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act)). Information disclosure and corrective advertising may be ordered, and adverse publicity orders may be made, under the TPA and ASIC Act. Banning orders may be made under the Corporations Act 2001 (Cth).⁴

Consultations and submissions revealed support for the expansion of the range of non-monetary penalties available as penalties for non-criminal contraventions to allow greater flexibility in tailoring penalties to fit different circumstances and achieve better compliance outcomes. The ALRC recommends that additional civil penalty powers, such as community service orders, be available under the Regulatory Contraventions Statute as penalties for both individuals and corporations. In some circumstances it may also be appropriate to provide for additional non-monetary penalties for individuals.

Other issues

Principled Regulation: Federal Civil & Administrative Penalties in Australia considers a number of other issues related to the imposition of civil and administrative penalties including the privilege against self-incrimination and legal professional privilege, clarification of the status of customs prosecutions, procedural fairness in relation to the imposition by regulators of administrative penalties, corporate responsibility and the recovery of penalties in cases of insolvency.

* Kate Connors is an ALRC Legal Officer who worked on the civil and administrative penalties review.

Endnotes

1. (1996) 135 ALR 649 (NSW CCA); [1996] 17 Leg Rep C8A (High Court).

2. Including a major new scheme for enforcement of continuous disclosure obligations in the Corporations Act that was announced in October 2002.

3. An example of such criteria in the area of trade practices law would be the ‘French Factors’ outlined by French J in TPC v CSR Ltd (1991) 13 ATPR 41–076.

4. Although it should be noted that, on one view, banning orders are not penalties. However, in the context of this Report, they have been treated as a form of quasi-penalty.