No more agreed penalties?

​​This article first appeared in Law News Issue 17 (5 June 2015), published by Auckland District Law Society Inc.

It has become common practice in recent years, both here and in Australia, for regulators and defendants to agree the level of pecuniary penalty which the court should impose for breach of regulatory statutes. The Full Federal Court of Australia has recently concluded that the court should disregard such agreements, and come to its own conclusion as to a suitable penalty. If a similar view were taken here, the number of regulatory cases resolved by settlement could diminish significantly.

Australian cases

In early 2014, the High Court of Australia handed down its judgment in Barbaro v The Queen [2014] HCA 2. Two drug-traffickers had reached plea agreements with the prosecutors. They agreed to plead guilty, on the basis that the prosecution would support sentences within certain ranges. The trial judge, however, refused to heed counsel’s submissions as to the appropriate ranges and instead imposed materially longer sentences. The High Court upheld her approach. The prosecution’s submissions as to appropriate ranges were no more than statements of opinion. It was for the judge alone to decide what sentence should be imposed. 

Director of Fair Work Building Industry Inspectorate v Construction, Forestry, Mining and Energy Union [2015] FCAFC 59 involved the application of that criminal law thinking in a regulatory context. The director alleged that the union had engaged in unlawful industrial action in breach of the Building and Construction Industry Improvement Act 2005 (Cth), and sought pecuniary penalties. The union accepted liability, and the parties agreed various penalties. However, the Full Court held that Barbaro applied and that it was therefore bound to ignore the penalty agreement. The parties were still free to make joint submissions on the facts, comparable cases, and the correct approach to fixing a penalty.

The Full Court recognised that its conclusion was likely to disturb a long-established practice in a range of regulatory contexts extending well beyond industrial law, but considered that was the inevitable result of applying Barbaro. The matter has generated considerable concern in Australia, with talk of the Commonwealth appealing to the High Court or making legislative change.

The position in New Zealand

As the Law Commission recognised in its recent report (Pecuniary Penalties: Guidance for Legislative Design, NZLC R133, August 2014), pecuniary penalties are now an established feature of New Zealand’s regulatory landscape. In particular, substantial penalties can be imposed on parties who breach competition or securities laws. Section 80(1) of the Commerce Act 1986 provides that the court may impose “such pecuniary penalty as the court determines to be appropriate”; section 489(2)(c) of the Financial Markets Conduct Act 2013 is in similar terms. By itself, that language rather suggests that the question of quantum is purely one for the court. 

Others will be better placed to comment on current sentencing practice in the New Zealand criminal courts, but some further support for the Barbaro view could be drawn from recent changes to sentencing guidance. In the old Practice Note – Sentencing [2003] 2 NZLR 575, the Crown was expressly obliged to convey to the court “the Crown view concerning the appropriate sentence range or tariff”. In the new 2014 Practice Note: Sentencing in the High and District Courts (HCPN 2014/1 (crim), DCPN 2014/1), no such obligation is expressed. Rather, the Crown is expected to provide only a view on an appropriate starting point together with aggravating or mitigating factors.

However, preventing parties from putting an agreed penalty before a court presents some significant issues. Most obviously, a defendant would be faced with an immediate loss of certainty as to the financial implications of reaching an agreement with the regulator. Typically, such agreements are keenly negotiated, with the precise penalty to be paid forming an important part of a defendant’s careful decision whether to ‘settle’ the matter or continue to defend it. That loss of certainty could also be to the detriment of the regulator, who will often (e.g. in cartel cases) be engaged in litigation with several defendants who keep a close eye on each other. It is very likely that loss of certainty will lead to more matters being litigated in full.

Further, the removal of any scope for agreement could create incentives for parties to adopt extreme positions in submissions in the expectation that a court would ‘split the difference’. Given the large number of cases which have been resolved by agreement in recent years (particularly in the Commerce Act context), there could be limited guidance available to a court presented with such a situation.

If the decision in Fair Work is not reversed, it may be best if its reasoning is not accepted on this side of the Tasman.