Courts not precluded from imposing civil penalties agreed between parties in proceedings for contraventions of legislation

Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate; Construction, Forestry, Mining and Energy Union v Director, Fair Work Building Industry Inspectorate [2015] HCA 46Introduction On 9 December 2015, the High Court unanimously held that, in civil penalty proceedings, Courts are not precluded from considering and, if appropriate, imposing penalties that are agreed between the parties. This decision is significant to insurers providing statutory liability cover, and, in particular, should provide greater certainty to claims managers as to the likely range of penalties in claims where there is no viable defence, thereby enabling more accurate reserves to be set. Facts The Director of the Fair Work Building Industry Inspectorate (Director) brought proceedings in the Federal Court of Australia against the Construction, Forestry, Mining and Energy Union (CFMEU) and the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia (CEPU) (Unions). The Director alleged that the Unions had contravened section 38 of the Building and Construction Industry Improvement Act 2005 (Cth), a civil penalty provision which prohibits unlawful industrial action. The Unions admitted the contraventions. The parties agreed to ask the Court to impose pecuniary penalties of $105,000 on the CFMEU and $45,000 on the CEPU. First instance and appeal At first instance, the Court held that the principle in Barbaro v The Queen (2014) 253 CLR 58, that criminal prosecutors are not permitted to make submissions to a sentencing judge as to a qualified range of appropriate sentences, applied to civil penalties. Therefore, the Director and the Unions could not make submissions as to the agreed penalties. This decision was upheld on appeal to the Full Court. The parties each appealed to the High Court. High Court decision The High Court unanimously held that the Barbaro principle does not apply to civil penalty proceedings. Their Honours concluded that the task of a Court is to determine whether, in all the circumstances, an agreed penalty is an appropriate penalty; similarly, a Court is not bound to accept an agreed penalty if it does not consider the penalty is appropriate. The case was remitted to the Federal Court to determine the penalties. Implications Statutory liability policies often indemnify insured customers for any monetary sum (that is, a penalty) payable to a “Regulatory Authority” for a contravention of relevant legislation. Common examples of such legislation include:

• the Corporations Act 2001 (Cth)
• the Competition and Consumer Act 2010 (Cth); and
• the Fair Work Act 2009 (Cth).

Being able to negotiate an agreed penalty range makes it more likely that proceedings for contraventions can be resolved by agreement. In turn, this increases the predictability of outcomes for respondent insured. The predictability also means that claims managers needing to set reserves for claims under statutory liability policies will be able to do so earlier and with greater accuracy. Date: 17 December 2015