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Snapshot

  • The High Court has set the bar lower for higher penalties.
  • The primary purpose of civil penalties (including under the Fair Work Act 2009 (Cth)) is deterrence.
  • Civil penalties ought not be seen as an ‘acceptable cost of doing business’.
  • The discretion to determine fines is not subject to a ‘notion of proportionality’ as there is in the criminal law jurisdiction.

In an important decision impacting enforcement actions initiated by regulators seeking civil penalties, the High Court of Australia has held that maximum penalties are not reserved for only the ‘worst’ category of contravening conduct.

In the decision in Australian Building and Construction Commissioner v Pattinson [2022] HCA 13 (‘Pattinson’) delivered on 13 April 2022, the High Court confirmed judges’ have broad discretion when determining fines under the Fair Work Act 2009 (Cth) (‘FW Act’).

The High Court clarified the uncertain area of ‘proportionality’ in civil penalty proceedings and will assist the Australian Building and Construction Commissioner (‘ABCC’) in seeking significant penalties against repeat offender unions. The clear message is that civil penalties ought not be seen as the ‘cost of doing business’.

Background

Pattinson arose from the commencement of penalty proceedings against both the Construction, Forestry, Maritime, Mining and Energy Union (‘CFMMEU’) and one of its officers by the ABCC. The appeal concerned the scope of power that judges have under section 546 of the FW Act to impose civil pecuniary penalties in respect of contraventions of civil remedy provisions.

The contraventions occurred in September 2018, when Mr Pattinson (the first respondent) denied two employees of a sub-contractor entry to a worksite. Mr Pattinson was an officer of CFMMEU (the second respondent) and a union delegate. During their induction, Mr Pattinson asked if the two employees were ‘union’ and if they had a ‘ticket’, alluding to CFMMEU’s ‘no ticket, no start’ policy. Mr Pattinson told the two workers that they were required to be members of the union in order to work at the site. This amounted to misrepresentation under section 349(1) of the FW Act. The misrepresentations resulted in the two employees being prevented from performing any work that day.

At the time of the contraventions, the maximum penalties that could have been imposed were:

  • $126,000 in respect of CFMMEU ($63,000 for each contravention); and
  • $25,200 in respect of Mr Pattinson ($12,600 for each contravention).

Federal Court

In the Federal Court decision, Justice Snaden observed that since the year 2000, the CFMMEU had contravened the FW Act (or its predecessor) on approximately 150 occasions, including section 349(1) on at least seven occasions, calling CFMMEU a ‘serial offender’.

Justice Snaden imposed a penalty of $6,000 in respect of Mr Pattinson ($3,000 for each contravention) and $63,000 in respect of CFMMEU ($31,500 for each contravention). Justice Snaden noted that he was minded to impose the maximum penalty of $63,000 for CFMMEU per contravention given their longstanding history of contraventions in connection with it’s ‘no ticket, no start’ policy. But because the contraventions occurred in a single episode, Justice Snaden reduced each penalty by half so their total reflected the maximum penalty.

Full Federal Court

The CFMMEU and Mr Pattinson both appealed the first instance decision. The Full Federal Court allowed Pattinson’s appeal and reduced the penalties to $4,500 for Mr Pattinson and $40,000 for CFMMEU.

The Full Court observed that the object of civil penalties is  to promote compliance through general and specific deterrence. In the Full Court’s view, ‘a case could not be in the worst category merely by reason of the contravenor having a history of prior contraventions: to impose the maximum penalty in such a case would be to impose a penalty disproportionate to the nature, gravity and seriousness of the instant contravention’ (at [34]).

The Full Court applied a ‘notion of proportionality’ principle in applying section 546 of the FW Act. The Full Court noted that ‘notion of proportionality’ is rooted in criminal sentencing but that does not preclude it from applying in a civil context. The ‘notion of proportionality’ is discussed in Veen v The Queen [No 2] (1988) 164 CLR 465; [1988] HCA 14.

The Full Court wrongly treated the statutory maximum as requiring a connection with the worst category of contraventions. The High Court stated that deterrence and the protection of the public interest justify the imposition of the maximum penalty where it is clear that no lesser penalty will be effective and it does not necessarily need to relate to contravening conduct of the worst kind.

High Court – plurality

The plurality consisted of Chief Justice Kiefel and Justices Gageler, Keane, Gordon, Steward and Gleeson. The High Court did not agree with the Full Court’s approach and stated that ‘the “notion of proportionality” is so closely connected to the central role of retribution in criminal sentencing that it cannot be translated coherently into the civil penalty context of the FW Act’ (at [38]).

The High Court emphasised the important principles in the Agreed Penalties Case (2015) 258 CLR 482; [2015] HCA 46; in particular that while criminal penalties relate to retribution and rehabilitation, civil penalties are primarily (if not only) for the purpose of promoting compliance.

The High Court observed that the CFMMEU’s repeated contravention is a compelling indication that penalties that have previously been imposed have not been taken seriously. CFMMEU demonstrated that it regards the penalties previously imposed as simply an ‘acceptable cost of doing business’.

The Full Court wrongly treated the statutory maximum as requiring a connection with the worst category of contraventions. The High Court stated that deterrence and the protection of the public interest justify the imposition of the maximum penalty where it is clear that no lesser penalty will be effective and it does not necessarily need to relate to contravening conduct of the worst kind. The High Court stated that what is required is that there be ‘some reasonable relationship between the theoretical maximum and the final penalty imposed’.

The Full Court of the Federal Court also incorrectly focused on the circumstances of the contraventions, whilst disregarding the circumstances of the contravenor. The High Court stated that CFMMEU’s determination and financial ability to continue to follow it’s ‘no ticket, no start’ policy in contravention of the FW Act, is something that should be taken into account when determining the penalties. The High Court also observed the fact that the contraventions were not violent or intimidatory should not be a significant consideration because in situations where violent or intimidatory behaviour is involved, other laws will likely protect peace and good order. The seriousness of the contravening conduct as well as the circumstances of the contravener need to be considered.

The plurality also rejected the argument that the lesser penalty (i.e. the penalty imposed by the Full Court) should be upheld for Mr Pattinson because he had since retired. The plurality upheld the orders of the primary judge in the Federal Court.

In the case of a repeat offender being penalised for a new contravention, the High Court made it clear that ‘an “appropriate” penalty is one that strikes a reasonable balance between oppressive severity and the need for deterrence in respect of the particular case. A contravention may be a ‘one‑off’ result of inadvertence by the contravenor rather than the latest instance of the contravenor’s pursuit of a strategy of deliberate recalcitrance in order to have its way’ (at [46]).

In this case, whilst the conduct may not be the ‘worst case’ the High Court said that ‘considerations of deterrence, and the protection of the public interest, justify the imposition of the maximum penalty where it is apparent that no lesser penalty will be an effective deterrent against further contraventions of a like kind’ (at [50]).

The High Court’s decision has drawn a line under two competing Full Court decisions which took differing views in relation to ‘proportionality’ and the consideration of prior contravening conduct (Broadway on Ann (2018) 265 FCR 208 at 231 [93], 233 [105]; Parker v Australian Building and Construction Commissioner (2019) 270 FCR 39 at 146 [339]).

Justice Edelman

Justice Edelman dissented and wished to allow the appeal in part. Justice Edelman agreed that the lesser penalty should have been imposed for Mr Pattinson.

Justice Edelman made some interesting observations regarding the principles of deterrence and how it can lead to a (hypothetical) anomaly where the law could allow an individual who commits a singular contravention to pay a penalty of ten times more than a billion dollar corporation which repeatedly commits more serious contraventions.

Justice Edelman differentiated between a penalty that focuses on ‘just dessert’ and a penalty that focuses on deterrence. A ‘just dessert’ approach focuses on what the person has done, while a deterrence approach focuses on what the person might do. Justice Edelman’s view was that either approach would result in a significant fine for CFMMEU given its continued history of contraventions.

A ‘just dessert’ approach means ensuring that the person is not punished any more than what the law requires that they deserve based on past conduct in light of all of the circumstances.

Conclusion

Pattinson is a clear message from the High Court that where continued contraventions are involved, civil penalties should be of a level that deters the contravening party from breaching the law again. Penalties should not be at a level where unions or businesses can consider them part of the cost of running their business.

The non-application of ‘proportionality’ in civil penalty proceedings is something which regulators have argued for in a variety of ways and cases, but it has resulted in inconsistent analyses ever since courts started trying to apply concepts relevant to criminal penalty analysis in civil penalties.

The High Court’s decision will certainly assist the ABCC in seeking significant penalties against repeat offender unions. As with the FW Act, legislation administered by other regulators also imposes maximum penalties for contraventions – whether they be contravention of criminal provisions (i.e. offences) or of civil prohibitions. This decision will have a flow on effect to other regulatory matters and embolden regulators such as ASIC, AUSTRAC, the ACCC, APRA and the ATO to push for higher penalties more frequently and to give courts the comfort to award maximum penalties.



Jack de Flamingh is Partner and Bella Moore is an Associate, both at Corrs Chambers Westgarth.