Penalty claws

A recent High Court decision confirms that deterrence, not blameworthiness, is
the guiding principle in setting civil penalties, writes Professor Pamela
Hanrahan.

The High Court’s unanimous decision in Australian Building and Construction Commissioner (ABCC) v Pattinson [2022] HCA 13, handed down in April, is an important statement of principle about civil penalties and how they should be calculated. Its implications extend well beyond industrial law.

The Pattinson case arose out of events on a Multiplex building site in Frankston, Victoria in September 2018. When two employees of a subcontractor arrived to install solar panels at the build, they were informed by Kevin Pattinson — the Construction, Forestry, Maritime, Mining and Energy Union (CFMMEU) delegate on site — that they could not perform the work unless they were union members. This was consistent with the CFMMEU’s longstanding “no ticket, no start” policy which, as the High Court observed, has been illegal since at least 1996 (Workplace Relations Act). The subbies left and, after a complaint, the ABCC commenced civil penalty proceedings against Pattinson and the CFMMEU in the Federal Court. The proceedings concerned two contraventions of the provision of the Fair Work Act 2009 (Cth) (FWA) that deals with misrepresentations.

Pattinson admitted the contravention, acknowledging he knowingly or recklessly made a false or misleading representation about the supposed obligation of the two employees to become members of an industrial association. The parties accepted that Pattinson, in making the misrepresentations, acted in his capacity as a delegate of the CFMMEU and his actions were attributable to the CFMMEU. That meant the union itself also contravened the relevant law.

Therefore, the only issue was what pecuniary penalty was appropriate. The statutory maximum for each contravention — of which there were two — was $12,600 for Pattinson and $63,000 for the union. At trial, Justice John Snaden set the total penalty at $6000 for Pattinson and $63,000 for the CFMMEU. The union appealed and the Full Court reduced those amounts to $4500 and $40,000 respectively, on the basis that the higher penalties were disproportionate having regard to the seriousness of the contravention.

The ABCC decided to take the matter further. It appealed the Full Court’s decision and asked the High Court to decide whether the penalty should be reinstated at the top of the range (as the primary judge had concluded) or set at the lower level.

The CFMMEU and its delegate were not very sympathetic defendants. Justice Snaden at first instance noted that the CFMMEU had contravened the FWA on “about 150 occasions” since 2000, including contravening the misrepresentation provision on seven occasions. His Honour described the union as a “serial offender” that had historically acted in disregard of the law and that appeared to treat the imposition of pecuniary penalties as “little more than the cost of its preferred business model”. He found that the CFMMEU “favours a policy of ‘no ticket, no start’ and holds that philosophy... as preferable to the law of the land”, and that the events in Frankston were “but the latest example of the union’s strategy... to engage in whatever action, and make whatever threats, it wishes, without regard to the law”. The High Court notes that, on appeal to the Full Court, “the CFMMEU did not dispute, and the Full Court did not disturb, these findings”.

The argument in the High Court was about how judges should fix the amount of a civil pecuniary penalty under a regulatory statute like the FWA. The High Court accepted the ABCC’s approach on this issue and remitted the case back to the Full Court for a new penalty decision.

“Proportionate” penalty?

Every individual or entity (including a corporation) whose activities are regulated under Commonwealth or state legislation is potentially affected by how civil penalties are set by courts.

The use of civil penalties in legislation is steadily expanding, particularly for conduct that does not involve the same level of fault as criminal offending. The maximum civil penalties under other Acts are often set much higher than the amounts involved in the Pattinson case.

For example, the maximum civil pecuniary penalty for a director who breaches their statutory duties is now over $1m. The maximum civil penalties for corporate defendants under several Commonwealth statutes — including the Corporations Act 2001 (Cth) — are now in the hundreds of millions.

Parliaments set maximum criminal or civil penalties for offences or contraventions; courts then exercise their discretion to fix the appropriate penalty in the individual circumstances of a particular case. In criminal law, sentencing principles have evolved over centuries and are now captured in legislation in most jurisdictions, and include a notion of “proportionality” — that the maximum penalty should be reserved for punishing and denouncing only the very worst kind of offending.

In the Pattinson case, the High Court emphasised that civil penalties are all about deterrence — that is, discouraging that defendant and others like them from committing future contraventions. Criminal sentencing concepts like retribution or denunciation are not relevant. It concluded that the Full Court’s “critical error” in reducing the penalties for Pattinson and the CFMMEU was that “it was distracted by a concern, drawn from the criminal law, that a penalty must be proportionate to the seriousness of the conduct that constituted the contravention”.

The High Court confirmed that power under the FWA for a court to fix an appropriate civil penalty “is not subject to constraints drawn from the criminal law and there is no place for a ‘notion of proportionality’ in a civil penalty regime”. While “courts may adapt principles which govern criminal sentencing to civil penalty regimes, ‘basic differences’ between criminal prosecutions and civil penalty proceedings mean there are limits to the transplantation of principles from the former context to the latter”. The High Court disagreed that the maximum penalty should be reserved “for only the most serious examples” of the contravening conduct and said that “this principle could prevent the court from imposing the maximum penalty even though a penalty in that amount might reasonably be considered to be necessary to deter future contraventions of a like kind”.

A civil penalty will be appropriate if it does as much as — and no more than — needed to achieve the legislative objective. There must be “some reasonable relationship between the theoretical maximum and the final penalty imposed”. The Pattinson case makes it clear that this relationship exists where the penalty “does not exceed what is reasonably necessary to deter” the defendant and others from similar breaches. It is not about how egregious the conduct is, but rather what is needed to achieve future compliance.