13.13Section 46A will enable the FMA to effectively “settle” with parties whom it would otherwise seek pecuniary penalties against. With the exception of this regime, it is not possible for any enforcement agency to settle with a defendant out of court, because all other pecuniary penalties must be imposed by a court.
13.15The ability to propose an agreed penalty to the court in this way is considered valuable by both enforcement agencies and those subject to regulation. It is one of the considerable benefits of pecuniary penalty regimes (as opposed to criminal offences). Since the court has generally adopted the proposed penalty, the process results in greater certainty for the defendant, and saves substantially on costs for both parties.
13.16On one view, the process of having to obtain court approval of such an agreed penalty is cumbersome. Where a party is content to admit a breach and has settled on a penalty with the enforcement body, it can be argued that it is unnecessary to involve the court. The ability to enter into a formal settlement without the need for court sign-off would save court time, result in greater cost savings and give complete certainty to the party in breach.
13.17In essence, this is made possible by section 46A. From this perspective, such provisions may be desirable.
13.20Thirdly, there is an argument that the novel nature of pecuniary penalties alone favours court oversight of penalty setting. There are relatively few reported cases. Courts are still developing their approach to the imposition and setting of penalties. No penalties at all have been imposed under a number of the regimes. The development of a body of case law and principles is important for providing guidance to courts, alerting the public to the boundaries and extent of their potential liability, and to assisting those accused of breaches to make educated decisions about whether and how to defend themselves.
13.21While giving a regulatory body the ability to effectively penalise breach of their statute outside of court provides substantial benefits, the reasons just given mean that the potential for provisions such as section 46A to appear on the statute book causes us some concern.
13.22A related issue is how the courts should assess the level of agreed penalty put to them after an enforcement agency and other party have reached an agreement on liability. There has been recent Australian litigation on this issue.
13.25The case highlights the concerns set out above about agreed penalties. They risk accurate detail of the breaches being suppressed by enforcement agencies and defendants in the interests of reaching a settlement. And, where settlements do come before the court, there is a risk that judges will not properly undertake their role in assessing for themselves the evidence, and coming to their own assessment of an appropriate penalty.
13.26These risks have implications for the integrity of regulatory systems as a whole and their ability to effectively deter non-compliance. We doubt that it is in any enforcement agency’s interest to limit the general deterrent effect of their regime by underplaying breach or under-sanctioning. However, pressure to understate conduct or agree to a lower penalty in the interests of reaching agreement may always be there.
13.27The Court in Ingleby itself notes the need to be pragmatic about the considerable benefits offered by the parties approaching the court with an agreed proposed penalty, and for similar reasons we do not consider that the practice should stop. However, the case highlights the need for agencies to act responsibly, for transparent processes and for the court to approach such settlements with due caution.
When a court is faced with a negotiated settlement in a pecuniary penalty case, the joint submission of the parties as to an “agreed penalty” is an important factor to be considered by the court in performing its judicial role of fixing the appropriate penalty in the circumstances of the case. The court’s discretion in such cases should not, however, be fettered by a principle requiring imposition of the agreed penalty if it is within “the permissible range in all the circumstances”.
… the principles to be applied may be simply stated. First, the question of an appropriate penalty for a proven contempt or an established breach of a statutory prohibition is a matter for, and function of, the Courts in the exercise of judicial power. Secondly, … the role of the Court in addressing an agreed penalty is not to exercise an “appellate” role. … The role of the trial judge is to give such weight to an agreed penalty as is appropriate and to treat the joint submission as it is – a joint submission – to be considered as a factor, an important factor, in the exercise of judicial power of fixing the appropriate penalty in the circumstances of the particular case. … The role of the Court is to assess what it would do itself based on the facts … [and] to impose a penalty that is proportionate to the gravity of the contravening conduct. Much of the current debate about the appropriate approach has descended into a debate about which goes first – the Court assessing the penalty having regard to the agreed penalty or assessing whether the agreed penalty is within the appropriate range. For my part, that debate is distracting. It is distracting because it ignores the important role of the fundamental principles of sentencing that must be considered by a trial judge.
Finally, in discussing the general approach to fixing penalty, I acknowledge the submission that the task of the court in cases where penalty has been agreed between the parties is not to embark on its own enquiry of what would be an appropriate figure but to consider whether the proposed penalty is within the proper range (see the judgment of the Full Federal Court in NW Frozen Foods v Australian Competition and Consumer Commission (1996) 71 FCR 285). As noted by the Court in that case and by Hugh Williams J in Commerce Commission v Koppers, there is a significant public benefit when corporations acknowledge wrongdoing, thereby avoiding time-consuming and costly investigation and litigation. The Court should play its part in promoting such resolutions by accepting a penalty within the proposed range. A defendant should not be deterred from a negotiated resolution by fears that a settlement will be rejected on insubstantial grounds or because the proposed penalty does not precisely coincide with the penalty the Court might have imposed.
13.32The Ingleby case heightens our concern about agreed penalties being imposed entirely without court oversight. We acknowledge that often both the regulator and defendant may prefer the negotiated route because of the certainty and cost savings it offers. However, we are uncomfortable with the potential for penalties to effectively be imposed by enforcement agents without court oversight of penalty quantum.
13.33In general, the Commission’s view is that the imposition of pecuniary penalties is rightly the role of the courts. Courts are best positioned to assess independently the appropriate penalty. In addition, developing an authoritative source of case law to assist both courts and parties to pecuniary penalty proceedings has clear benefits. We think, therefore, that provisions such as section 46A should only be included in statutes in very rare circumstances, where there is no chance of oppression of abuse of the procedure by the enforcement agency. This may be because the actors in the field are exclusively well-resourced to such an extent that there is no imbalance of power.
13.34If such a provision is to be employed, it must be accompanied by two protections. First, there should be a legislative requirement to publicise details of: (a) the circumstances and nature of the breach; and (b) the quantum of the compensation or payment. We note that this approach has been adopted in the Financial Markets Authority Act 2011 for section 46A.