Commonwealth Director of Public Prosecutions (CDPP)

Current issues in civil and criminal litigation arising from the regulation of commerce and public authorities in Australia: the interplay between civil penalties and criminal penalties in Australian regulation

Date of Publication: 
24 February 2006

Author: Bugg, D. Date: 24/02/2006 Venue: Law Summer School 2006 / Law Society of Western Australia

Introduction

The DPP’s Office was established by the Director of Public Prosecutions Act 1983 and began operations in 1984. Because it is a creature of statute the DPP can only perform those functions and exercise those powers that are provided under the DPP Act or allowed under Commonwealth statute. Thus in the cases of Byrnes1 and Bond2 the High Court held that the DPP did not have power under the applicable legislation to appeal against a sentence imposed for Companies Code offences. More recently the Supreme Court in Western Australia has held that the DPP cannot represent the Australian Federal Police in relation to a subpoena issued to the AFP concerning a Commonwealth prosecution3. The DPP is not an investigator of criminal conduct and this is perhaps the most important principle underlying the creation of the Office. There is a separation of the role of the prosecutor and investigator with the prosecutor having independence from the political process. While the DPP reports to the Attorney-General on the exercise of powers and functions under the Act, the DPP carries on his role on a day to day basis independently of any political control or direction. While provision exists within the DPP Act for the Attorney-General to give directions or guidelines to the Director4 since the time of the creation of the Office only 4 directions have been given to the DPP. Where such directions are given they must be gazetted and laid before each House of Parliament within a certain time. The DPP does not decide what to investigate. The decision as to what to investigate and how scarce investigative resources will be allocated is a matter for each investigative agency. That decision will usually be made on the basis of each agency’s enforcement policy, the perceived regulatory message desired to be conveyed to the community, the nature of the conduct, the degree of outrage at the conduct and the circumstances of the perceived offending. While the DPP is available to provide advice to an investigative agency we acknowledge that the decision whether to investigate a matter and refer that matter to the DPP is a matter for each investigative agency to be determined by its priorities and resources. The DPP has consistently adopted the view that while it cannot investigate a matter it is available to provide advice and assistance to an investigative agency during the course of an investigation as to potential difficulties in the evidence, further or alternative sources of evidence and likely areas of criminality that would merit investigation5. We recognise that there is no utility in an investigative agency investing a great deal of time and money in an investigation only to be told by the DPP at some later time that there is a fundamental problem with the case, that the focus of the investigation is misdirected or that extensive further investigation needs to be carried out. It is for the investigative agency to request such advice and that may or may not be requested by the agency depending on the level of expertise within the agency and the nature of the matter being investigated.

The Prosecution Policy of the Commonwealth

The Prosecution Policy of the Commonwealth comprises guidelines for the making of decisions in the prosecution process. It applies to all Commonwealth prosecutions whether or not conducted by the DPP6. The main purpose of the Prosecution Policy is to promote consistency in the making of the various decisions which arise in the institution and conduct of prosecutions. The Policy does not tell DPP lawyers what the decision should be but rather refers to the relevant factors and considerations that should be taken into account in exercising the discretions relevant to their role and functions. The Policy also serves to inform the public and practitioners of the principles upon which the Office performs its statutory functions7. The effect of instituting criminal proceedings on an individual can be enormous. Careful consideration must be given to a matter before criminal proceedings are instituted. The Prosecution Policy requires that before a prosecution is commenced or continued there is prima facie evidence of the elements of the offence and a reasonable prospect of conviction. The existence of a bare prima facie case is not enough. The prosecutor must evaluate how strong the case is likely to be when presented in court. The evaluation must take into account such matters as the availability, competence and credibility of witnesses and their likely effect on the arbiter of fact, and the admissibility of any alleged confession or other evidence. The prosecutor also should have regard to any lines of defence open to the alleged offender and any other factors that could affect the likelihood or otherwise of a conviction. The assessment may be a difficult one and there can never be an assurance that a prosecution will succeed. However the dispassionate application of the test by an experienced criminal lawyer is the best way to avoid the risk of prosecuting an innocent person and the useless expenditure of public funds. Having satisfied himself or herself that there is sufficient evidence to justify the initiation or continuation of a prosecution the prosecutor must then consider whether in light of the provable facts and the whole surrounding circumstances the public interest requires a prosecution to be pursued. These factors will vary from case to case but generally it can be stated that the more serious the offence the less likely it will be that the public interest will not require that a prosecution be pursued. Some of the factors that may be taken into account include:

  • Whether the offence is serious or trivial;
  • Any mitigating or aggravating circumstances;
  • The youth intelligence, health or any special infirmity of the alleged offender, any witness or victim;
  • The alleged offender’s antecedents;
  • The staleness of the offence;
  • The availability and efficacy of any alternatives to prosecution
  • The attitude of the victim;
  • The likely outcome in the event of a finding of guilt; and
  • The need for deterrence.8

Where the DPP is concerned that the public interest might not require a prosecution we will before making a decision first seek the views of the referring agency. In cases of commercial fraud or white collar crime often the referring agency will be in a unique position to provide an insight into the regulatory effect of the proposed prosecution and how it will impact upon the market and its perception of the alleged conduct. This is important as often the cases the DPP prosecutes are seen as individual cases to be dealt with on their own merits whereas a referring agency may see the prosecution as an integral part of a larger law enforcement effort designed to modify behaviour in the market place. The decision to prosecute must be made impartially without reference to the race, religion, sex, national origin or political association of the alleged offender or any political advantage or disadvantage to the Government or any political group. Civil Penalties Consideration of civil penalties in the prosecution of an offence may arise in a number of ways. One of these is, as indicated above, one of the public interest factors that the Prosecution Policy requires the prosecutor to take into account is the availability and efficacy of any alternatives to prosecution. One matter that we may take into account is the availability and efficacy of a civil penalty. It is at this stage that judgement and discretion must play a part to determine if the public interest requires that a prosecution proceed or whether the imposition of a civil penalty will adequately satisfy the aims of the legislation and represent an appropriate measure of society’s condemnation of the conduct. Civil penalties have been in Federal law since the year of Federation9. They are found in various Commonwealth Acts, predominantly those dealing with commercial activity and the environment10. The Commonwealth Guide to Framing Commonwealth Offences11 describes a civil penalty as one set out in a similar way to an offence but is enforced by civil proceedings that are subject to the procedures and rules of evidence in civil cases12. The type of civil penalty available to a regulator will depend on the terms of the statute creating the civil penalty and may include orders seeking pecuniary penalties, compensation orders, declarations, injunctions, banning orders community service orders and disqualification orders. In addition regulators may have available to them administrative penalties and other administrative action such as licensing action, withholding of benefits, enforceable undertakings and disciplinary proceedings. Given the potential width of civil and administrative action that may be regarded as an “alternative to prosecution” for the purposes of todays talk I would like to concentrate on those civil penalties that may be taken by a regulator in a civil court with a view to securing an order against the defendant. Much of our experience in the area of civil penalties and their interaction comes from the Corporations Act 2001 and its predecessor, the Corporations Law. The civil penalty provisions in Part 9.4B of the Corporations Law (now the Corporations Act 2001) were first introduced on 1 February 1993 by the Corporate Law Reform Act 1992. This legislation provided for separate civil penalties in relation to what were previously criminal offences and separately provided that a criminal offence was only committed if the civil penalty provision was contravened:

  • knowingly, intentionally or recklessly; and
  • either:
  • dishonestly and intending to gain, whether directly or indirectly, an advantage for that or any other person; or
  • intending to deceive or defraud someone13.

These reforms were implemented as a result of the recommendations of the report of the Senate Standing Committee on Legal and Constitutional Affairs entitled Company Directors’ Duties: Report on the Social and Fiduciary Duties and Obligations of Company Directors14. One of the major conclusions of that Committee was that under the Companies legislation, criminal liability should not apply in the absence of criminality. The resultant mental overlay under s1317FA created up to 12 different mens rea alternatives for an offence and presented a number of headaches for the prosecution in formulating charges for breaches of the civil penalty provisions. When first introduced the civil penalty provisions only applied in the areas of directors duties, related party transactions, financial accounts and insolvent trading. The legislation also contained a statutory bar15 to the commencement of criminal proceedings if civil penalty proceedings had been commenced in relation to that conduct and provisions allowing the jury to return an alternative verdict on a civil penalty if it acquitted on the criminal charges16. In 1999 the Corporate Law Reform Program Act 1999 repealed the existing Part 9.4B and replaced it with a new Part 9.4B. The new Part 9.4B did not contain a statutory bar or provisions dealing with alternative verdicts. In addition the legislation redrafted the criminal and civil penalty provisions into self contained provisions. Since that time the legislation has expanded on the type of conduct that would be amenable to civil penalty action. In many cases the situation will arise where a civil penalty may be taken in relation to conduct that may also constitute a criminal offence. Thus under the Corporations Act 2001 a court may make a declaration of a contravention if it is satisfied a person has contravened provisions relating to (inter alia):

  • Directors’ and officers’ duties;
  • Insolvent trading;
  • Continuous disclosure;
  • Market manipulation;
  • False trading and market rigging; and,
  • insider trading17.

In such cases the pursuit of a civil penalty outcome may be regarded as a direct alternative to the pursuit of a criminal proceeding. In each case the conduct that forms the underlying basis of a civil action may also form the basis for a criminal action. It is axiomatic that a civil penalty procedure is a civil procedure brought before the courts in the exercise of their civil jurisdiction while a prosecution for a criminal offence is a matter dealt with by the courts in the exercise of its criminal jurisdiction. It is worthwhile considering a number of aspects concerning civil penalty and criminal proceedings with a view to demonstrating both the differences and similarities of the two types of actions. This can assist in assessing the efficacy of a civil penalty as an alternative to prosecution action. Standard of proof In criminal matters the prosecution bears a legal burden of proving every element of an offence relevant to the guilt of the person charged and that legal burden must be discharged beyond reasonable doubt18. In civil penalty matters the burden of proof is the civil burden of proof being the balance of probabilities19. However, the courts in applying this standard will invoke a standard of proof commensurate with the gravity of the allegations20. In ASIC v Plymin21 Mandie J held that the civil onus applies to civil penalty applications under the Corporations Act 2001 although accepting that the approach in Briginshaw v Briginshaw22 that the seriousness of the allegations made, the inherent unlikelihood of an occurrence of a given description or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved. This may not be the position in relation to other civil penalty proceedings. In Chief Executive Officer for Customs v Labrador Liquor Wholesale Pty Ltd23the High Court held that in “Customs prosecutions” being proceedings for the recovery of a penalty the elements of the contravention were required to be proved to the criminal standard. Procedure In the Australian Law Reform Commission’s report on Federal Civil and Administrative Penalties in Australia, titled Principled Regulation24, the authors note that: The traditional dichotomy between criminal and non criminal procedures no longer accurately describes the modern position, if it ever did. The functions and purposes of civil, administrative and criminal penalties overlap in several respects. Even some procedural aspects, such as the different standards of proof for civil and criminal sanctions, are not always clearly distinguishable25. For example in civil penalties under the Corporations Act 2001 the courts have indicated that civil procedures should not always govern the conduct of the proceedings. In Rich v ASIC26 the High Court held that where the proceedings exposed a person to a penalty the proper course was to refuse an order for discovery. In ASIC v Plymin27 Mandie J rejected an application from the defence to file an early defence in a civil penalty application. As a consequence there has been uncertainty in identifying those aspects of civil procedure that will be applicable to civil penalty proceedings. One of the advantages often cited by proponents of civil penalty action is that the civil procedure is a far speedier process than the criminal process. No doubt in some cases that may be true, however, the uncertain nature of which civil processes may require modification in the context of civil penalty proceedings will of its very nature affect the speed at which such matters can be litigated. Further recent experience in the conduct of civil penalty cases has demonstrated that they may well be very lengthy and costly. Setting the penalty There is a great degree of commonality in the types of factors to be taken into account in setting a penalty for a civil penalty proceeding and sentencing for a criminal offence. The considerations of specific and general deterrence, rehabilitation and retribution are equally relevant in setting a penalty for a civil penalty contravention as they are in sentencing for a criminal offence28. In this respect contrition and protection of the public will also be relevant29. Prosecutorial Fairness The duties of a prosecutor have been expounded in well known cases such Whitehorn v R30, R v Apostilides31 and Richardson v R32. The Crown Prosecutor represents the State and in the system of criminal justice must “act with fairness and detachment and always with the objectives of establishing the whole truth in accordance with the procedures and standards which the law requires to be observed and of helping to ensure that the accused’s trial is a fair one”33. In Adler v ASIC34 the court was reluctant to impose upon ASIC the requirements of prosecutors in criminal cases and held there was no requirement on ASIC to call all available material witnesses and hence no unfairness to the defendants in the circumstances of the case35. Imprisonment A major difference between criminal and civil action is of course that a person found guilty of committing a criminal offence may be subject to incarceration. In the case of directors duties mentioned above if the defendant contravenes the criminal provision (s184) then the maximum penalty is 2,000 penalty units or 5 years imprisonment or both36. A penalty unit is $11037.The maximum amount of a pecuniary penalty for a breach of the equivalent civil penalty provision under the Corporations Act 2001 is $200,00038. Similarly a breach of the insider trading provisions, s1043A, carries a maximum penalty of 2,000 penalty units or 5 years imprisonment or both39. The maximum amount of a pecuniary penalty for a breach of the equivalent civil penalty provision under the Corporations Act 2001 is $200,000 for an individual and one million dollars for a body corporate40. The Choice between Civil and Criminal In the cases that I have been called on to consider the legislation is silent as to what matters should be taken by the regulator in deciding to proceed down the civil path as compared to the criminal path. No doubt any relevant Government policy or directive, the enforcement policies of the regulator, the prevalence of the conduct, the nature of the contravention, the regulatory outcome sought to be achieved and the resources of the regulator will all influence that decision. However, that decision is for the regulator. The DPP does not dictate to the regulator how to employ often scarce investigative resources nor what matters to refer to the DPP. That decision is taken by the regulators who are answerable to their relevant Ministers and though them to the Australian community. The DPP will when requested advise an investigatory agency whether, if a matter were to be investigated with a view to establishing either the suspected contravention or conduct, if the prosecution is likely to be in the public interest. As far as possible we will assist the agency in that consideration although often on a qualified basis. As far as possible we try to be realistic in our assessment. That assessment will, where possible, include an assessment of the difficulties of obtaining the evidence. The offences we prosecute are often complex provisions and this may need to be factored into the equation. By way of example the insider trading laws have been variously described as too strict, too legalistic, too unclear, illogical and inefficient.41 The provisions dealing with insider trading spread over 12 pages of legislation. The prohibition extends beyond shares traded on the stock exchange. The prohibition now extends to financial products, which as defined extends to securities, derivatives, managed investment products, superannuation products and any financial products that are able to be traded on a financial market. Further the scope of the offences may be unclear. Thus the case of Firns42 dealt with the question whether a judgment handed down in open court in Papua New Guinea was “readily observable matter”. The NSW CCA by majority ultimately held that the concept of readily observable matter for the purpose of Australian insider trading laws was not limited to matters that were readily observable in Australia. The point must be made that the DPP takes the view that providing the evidence is available no case is too difficult to prosecute. Any other approach amounts to an acknowledgement that those who can conceal their conduct behind sophisticated corporate vehicles and overseas trusts so as to make such prosecutions difficult can walk free from the risk of prosecution while the less sophisticated offender receives no such benefit. To adopt such a course would quickly bring the criminal justice system into disrepute and erode public confidence in the law. In the usual case a regulator will refer a brief of evidence to the DPP. That brief must then be assessed in accordance with the Prosecution Policy. In considering the public interest factors and whether the public interest requires a prosecution we will always seek the views of the regulator. While the DPP will treat each brief on its merits we may not be aware of where the investigation sits in the overall strategic plan of the regulator and its enforcement policy. Most often when a brief is referred to the DPP it is referred on the basis that the regulator is of the view that a criminal proceeding would be appropriate. In such instances the issue that will normally occupy the most time is consideration of whether there is sufficient evidence to establish a prima facie case and a reasonable prospect of conviction. In such situations if the DPP forms the view that there is sufficient evidence the matter will in nearly all cases proceed to prosecution. With the criteria taken into account by regulators in selecting matters for prosecution the conduct demonstrated in the brief is usually serious, has caused material prejudice43 and displays criminality warranting prosecution. Much less frequently a regulator may refer either a brief of evidence or a factual scenario to the DPP that is problematical in terms of demonstrating either moral blameworthiness or fault on the part of the offender. To take a purely hypothetical example. The insider trading prohibition in s1043A of the Corporations Act 2001 requires the prosecution to prove possession of price sensitive information and trading in a financial product. Suppose an employee of a company owns shares in that company and comes into possession of information that would have a positive effect on the share price of the company. The information has not been released, however, while in possession of the information the employee sells his shares to fund his wife’s life saving operation. The insider trading prohibition has been breached. The reason for trading is not part of the offence. Further the commission of the offence does not depend on whether a profit or loss is made by the insider. However, in this situation clearly the circumstances of the offence are such that serious consideration must be given to whether prosecution would be in the public interest. Where the DPP forms the view that it would not be in the public interest to prosecute that is not a decision that it would be appropriate to institute a civil penalty for the conduct. That is a separate decision to be taken by the responsible regulator. Of course if the regulator has expressed a preference to proceed by way of civil penalty that is a factor we will take into account. As far as possible we try to ensure consistency in our decision making. Referrals of like matters should be dealt with in a like manner and a like result should ensue. In performing our functions we are aware that under our present system imprisonment is society’s ultimate condemnation of the conduct of the wrongdoer. It is the fear of imprisonment that is the most important factor in general deterrence in sentencing. In the white collar crime area it is general deterrence that is of most significance44. I have quoted in the past a comment by an unnamed senior executive of a company to Donald Baker, former Assistant Attorney General, Antitrust Division in the US Department of Justice. That person said: So long as you are only talking about money, the company can at the end of the day take care of me – but once you begin talking about taking away my liberty, there is nothing the company can do for me. From our own experience we see many examples of offers by defendants to plead guilty on the basis that on sentence the prosecution will submit a substantial fine and non-custodial would be within range for the offence charged. I have yet to see an offer made by a defendant to plead on the basis that a lengthy term of imprisonment should be imposed in lieu of a fine.

Endnotes

1 (1999) 73 ALJR 1292 2 (2000) 74 ALJR 597 3Western Australia v Salmat Document Management Solutions [2005] WASC 232 4 See s8 of the DPP Act 5 See R3(f) and (g) of the DPP Regulations as to the source of this ability. 6 By arrangement the DPP has agreed with a limited number of Commonwealth agencies that they conduct prosecutions for minor regulatory offences. Where such arrangements are in place such prosecutions are to be conducted in accordance with the Prosecution Policy. 7 A copy of the policy is available at the DPP’s website; cdpp.gov.au. 8 For a more complete description of public interest factors see paragraph 2.10 of the Prosecution Policy. 9 See the procedures under the Customs Act 1901, although there has been considerable judicial debate over the nature of “Customs prosecutions” see Chief Executive Officer of Customs v Labrador Liquor Wholesale Pty Ltd (2003) 216 CLR 161. 10 See for example Part IV Trade Practices Act 1974, Part 9.4B of the Corporations Act 2001, Schedule 2 of the Commonwealth Authorities and Officers Act 1997, Chapter 6, Division 15 of the Environment Protection and Biodiversity Conservation Act 1999. 11 Issued in February 2004 by authority of the Minister for Justice and Customs. 12 Ibid at page 57. 13 S1317FA Corporations Law. 14 Often referred to as the Cooney Committee report after its Chairperson, Senator Barney Cooney. 15 S1317FB Corporations Law. 16 S1317GF Corporations Law. 17 See s1317E of the Corporations Act 2001 for the complete list of civil penalty provisions. 18 See s13.1 and 13.2 Commonwealth Criminal Code. 19 See Evidence Act 1995, s140(1), ASIC v Plymin (2003) 46 ACSR 126 at 206. 20 See Evidence Act 1995, s140(2) which reflects the common law position. 21 (2003) 46 ACSR 126 at page 207. 22 (1938) 60 CLR 336. 23 (2003) 216 CLR 161. 24 Report 95, December 2002 25 Ibid at para 2.91 page 84. 26 (2004) 50 ACSR 242. 27 No 7748 of 2000. Referred to in Principled Regulation at para 297. 28 See Rich v ASIC (2004) 50 ACSR 242 at page 260, ASIC v Vizard (2005) 54 ACSR 394 at page 402. 29Rich ibid 30 (1983) 152 CLR 657. 31 (1984) 154 CLR 563. 32 (1974) 131 CLR 116. 33Whitehorn, above citation at page 663-4. 34 (2003) 46 ACSR 504 35 See pages 647-8. 36 Item 30 of Schedule 3 of the Corporations Act 2001. 37Crimes Act 1914 s4AA. 38 S1317G(1) Corporations Act 2001. 39 Item 311C of Schedule 3 of the Corporations Act 2001. 40 Section1317G(1B) Corporations Act 2001 41Michael Whincop: Towards a Property Rights and Market Microstructual Theory of Insider Trading Regulation – The Case of Primary Securities Markets Transactions (1996) 7 Journal of Banking and Finance Law and Practice 212, at 232. 42 (2001) 38 ACSR 223 43 Under s1317G of the Corporations Act 2001 before a court can order the payment of a pecuniary penalty it must be satisfied the contravention is serious or has caused material prejudice in the specified ways. 44 See for example ASIC v Vizard (2005) 54 ACSR 394 at 403.