For a number of civil contraventions and criminal offences by a body corporate, the maximum monetary penalty is determined by reference to the greater of a prescribed cap (for example, $50 million), a multiplier of the "value of the benefit…reasonably attributable" to the conduct, or, if the value of that benefit cannot be obtained, a portion of the company's turnover during the period of the breach.
In a recent decision, the High Court clarified the principles for the determination of the "value of the benefit" limb under the Commonwealth Criminal Code: R v Jacobs Group (Australia) Pty Ltd [2023] HCA 23 (2 August 2023). The decision concerned the maximum penalty for charges of conspiracy to cause the offer of a bribe to a foreign official under the Code. However, the principles set down by the Court will have potentially wide-ranging effects for penalty regimes under the Competition and Consumer Act 2010 (Cth), Privacy Act 1988 (Cth) and other statutory schemes.
In particular, the decision has important implications for the deduction of costs or other set-offs in determining the "benefit" obtained by the conduct. The High Court unanimously held that the total gross amount received by the contravenor, rather than a "net benefit" approach, is to be assessed – with potentially significant effects on the maximum penalty that courts can impose on corporations.
Recent increases to penalties under the CCA
The penalty provisions of the CCA have been significantly increased within the past five years:
- in 2018, penalties for contraventions of the Australian Consumer Law were increased to align with those under the competition provisions in Part IV of the CCA.Those amendments gave effect to the recommendations of a report by Consumer Affairs Australia New Zealand released in April 2017, which concluded that "the maximum financial penalties available for a breach or attempted breach of the ACL…are insufficient to deter highly profitable non-compliant conduct and can be seen by some entities as ‘a cost of doing business";
- in 2022, maximum pecuniary penalties under the CCA and ACL were substantially increased to the greater of, for body corporates:
- $50 million (up from $10 million);
- if the court can determine the value of the benefit obtained – three times the value of the benefit (unchanged from the previous position); or
- if the court cannot determine the value of the benefit – 30% of the adjusted turnover during the breach turnover period for the offence, act or omission (increase from the previous position of 10% of annual turnover in the 12 months prior to the breach, to 30% of the adjusted turnover for the period of the breach).
The three-tier penalty regime under the CCA is mirrored for a number of other statutory provisions, including under the Privacy Act 1988 (Cth), following recent amendments to that law passed by the Parliament in November 2022.
Contract price, net benefit or total gross amount?
In R v Jacobs, the respondent pleaded guilty to certain bribery offences involving the procurement of contracts for construction projects. Although the respondent admitted to the conduct, it disputed the 'value of the benefit' it obtained from the offences. It fell to the High Court to determine whether the relevant 'benefit' comprised:
- the sum of the contract prices for the three projects (the contract price), which was unknown in this case;
- the gross amount received for the performance of the contracts (the total gross amount), which the Crown submitted was around $10 million; or
- the amount received, less the amount of any costs incurred, by the respondent in the performance of the contract (the net benefit), which the respondent submitted was around $2.6 million.
At first instance and on appeal, the Supreme Court and Court of Appeal of NSW respectively held that the relevant 'benefit' under the Criminal Code referred only to the net benefit (that is, allowing for the deduction of costs incurred in performing the contract). As three times the net benefit amount was less than the fixed penalty unit amount of $11 million, the Supreme Court and Court of Appeal held that $11 million was the maximum penalty for the relevant offences.
The High Court unanimously upheld the Crown's appeal, and has now clarified that the "value of the benefit" is to be determined by the total gross amount actually received by the respondent that is reasonably attributable to the offence. Significantly in this case, as three times the value of the total gross amount exceeded the $11 million fixed penalty amount (~$30 million), the maximum penalty more than trebled as a result of the High Court's reasoning.
Relevance for competition and consumer law penalties
Although the decision was limited to certain bribery provisions of the Criminal Code, there are a number of indications both in the similarity of the statutory language, and in the reasoning of the High Court, that the principles in R v Jacobs will have broader implications for other penalty regimes – and in particular, for contraventions of the CCA.
In the joint judgment, the Court referred to "several textual indicators" in the Criminal Code provisions supporting the use of a total gross amount for the relevant benefit. Relevantly, a number of these, or substantially similar, textual indicators also appear in the CCA:
- in both regimes, "benefit" is defined as including "any advantage" and not being limited to property. It is a well-established principle of construction that, ordinarily, the same meaning is to be given to the same words appearing in different parts of the statute. This, their Honours determined, favoured an interpretation of benefit in the penalty provision as "the advantage as provided or as obtained, no more and no less" with "no deduction for costs and expenses of any kind, nor for risk";
- according to the Court, nothing in the language of the Criminal Code suggests that the "value of the benefit ... obtained" involves some netting off process of any kind. There is no such indication on the face of the CCA penalty provisions either;
- their Honours observed that the benefit obtained by a bribery offence may be broader than securing a contract, such as cash flow itself as an advantage, irrespective of concomitant costs and expenses. Moreover, the Court held that "not every advantage obtained will be the payment of money". The same observations are applicable to conduct in breach of the CCA and ACL;
- the Court noted that a net benefit approach would require a complex valuation process, giving rise to an "imprecise, opinionative activity" unsuited to a penalty provision such as that under the Criminal Code. Similar considerations arise in the context of the CCA, such as the determination of 'benefits' associated with cartel conduct or misuses of market power (particularly where some gains from the conduct might have been passed-on by intermediaries to end customers or third parties);
- the Court stressed that the Criminal Code scheme, like the CCA, sets a maximum penalty only subject to the judicial process of instinctive synthesis of many considerations, which provide "ample scope" for a defendant to prove its net benefit, or even its loss, as a result of performing a contract secured by an offence (which the court can use to calibrate a given, final penalty on a case-by-case basis).However, in another recent case, the High Court held that a maximum penalty may be justified even for conduct which is not the "worst case" where factors such as a history of non-compliance are present; and
- as the Court highlighted, "that an offender incurred costs in performing its obligations under a contract secured by [a contravention of the law] does nothing to lessen the harm" caused by the conduct.
The plurality also pointed to the legislative history of the bribery provisions as giving effect to recommendations of the OECD to strengthen international efforts to combat the bribery of foreign public officials. The relevant explanatory materials noted that the purpose of the penalty regime was to be "sufficiently high to deter and punish bribery" such that "the penalty should not be, or perceived to be, 'a cost of doing business'".
Similar observations were made by the OECD in the context of competition law penalties in Australia in 2018. In that report, the OECD concluded that "the amount of pecuniary penalties imposed for competition law infringements in Australia is significantly lower, in both absolute and relative terms, than the amounts imposed in other OECD jurisdictions", and recommended that the law be reformed by "linking the amount of the penalty to the economic impact of the sanctioned company’s conduct and the seriousness and duration of the infringement". In the same way as for the bribery provisions of the Criminal Code, the explanatory memorandum for the 2022 amendments increasing CCA and ACL penalties cited the OECD report as a basis for the penalty regime.