What happens when the court disagrees with the penalty you agreed with the regulator?

Articles Written by Sar Katdare (Partner), Mark Lewis

What you need to know

The common practice of courts endorsing negotiated settlements involving "agreed penalties" between private parties and prosecuting regulators such as ASIC, the ACCC and the ATO was the subject of judicial criticism in the recent ASIC v Ingleby case.

In light of this criticism, you should know that:

  • an agreed penalty that you negotiate with a regulator in an attempt to resolve court proceedings will not be binding on the court and may be of little value or use;
  • a regulator's promise to offer you a discounted penalty in exchange for cooperating in an investigation and subsequent proceedings may not be fulfilled by the court; and
  • you should submit an "appropriate range" of penalties to guide the court while focussing your submissions on the lower end of that range.

The Ingleby case

In 2007, ASIC commenced proceedings in the Supreme Court of Victoria against Paul Ingleby (the former CFO of AWB) in relation to illegal kickbacks that AWB authorised to be paid to Saddam Hussein's Iraqi regime under the UN Oil For Food Program.

Mr Ingleby, who co-authorised the payments, admitted to breaching his officer's duties of due care and diligence. He negotiated a court settlement with ASIC that included agreed civil penalties of $40,000 and orders disqualifying him from managing a company for 15 months.

The trial judge reduced the agreed penalties

The trial judge considered whether the penalties agreed to by ASIC and Mr Ingleby were appropriate. Based on the statement of agreed facts that was filed by the parties, His Honour found that Mr Ingleby was not actively involved in the relevant conduct and accordingly reduced the penalty to $10,000 and a four and a half month disqualification order.

The Court of Appeal reinstated the agreed penalties but… 

The Court of Appeal reversed the trial judge's decision. It found that Mr Ingleby had committed a "most serious breach" of his duties and that the statement of agreed facts had been "watered down" and failed to fully and accurately portray his knowledge of and significant involvement in the conduct.

On this basis, the Court of Appeal reinstated the agreed penalties. Indeed, two of the three judges were of the view that the penalties should have been higher given the nature of the offending conduct, but given that Mr Ingleby did not participate in the appeal, they could not make such orders.

The Court of Appeal criticised the generally accepted judicial practice of not departing from an agreed penalty where it is within a 'permissible range' even where the court may otherwise have been inclined to impose a higher or lower amount within that range. This approach has commonly been recognised by courts as providing predictability and certainty to litigants and encouraging negotiated settlements as an efficient way of resolving regulatory prosecutions.

In Ingleby, Justice Weinberg (with whom the other appeal court judges agreed) was highly critical of this approach. His Honour stated that the courts should not simply be a 'rubber stamp' for a negotiated agreed penalty but should instead independently exercise their sentencing discretion when determining and imposing civil penalties, which by their nature are quasi-criminal.

If the approach in Ingleby gains further traction, private litigants should understand the limits of negotiated agreed penalties. Instead of asking to endorse an agreed penalty, parties should consider submitting a range of appropriate penalties to assist the court, whilst focussing their submissions on the lower end of that range.

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).

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