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Pecuniary Penalties: Australian Federal Court refuses to uphold “plea bargain” agreement

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By Helen Faulkner


Published 23 June 2015


On 1 May 2015, the Federal Court of Australia handed down a decision in Director, Fair Work Building Industry Inspectorate v Construction, Forestry, Mining and Energy Union [2015] determining that regulators, such as the Australian Securities and Investments Commission, the Australian Tax Office and the Australian Competition and Consumer Commission, can no longer expect the Court to honour any agreements as to pecuniary penalties reached by the parties as part of a plea-bargain arrangement.

As such, claims for defence costs incurred by and/or penalties imposed on companies, directors and/or officers facing regulatory prosecutions may increase as insureds are less motivated to promptly enter into such arrangements with the regulators in the hope of securing a reduced penalty.


The Director of Fair Work Building and Construction ("the Director”) alleged that two unions, the Construction, Forestry, Mining and Energy Union and Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union (collectively "the Unions”) contravened certain building and construction laws and sought pecuniary penalties. 

It is common for the parties to agree to a figure for the penalty, or a range, and to then file a statement of agreed facts supporting the agreed penalty. That occurred here.   

However, recently in Barbaro v The Queen [2014], the High Court determined that, in the context of criminal proceedings, the prosecution’s submission as to the appropriate sentence comprised opinion evidence and was therefore inadmissible. 

The Federal Court therefore had to determine whether the comments in Barbaro were specific to criminal proceedings, or if they also applied in a civil context – in which case the submissions by the Director and the Unions as to the appropriate penalty to be imposed on the Unions would be inadmissible. 

The decision

The Court reviewed two alternate lines of authorities. 

The first, stemming from the Federal Court decisions in NW Frozen Foods v Australian Competition and Consumer Commission [1996] and Minister for Industry, Tourism & Resources v Mobil Oil Australia Pty Ltd [2004], recognised a practice of encouraging the parties to enter into plea-bargain arrangements. This line of authority recognised that although responsibility for fixing a penalty rests with the Court, it is not an exact science. The Court should therefore uphold the agreement if it was otherwise appropriate. This approach was said to be in the public interest because it saved resources.

The second line of authority, stemming from the recent decision in Barbaro, held that the parties’ expression of an agreed figure, or range could never be more than opinion and that a judge should not take those opinions into account. Barbaro ultimately separated the roles of the parties, and rather than allowing agreed facts, determined that it remains the prosecutor’s duty to determine the preferred charge, that it is solely for the accused to decide whether to plead guilty, and solely for the judge to decide on the sentence.

Ultimately in this case, the Court decided that it was bound by the High Court’s precedent in Barbaro. It considered the criminal sentencing process and the process whereby pecuniary penalties are imposed to be very similar. As such, since submissions as to the range of a criminal penalty are inappropriate, the court determined that submissions as to the exact figure or range of pecuniary penalties are equally inappropriate. 

What does this decision mean?

In the short term, subject to any appeal to the High Court over the principles expressed in the case, it is likely to be more difficult to agree facts with regulators and to settle civil prosecutions brought by regulators. As a result, D&O insurers who cover criminal proceedings should prepare for anticipated increases to the average size of claims for both defence costs and penalties (if covered) under their policies.