Chapter 2 — Options for possible change

If there is a gap in the existing enforcement mechanisms for Australia’s consumer protection law resulting in enforcement agencies being unable to respond appropriately to serious breaches of the consumer protection law, it may be appropriate to consider amending the existing enforcement mechanisms. There are two types of civil penalty that may improve the ability of enforcement agencies to enforce the consumer protection law: pecuniary penalties and banning orders.

Civil penalties are not the only types of enforcement mechanism that could be used to respond to breaches of the consumer protection law. However, this discussion focuses on whether consumer protection enforcement agencies can adequately respond to, and deter, breaches of the consumer protection law. For this reason, non-penalty options (such as administrative orders), which are typically more suitable for less serious breaches of the law, have been excluded from the discussion.

Civil penalties

Civil penalties are a ‘middle ground’ between criminal penalties and civil remedies. The purpose of a civil penalty, generally, is to punish or deter a party engaging in a serious breach of the law, as a criminal penalty does. A civil penalty is ordered by a civil court (rather than a criminal court) and, consequently, is subject to the lower standard of proof and less strict evidence rules of civil proceedings. However, as discussed below, the standard of proof required in civil penalty proceedings will increase in proportion to the severity of the penalty sought. Further, civil penalties are debts and, if unpaid, are collected through the civil process, such as seizure and sale actions and bankruptcy proceedings, unlike unpaid criminal fines where imprisonment is a possibility.

Civil penalties do not attract the same consequences as a criminal conviction, such as the social stigma and disqualification from certain professions. Further, the advantage of a civil penalty in the context of consumer protection is that an enforcement agency can seek a civil penalty which has a deterrent effect, and, in the same proceedings, seek consumer redress (where possible) and stop the contravening conduct.

This discussion considers the potential application of two types of civil penalty: pecuniary penalties and banning orders.

Standard of proof

Civil penalties expose defendants to more serious consequences than are otherwise available with the existing civil remedies. In response to this, the standard of proof in civil proceedings varies in proportion to the seriousness of the consequences for the defendant. While the plaintiff must always prove their case ‘on the balance of probabilities’, courts have held that they must be more convinced that the defendant has breached the law if a civil penalty is sought than if a civil remedy is sought. While the standard of proof is never the criminal standard of ‘beyond a reasonable doubt’, it is, nevertheless, a flexible, less onerous standard of proof designed to protect, to a certain extent, the rights of the defendant.¹⁰

Policy guidelines

To assist policy makers to determine the circumstances in which civil penalties may be appropriate, the Australian Government has released the Guide to Framing Commonwealth Offences, Civil Penalties and Enforcement Powers (the Guide).¹¹ The Guide states that there are three circumstances where it may be appropriate to impose a civil penalty: when criminal punishment is not merited; when the size of the penalty imposed is sufficient to justify court proceedings; and when the penalty is directed at corporate or ‘white collar’ wrongdoing.

The Guide recommends a formal criminal conviction to punish contraventions involving ‘serious moral culpability’. This is defined as conduct that involves: harm to a person; serious danger to public safety; or knowing or reckless dishonesty by a person. The Guide states that court proceedings are justified if the maximum available penalty is at least $5,000, but typically, the maximum penalty should be higher than this. Further, the Guide states that for less serious matters, an infringement notice or administrative sanction is more appropriate.

Application of civil penalties to specific provisions

If civil penalties were introduced, it would be necessary to identify the types of conduct that would be subject to them. There are two options for the application of civil penalties. Civil penalties could apply to the same types of conduct that currently attract a criminal penalty. This would be the conduct specified in Part VC of the TPA, and equivalent provisions of the state and territory Fair Trading Acts, which includes specific misrepresentations, ‘pyramid selling’, ‘bait advertising’ and consumer product safety offences. Alternatively, civil penalties could apply more broadly to all of the consumer protection law, or a subset thereof. These additional provisions could include the general prohibitions against misleading or deceptive conduct and unconscionable conduct.

Provisions imposing a penalty should be sufficiently certain to enable individuals to identify the elements of the contravention clearly enough to be able to avoid engaging in such conduct. Consequently, the provisions creating norms of conduct, such as the general prohibitions against misleading or deceptive and unconscionable conduct, may not be appropriate for a penalty.¹²

Pecuniary penalties

Pecuniary penalties are a subset of civil penalties. They are a monetary fine a civil court may impose according to the less strict civil procedures. In setting the level of the penalty, the court usually will consider a number of factors, including:

• the seriousness of the breach of the law;
• the size of the contravening business;
• the amount of loss or damage caused; and
• the extent to which the business cooperated with any investigation.

Pecuniary penalties are currently available for breaches of business conduct provisions in a number of contexts, including for breaches of the restrictive trade practices provisions of the TPA, and for breaches of the ASIC Act, Corporations Act 2001 (Cth) and the Consumer Credit Code.

If pecuniary penalties are introduced, careful consideration will need to be given to whether they should be introduced in substitution for, or as an alternative to, the existing criminal penalty regime.

Substituting pecuniary penalties for criminal penalties

Like the existing criminal penalties, pecuniary penalties are a monetary fine. However, two types of monetary fine in the same legislative framework may not be necessary. The criminal penalty provisions may continue to have a role if some breaches of the consumer protection law involve serious moral culpability. In such circumstances, a criminal conviction is the only appropriate response. If breaches of the consumer protection law are more economic in nature and never involve serious moral culpability then, arguably, the criminal penalty provisions should be repealed and replaced by pecuniary penalty provisions. If breaches of the consumer protection law sometimes, but not always, involve serious moral culpability, then there may be a role for pecuniary penalties in addition to the existing criminal penalties.

Introducing a parallel monetary penalty regime

The introduction of pecuniary penalties without repealing the criminal offence provisions would introduce parallel monetary penalty regimes. This would mean that for some conduct in breach of the law, consumer protection agencies may be able to initiate penalty proceedings in both criminal and civil courts for the same breach of the law. This introduces two legal issues: ‘double jeopardy’ and distinguishing between types of penalties. The Corporations Act 2001 is an example of legislation where a parallel monetary penalty regime has been introduced. The approach to these two issues in that framework may be applicable to the consumer protection law. It also may be desirable to maintain a consistent approach across the law on issues such as these.

‘Double jeopardy’

The principle of ‘double jeopardy’ provides that a person cannot be subject to more than one penalty for the same, or substantially the same, breach of the law. The principle only applies in criminal proceedings, not in civil proceedings. Consequently, there is no general prohibition against imposing a civil penalty, then initiating a criminal prosecution for essentially the same conduct. A person therefore could be exposed to a civil penalty proceeding, then criminal enforcement action for the same breach of the law. The reverse is also possible. This may result in a person having to defend two legal proceedings, as well as being exposed to two separate penalties, which, as a matter of fairness, is an undesirable outcome. However, the law can limit the extent to which this can occur.

The Corporations Act 2001 provides a possible resolution to this issue. It provides that if the criminal proceedings are commenced after a civil penalty proceeding has been commenced, the civil penalty proceeding is suspended pending the outcome of the criminal proceedings. If a criminal penalty is awarded, the law provides that the civil proceedings are dismissed. If a criminal penalty is not awarded, the law provides that the civil proceedings can then be continued. Consequently, a person is potentially exposed to a penalty twice only if the civil proceedings are completed before the criminal proceedings are initiated.

In practice, it is also likely that the DPP would take into account any pecuniary penalties being sought or already imposed when forming a view as to whether criminal prosecution is warranted. As a result, there may be little benefit in a consumer protection agency concluding civil proceedings, then approaching the DPP with a view to initiating criminal proceedings in relation to the same conduct.

Distinguishing between criminal and pecuniary penalties

The introduction of a parallel monetary penalty regime may create some operational difficulties for consumer protection agencies in deciding when a criminal penalty is to be preferred over a pecuniary penalty, and vice versa. Enforcement agencies currently have to decide early in an investigation whether they intend to seek civil remedies or criminal penalties (and in the case of the ACCC and ASIC, decide whether to brief the DPP) because it can be difficult to switch investigative paths at a later stage due to the operation of the evidence rules. However, these issues can be overcome. For example, consumer protection agencies generally conduct investigations in such a way as to leave open the option of switching investigative paths. This may include issuing warnings to witnesses or maintaining strict chains of evidence.

The decision whether to pursue a criminal or pecuniary penalty may be somewhat different to the decision whether to pursue a criminal penalty or civil remedy. It may be appropriate, therefore, for the law implementing a parallel monetary penalty regime to distinguish when one type of penalty is to be preferred over the other. This may assist consumer protection agencies in the process of assessing enforcement choices and provide greater certainty for business on the application of the two types of penalty.

The Guide suggests criminal prosecutions are effective and appropriate where there is conduct that constitutes serious moral culpability. Under the Corporations Act 2001, criminal prosecutions are more appropriate where conduct is engaged in ‘knowingly’ or ‘recklessly’. That is, the criminal penalties are appropriate when a mental fault element exists. If the misconduct does not contain a mental fault element, or the fault element cannot be proven, the Corporations Act 2001 provides for a pecuniary penalty.

If the consumer protection law were amended to include a parallel monetary penalty regime, the law could provide that a criminal prosecution was more appropriate for conduct engaged in knowingly, recklessly or dishonestly. If the alleged conduct did not involve these fault elements, or these elements could not be established, the law could provide for a consumer protection agency to seek a pecuniary penalty. If this were to be implemented, the criminal offence provisions would no longer be strict liability offences.

If the criminal consumer protection provisions were amended to require intent, it would also be necessary to determine whether intent should be required for all consumer protection criminal prosecutions, or only those criminal prosecutions in relation to individuals. Also, consideration would need to be given to whether the defences against criminal prosecution, such as the defence of ‘reasonable mistake’ already provided for in section 85 of the TPA, would sufficiently differentiate criminal and civil breaches of the law.

Should these additional requirements of knowingly, recklessly or dishonestly engaging in conduct be inserted into the criminal consumer law, it may also be appropriate to consider whether imprisonment should be available for such conduct to reflect the seriousness associated with deliberate ‘fraud’- type conduct.

Possible penalty amounts

The Guide suggests pecuniary penalties are appropriate if the available penalty is at least a maximum of $5,000. According to the Guide, an infringement notice or administrative sanction is more appropriate for less serious matters, and the size of the maximum penalty should justify the time and expense of taking the matter to court. The existing maximum criminal penalties for contraventions of the TPA are currently set at $220,000 for individuals and $1.1 million for companies. The maximum criminal penalties are generally lower in the state and territory Fair Trading Acts.

The Guide notes that the appropriate maximum financial penalty under a pecuniary penalty provision will often be higher than the appropriate maximum fine for a criminal offence.

Issues to consider Should pecuniary penalties be introduced for breaches of Australia’s consumer protection law? If pecuniary penalties are introduced, what breaches of Australia’s consumer protection law should be subject to them? Should pecuniary penalties be substituted for criminal penalties in Australia’s consumer protection law? Should a parallel penalty regime be applied to enforcement of Australia’s consumer protection law? If pecuniary penalties were to be an alternative to criminal penalties for breaches of Australia’s consumer protection law: (a) How should the risk of double jeopardy be addressed? (b) Should the consumer protection law provide direction as to when a criminal penalty is to be preferred over a pecuniary penalty, beyond those distinctions that currently exist? What should the criteria be? If pecuniary penalties are introduced, what is the maximum pecuniary penalty appropriate for breaches of the consumer protection law?

Banning orders

Banning orders are a type of civil penalty that limit the future opportunities of a person found by a court to have breached the law. Banning orders have typically been used in corporate and financial services regulation. The Corporations Act 2001 provides the court with discretion to ban (that is, disqualify) an individual from being involved in the management of a company where that person has contravened specific legal provisions relating to corporate governance.

Most States and Territories also allow courts to make a ‘cease trading’ order. For example, section 98 of the Fair Trading Act 1989 (Qld) provides the court with the power to grant an injunction restraining a person from carrying on a business of supplying goods or services, or allowing them to trade subject to certain conditions. If these orders already exist at the state and territory level, then it is only at the Commonwealth level that the introduction of such a civil penalty would potentially make a difference to the enforcement of the consumer protection law. A ‘cease trading’ order therefore may have a similar effect to a disqualification or banning order. In addition, where a trader is required to be licensed, disciplinary proceedings can be taken for breaches of consumer protection law and licences suspended or cancelled, which may also have a similar effect.

Banning orders apply only to individuals. Consequently, the order penalises the particular person/s responsible for the conduct in breach of the law. As an enforcement mechanism targeted at individuals, a banning order may be a more effective deterrent and punishment than the existing criminal penalties which apply to the business. Banning orders may be an effective deterrent because while a criminal monetary penalty imposed on a business may be considered a cost of doing business, a court order prohibiting an individual from managing a business is less likely to be considered a cost of doing business. Banning orders, therefore, may be a more effective deterrent and punishment for a breach of the consumer protection law than the existing enforcement mechanisms. These types of court orders also have a further benefit in that they are less likely to prejudice shareholders and employees.

A banning order operates to limit a person’s livelihood. Consequently, it may represent a more serious penalty than a pecuniary penalty, or even a criminal penalty that applies against a business. Therefore, it may be appropriate to allow the imposition of a banning order only when the court has already ordered another type of penalty. This is the approach currently taken in the TPA to the award of ‘adverse publicity’ orders. An adverse publicity order can only be ordered if a person has been ordered to pay a pecuniary penalty (for a breach of the restrictive trade practices provisions) or been found guilty of a criminal offence.¹³ This may be an appropriate approach to the inclusion of banning orders for a breach of the consumer law.

The Trade Practices Legislation Amendment Bill (1) 2005 (Cth) proposes amending the TPA to provide the court with the discretion to impose a banning order for a contravention of the restrictive trade practices provisions. This Bill will enable them to be imposed on an individual without a penalty being imposed on a company.

Issues to consider Are cease trading orders in the state and territory legislation the same as a disqualification or banning order in the Commonwealth legislation? Should banning orders be introduced for breaches of the consumer protection law? If banning orders were introduced, what breaches of the consumer protection law should be subject to banning orders? In what circumstances should the law allow for a court to make a banning order for conduct in breach of the consumer protection law?

¹⁰ Briginshaw v Briginshaw (1938) 60 CLR 336.

¹¹ Australian Government, 2004.

¹² However, Tasmania has criminal penalties for contraventions of the prohibition against misleading or deceptive conduct.

¹³ Trade Practices Act 1974 (Cth), section 86D.

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