Introduction
The Full Court of the Federal Court of Australia in Australian Securities and Investments Commission, in the matter of Whitebox Trading Pty Ltd v Whitebox Trading Pty Ltd [2017] FCAFC 100 has held that Ch 2 of the Criminal Code (which is the Schedule to the Criminal Code Act 1995 (Cth)) has no application to proceedings brought for a breach of a civil provision, including a civil penalty provision, under the Corporations Act 2001 (Cth) (“CA”) and, therefore, has no application to s 1041A or s 1041B(1) of the CA when made the subject of such proceedings.
Background
ASIC had commenced proceedings in the Federal Court seeking relief against the defendants based on alleged breaches of ss 1041A and 1041B of the CA. These provisions prohibit market manipulation, and false trading and market rigging respectively and an alleged breach of either provision may result in:
- criminal proceedings, by reason of s 1311 of the CA which makes a failure to comply with the provisions an offence and by the balance of Pt 9.4 of the CA which contains detailed provisions dealing with offences including s 1308A which provides that, subject to the CA, Ch 2 of the Criminal Code applies to all offences against the CA;
- civil proceedings, by reason of s 1317E of the CA which makes the provisions civil penalty provisions and by the balance of Pt 9.4B of the CA which deals with the civil consequences of contravening civil penalty provisions.
Sections 1317M, 1317N and 1317P of the CA recognise that, in some circumstances, both criminal and civil proceedings may take place for substantially the same conduct.
In the case in question, there was no allegation made by ASIC that the defendants had committed a criminal offence. Only civil proceedings were on foot, with ASIC seeking relief which included declarations of contravention under s 1317E and pecuniary penalties flowing from such declarations under s 1317G(1A). However, there was some uncertainty as to what ASIC needed to prove in the case because a judge of an earlier Full Federal Court in Gore v Australian Securities and Investments Commission [2017] FCAFC 13; (2017) 341 ALR 189 (“Gore”) had made obiter observations and conclusions to the effect that Ch 2 of the Criminal Code applied to civil proceedings brought in relation to allegations of being an accessory to breaches of s 727(1) and (2) of the CA. These observations and conclusions had been endorsed by the other two members of the Full Court.
As ASIC had been successful in the relevant aspects of Gore, it had not applied for special leave to appeal to the High Court of Australia which would have enabled clarification of the law, and the other party in Gore had not sought special leave either (see ASIC’s media release 17-192MR dated 21 June 2017). Accordingly, the method by which ASIC sought to obtain clarification was to have a question arising in the current proceedings be heard separately from any other questions. That separate question, as subsequently slightly modified, was as follows:
In proceedings brought for the imposition of a civil penalty for a contravention of s 1041A or s 1041B of the CA is Ch 2 of the Criminal Code engaged, subject to any contrary indication in the CA as to any specific provision thereof?
The Chief Justice of the Federal Court ordered that the separate question be heard by a Full Court and that ASIC arrange for solicitors and appropriate senior counsel to act as amicus curiae and contradictor because the defendants did not wish to take an active role in the determination of the separate question.
Decision
The Full Federal Court (Allsop CJ, Middleton and Bromwich JJ) considered what ASIC would need to prove in civil proceedings concerning ss 1041A and 1041B if Gore was found to be correct and Ch 2 of the Criminal Code was to apply to those proceedings (at [8]-[10]). This included looking at the differences between federal criminal proceedings, ordinary civil proceedings and civil penalty proceedings (at [11]-[14]). The Full Court then made the following points (at [15]-16]):
- A mental element being required to be established could be the difference between proceedings being viable or not.
- In criminal proceedings, not being able to prove a necessary state of mind beyond reasonable doubt was not just a significant reason for acquittal, but a significant reason for criminal proceedings not being commenced or maintained in the first place.
- If a similar requirement to prove criminal fault elements was to apply to civil penalty proceedings, this would have an important impact on the decision whether to commence criminal proceedings or civil penalty proceedings, not least by narrowing the difference between these two types of proceedings.
- The answer given to the separate question, accordingly, would affect significant public interests because of the constraints that this could place on regulators successfully enforcing, and being seen to enforce, statutory prohibitions, especially by way of civil penalty proceedings, and would also likely to have importance for other forms of civil proceedings collateral to and arising out of an alleged breach of a civil penalty provision.
- Therefore, the separate question raised an issue of fundamental importance not just for the hearing of the current civil proceedings before the Court, but also for the operation of Pt 9.4B of the CA which went well beyond cases concerning only ss 1041A and 1041B and included the operation of the regime of collateral civil consequences for breaching civil penalty provisions elsewhere in Pt 9.4B.
The Full Court then carried out a textual analysis of the key provisions of the CA for the purposes of the separate question and concluded that, upon a textual basis, Ch 2 of the Criminal Code had no application to the proceedings (at [27]-[36]).
However, because the issue was important not just to all civil proceedings for a pecuniary penalty, but also to any civil ancillary relief based on statutory norms of the kind created by ss 1041A and 1041B(1), the Full Court also undertook a detailed contextual analysis which included the legislative history of those provisions. The Full Court then found that contextual and historical legislative considerations supported the textual conclusion that Ch 2 of the Criminal Code had no application (at [37]-[71]).
The Full Court then concluded as follows (at [72]):
- In the case of those norms which are listed as civil penalty provisions in s 1317E(1) of the CA, proof to the civil standard of a failure to comply with the norm on the balance of probabilities is sufficient to establish a breach. That leaves for determination at the hearing what is required to be established based on the text of the individual norm provision, including as to any mental element.
- In the case of those norms in the CA which are made offences, either by express language within the norm provision (for example, s 184 which provides that directors of a corporation and certain others commit offences if they engage in certain specified activities), or by virtue of the operation of s 1311 to create an offence based on the norm (for example, ss 1041A and 1041B(1)), criminal proceedings may ensue, in which case Pt 9.4 applies, and by virtue of s 1308A, Ch 2 of the Criminal Code applies to such offences and to proceedings for such offences, but no further.
Accordingly, the Full Court held that the answer to the separate question was in the negative and that Gore was wrong on this issue (at [7] and [73]).
