22 June 2017
Whitebox proceeding has potential significance for Commonwealth civil regulators
A specially constituted Full Federal Court (Allsop CJ, Middleton and Bromwich JJ) has handed down its decision on a separate question of law regarding the interaction of criminal offence and civil penalty provisions. In ASIC v Whitebox the Full Court ruled that the criminal fault elements and procedures under the Criminal Code 1995 do not apply to civil proceedings, including civil penalty proceedings, brought for a contravention of provisions in the Corporations Act 2001. The Full Court overruled the reasoning in the recent Full Federal Court decision in Gore v ASIC.
This note briefly summarises the details for other regulators potentially affected or interested, particularly regulators with both criminal and civil penalty provisions.
On 13 February 2017, the Full Court handed down its decision in Gore v ASIC (2017) 341 ALR 189 (Gore). The Court examined s 727 of the Corporations Act 2001 which if contravened could lead to civil consequences or, by virtue of s 1311, could be prosecuted as a criminal offence. If the latter, the requirements of Chapter 2 of the Criminal Code Act 1995 (Criminal Code) applied, thereby attaching fault elements and other requirements for establishing criminal responsibility. Rares J (with whom Dowsett and Gleeson JJ agreed) held that legislative consistency and coherence required that those same criminal fault elements must also be proved in proceedings for a civil contravention of s 727.
On 18 March 2016, ASIC commenced civil penalty proceedings in the Federal Court against Whitebox Trading Pty Ltd, seeking civil penalties for contraventions of ss 1041A and 1041B of the Corporations Act, whichproscribed market misconduct. A breach of those provisions is made a criminal offence by the operation of s 1311 and may be the subject of criminal prosecution under Part 9.4 of the Corporations Act. The provisions are also civil penalty provisions by reason of s 1317E, such that breaches may lead to civil penalty orders under Part 9.4B.
If the reasoning in Gore was followed, ASIC would have been required to prove criminal fault elements in order to succeed in seeking civil penalty orders. Accordingly, ahead of the trial, Allsop CJ ordered that a separate question be heard by the Full Federal Court. The question was whether, in proceedings brought for the imposition of a civil penalty for a contravention of s 1041A or s 1041B of the Corporations Act, Chapter 2 of the Criminal Codewas engaged. Yesterday, in ASIC v Whitebox  FCAFC 100 (Whitebox), the Full Court answered the separate question, 'No'.
The Full Court in Whitebox explained the significance of the separate question at : 'the separate question affects significant public interests because of the constraints that this may place on regulators successfully enforcing, and being seen to enforce, statutory proscriptions, especially by way of civil penalty proceedings. The answer is also likely to have importance to other forms of civil proceedings collateral to and arising out of an alleged contravention of a civil penalty provision.'
The Full Court held that ss 1041A and 1041B of the Corporations Act on their face create statutory norms which prohibit particular conduct but do not themselves specify any civil or criminal consequences for a breach. Criminal offences arising from conduct prohibited by s 1041A and s 1041B(1) are created by s 1311(1), and enforceable through a criminal stream under Part 9.4. Civil penalty consequences for contravening the same prohibitions arise under s 1317E and are enforceable through a separate civil stream under Part 9.4B. Accordingly, while Chapter 2 of the Criminal Code applies to the criminal stream, it does not apply to the civil stream.
The Full Court accepted ASIC's argument that Gore was wrong because it proceeded on the erroneous premise that the offence was created simply by s 727(1) itself, rather than through the operation of s 1311; this erroneous premise led to a perceived commonality between the criminal offence provision and the civil provision which did not in fact exist (at ).
Having regard to the structure of the provisions considered in Whitebox, this decision is likely to be most relevant to regulators where a provision of the legislation can be either a civil breach or criminal offence by reason of other provisions in the legislation. It is also relevant more broadly for its reinforcing of the distinction between criminal proceedings and civil penalty proceedings. The Full Court considered it to be 'inherently counterintuitive' to consider that the separate streams for criminal and civil proceedings might be crossed, having regard to the fundamental differences between them (–). It also noted the serious practical consequences for regulators of narrowing of the distinction between criminal and civil proceedings and finding a requirement to prove fault elements (at –).
The Commonwealth Solicitor-General, Stephen Donaghue QC, and AGS Senior General Counsel, Tim Begbie, were briefed to argue the separate question with ASIC's trial counsel. ASIC also funded argument by a contradictor, led by Justin Gleeson SC.
Other regulators with any similar issues arising, or queries as to the ambit of this proceeding, are invited to contact Katrina Close at AGS on 03 9242 1230.
For further information please contact:
Senior Executive Lawyer
T 03 9242 1230
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