11 September 2023
Higher penalties possible for corporate offending
The King v Jacobs Group (Australia) Pty Ltd  HCA 23
High Court decision has the potential to substantially increase maximum pecuniary penalties sought for offences in respect of which the maximum available penalty is calculated by reference to the ‘value of the benefit’ obtained by a respondent ‘that is reasonably attributable to the conduct constituting the offence.’
The High Court has overturned a decision of the New South Wales Court of Criminal Appeal (CCA) concerning the maximum penalty that may be imposed under s 70.2(5)(b) of the Criminal Code for conspiracy to cause an offer of the provision of a bribe to a foreign official. The Court held that for the purposes of ascertaining the maximum available penalty, the ‘value of a benefit’ obtained by the respondent consisted of the amount received in performing construction contracts procured by the conspiracy, without deduction of the costs of performing the contracts.
The decision has important implications for Commonwealth regulators as similar language to that used in s 70.2(5)(b) is found in other Commonwealth legislation including the Corporations Act 2001 and the Competition and Consumer Act 2010. Accordingly, regulators might seek to draw on the High Court’s decision in pursuit of higher penalties on the basis that the ‘benefit’ received by respondents as part of their unlawful conduct should not take into account any expense or risk incurred in obtaining such benefit.
In 2020, the respondent pleaded guilty to three charges under ss 11.5(1) and 70.2(1)(a)(iv) of the Criminal Code involving conspiracy to bribe public officials in the Philippines and Vietnam. The appeal to the High Court concerned the approach to calculating the maximum penalty that could be imposed with respect to one count only.
Pursuant to s 70.2(5) of the Criminal Code as amended, the maximum monetary penalty for that count is a fine not more than the greatest of the following:
‘(a) 100,000 penalty units;
‘(b) if the court can determine the value of the benefit that the body corporate, and any body corporate related to the body corporate, have obtained directly or indirectly and that is reasonably attributable to the conduct constituting the offence – 3 times the value of the benefit;
(c) if the court cannot determine the value of that benefit – 10% of the annual turnover of the body corporate during the period (the turnover period) of 12 months ending at the end of the month in which the conduct constituting the offence occurred.’
Before the primary judge in the Supreme Court of New South Wales, the parties agreed that, in relation to the relevant count, the benefit that was ‘obtained, directly or indirectly, and that was reasonably attributable to the conduct constituting the offence’ comprised contracts secured by the respondent to carry out construction projects. The issue concerned the value of the benefit. The respondent contended that the value of the benefit ‘was the amount it received for performing its obligations under the contracts less the costs it paid to third parties to enable that performance, excluding all such costs paid, or possibly paid, as part of the bribery offence’ (amounting to AUD $2,680,816). This was referred to as a ‘net benefit’ approach. The Crown contended that the value of the benefit was ‘the total gross amount the respondent received for performing its obligations under the contracts’ (amounting to AUD $10,130,354).
The primary judge held that the respondent’s net benefit approach was correct. Accordingly, as three times the ‘net benefit’ was less than the 100,000 penalty units (being $11 million) a penalty was imposed by reference to a maximum penalty of $11 million. The Crown unsuccessfully appealed the sentence to the CCA.
High Court’s Reasoning
The only issue on appeal to the High Court was the construction of s 70.2(5)(b) of the Criminal Code and specifically, whether the ‘value of the benefit … obtained’ in this case consisted of the money received by the respondent in performing the tainted contracts, or whether it consisted of the money received net of costs, expenses and outgoings incurred in performing the contracts.
The Court overturned the CCA’s decision, unanimously holding that the ‘value of the benefit … obtained’ by the respondent comprised the amounts received in performing the contracts without deducting any amount for ‘costs, expenses or risks’ incurred in doing so. Accordingly, the maximum available penalty for the relevant offence was over $30 million (exceeding the $11 million limit in s 70.2(5)(a)).
The majority (Kiefel CJ, Gageler, Gordon, Steward, Gleeson and Jagot JJ) reasoned that there were several textual indicators pointing against the contention that ‘value of benefit’ meant the ‘net benefit’ obtained by the respondent. For example, ‘benefit’ is broadly defined as including ‘any advantage’, without reference to any disadvantage suffered in securing that advantage. In this regard, the Court noted that a benefit may include advantages obtained that cannot be valued, such as ‘a body corporate engaging in a loss leader strategy in a new or foreign market’. The Court added that the Crown’s construction best served ‘the purpose of the legislation to achieve effective, proportionate, and dissuasive penalties for bribery offences’ consistent with the OECD Convention on Combating Bribery of Foreign Officials in International Business Transactions.
Whilst agreeing with the majority judgment, Edelman J wrote separately to address an anterior issue concerning the nature of the reasonably attributable benefit. Justice Edelman stated that the benefit in this case was either the contractual rights to payment that were conditional on the respondent performing the contracts or alternatively, the money received by the respondent in performing those contracts. In his Honour’s view, had the benefit been identified as conditional contractual rights only, the value of such rights would have depended on the cost of the respondent performing its contractual obligations.
Text of the decision is available at: https://eresources.hcourt.gov.au/downloadPdf/2023/HCA/23
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