At issue was a commonly used statutory formula for setting maximum penalties - specifically, by reference to the value of the benefit obtained by the wrongdoer. Given the Court’s findings, all businesses will now potentially face more severe consequences for breaches of a wide variety of state and federal laws.

Background

The High Court heard the case on appeal from the New South Wales Court of Criminal Appeal, where Jacobs Group was found guilty of three counts of conspiracy to bribe a foreign official in breach of the Criminal Code Act 1995 (Cth). The issue before the High Court was how the maximum penalty under the Criminal Code should be assessed. The Code provided for a maximum penalty being the higher of:

• 100,000 penalty points (a total of $11 million)

• three times the value of the benefit obtained by the body corporate

• 10% of the annual turnover of the body corporate during the relevant 12-month period.

The Court was called on to determine precisely how to calculate the ‘value of the benefit’ and whether it was a gross or a net figure. After hearing from the parties, the Court unanimously held that the total ‘value of the benefit’ obtained by the Respondent comprised the gross amount received under the contracts, irrespective of any expenses incurred. In reaching this finding, the Court observed that when a contract is secured as a result of a bribery offence, any benefits derived are tainted by illegality and the Court was therefore not prepared to engage in the process of ‘netting off costs and risks against gains’.

Additionally, the High Court emphasised the importance of deterrence as a sentencing objective, citing the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, and the need for penalties to be seen as more than merely ‘the cost of doing business’. In measuring gross, rather than net, profits received, the Court attempted to uphold the legislative purpose behind the Criminal Code, and punish misconduct in a way that was ‘effective, proportionate, and dissuasive’.

The broader context

The Jacobs decision is likely to have an impact across numerous statutory schemes concerned with the regulation of corporate conduct, given the similarities in language and the principles of statutory interpretation. Significantly, the penalty provisions in the Competition and Consumer Act 2010 (Cth) (CCA), Australian Consumer Law (ACL) and Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) use comparable language to the Criminal Code, and have undergone amendments in recent years aimed at increasing the efficacy of the regime’s deterrence mechanism.

• In 2018, the maximum penalties for contraventions under the ACL were brought in line with the rest of the CCA. The Explanatory Memorandum to the proposed legislation cited comments made by Justice Gordon in a 2014 case brought by the ACCC, querying whether a $1.1 million maximum penalty against Coles (which at the time reported annual revenue of $22 billion) was sufficient.

• The penalties under the CCA were again lifted in 2022 to ensure penalties were high enough to effectively deter misconduct.

Maximum penalties for restrictive trade practices under the CCA, and misleading, deceptive, unconscionable and unfair conduct under the ACL now have a base maximum penalty amount of $50 million, up from $10 million, and the scope of existing penalties under the ASIC Act in relation to unfair contract terms has been expanded.

Additionally, the High Court’s ‘deterrence’ rationale is visible in relatively recent decisions of the Federal Court, where record penalties have been imposed against businesses for breaches of the ACL.

• In proceedings brought by the ACCC against Volkswagen in 2019, the Court rejected the pecuniary penalty of $75 million jointly submitted by the parties, determining it was ‘manifestly inadequate’ to achieve specific and general deterrence, instead issuing Volkswagen with a then record-making $125 million fine.

• More recently, in proceedings brought by the ACCC against Phoenix Institute of Australia Pty Ltd, the Federal Court imposed record penalties in excess of $400 million against Phoenix Institute for engaging in unconscionable conduct and making misleading representations in breach of the ACL. When considering the maximum penalty attributable to the company, the Court relied on principles akin to those that emerged in Jacobs, holding that an assessment of ‘gross benefit’ should include anticipated Commonwealth grants (whether received or not) and without any deductions for expenses incurred. Only then would the legislation operate with its intended deterrent effect, ensuring penalties are not regarded by others as an acceptable cost of doing business.

We can see from these recent Federal Court decisions that the Courts are already using the same contextual reasoning when setting penalties under the CCA as the High Court did in the Jacobs decision. Now that Australia’s highest court has provided certainty as to the approach for assessing the total ‘value of the benefit’, however, we are likely to see more instances of this limb being used to press for higher penalty ceilings.

Finally, the ACCC’s penalty guidelines for competition and consumer law matters were released on 1 September 2023, and provide insight into the regulator’s approach to its future enforcement activities. The guidelines clearly state that an assessment of maximum penalty will account for all financial and non-financial benefits the contravener obtained, or expected to obtain, from the conduct. On the question of gross versus net profits, however, there is less certainty. Whether the ACCC will seek to consider gross or net profits will depend on the circumstances of the case, including how closely related the contravening conduct is to the business’ operations on the whole.

Concluding remarks

The judgement in Jacobs, together with the ACCC’s push for tougher penalties over the last couple of years, is likely to result in greater penalties across the board for conduct that breaches the CCA and ACL. Inevitably, we think this will be the trend for other Federal regulators as well, such as ASIC.