Thinking | 23 June 2017
Gore no more – ASIC not required to prove intention in civil penalty proceedings
In an important judgment that will have come as no small relief to ASIC, the Full Federal Court has determined that Chapter 2 of the Commonwealth Criminal Code does not apply to certain civil penalty proceedings. The judgment removes a potentially significant impediment to ASIC’s ability to commence and successfully pursue civil actions (including civil penalty proceedings) for alleged contraventions of the Corporations Act 2001 (Cth).
The Full Court’s decision in Re Whitebox Trading Pty Ltd  FCAFC 100 establishes that ASIC is not required to prove a fault element of intention or recklessness in civil penalty proceedings relating to market manipulation. However, as noted by the Court – the issues, in this case are of ‘fundamental importance’ and the Court’s reasoning has much wider application, arguably extending to all civil penalty proceedings where the same alleged conduct could also lead to criminal prosecution. The decision is significant due to the substantial difficulties ASIC would face in pursuing civil actions if required to not only prove that conduct in breach of the Corporations Act had taken place but also that criminal fault elements set out in section 5.6 of the Criminal Code are established in relation to each physical element of an alleged contravention.
By way of background, in February 2017 a differently constituted Full Federal Court in Gore v ASIC  FCAFC 13 had reasoned that where the contravention of a provision of the Corporations Act can lead to both civil and criminal liability (in that case, section 727(1), which prohibits certain offers of securities without a prospectus), in order to achieve coherence in the law – and avoid ‘legislative schizophrenia’ – the same elements must be proved in both civil actions and criminal prosecutions. The Court in Gore considered that the elements of a contravention ‘must be the same regardless of whether the question arises in criminal or civil proceedings’, with the effect that the requirement to prove a fault element under the Criminal Code applies in civil actions, including proceedings in which a civil penalty is sought.
This aspect of the decision in Gore, while only obiter dicta, was plainly of significant concern to ASIC. ASIC sought to bring the issue to a head by way of a referral to the Full Federal Court of a separate question of law in the context of ASIC’s ongoing civil penalty proceedings against Whitebox Trading Pty Ltd. In that proceeding, ASIC is seeking civil penalties against Whitebox for allegedly engaging in market manipulation in contravention of sections 1041A and 1041B of the Corporations Act. These provisions are civil penalty provisions (pursuant to section 1317E) and their contravention may also be a criminal offence (pursuant to section 1311(1)). If the observations in Gore were correct, ASIC would need to prove intention or recklessness (as appropriate) in relation to each element of its cause of action for civil penalties, having regard to Chapter 2 of the Criminal Code.
The Full Federal Court (Chief Justice Allsop, Justice Middleton and Justice Bromwich) unanimously accepted ASIC’s submissions that Gore was wrong on this issue, holding that a textual analysis of the relevant provisions leads to a conclusion that Chapter 2 of the Criminal Code does not apply to civil penalty proceedings relating to market manipulation.
The Full Court’s reasoning makes it clear that where the Corporations Act establishes a norm of conduct, the contravention of which may have separate civil consequences or criminal consequences, the provisions of the Criminal Code which apply in a criminal prosecution will not apply in a civil action.
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