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Australian Parliamentary Joint Committee on Human Rights |
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Purpose
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This bill seeks to increase penalties for breaches of competition and
consumer laws and to provide greater protections for small business
from unfair
contract terms
Schedule 1 of the bill seeks to increase the maximum penalty applicable to
certain breaches of competition and consumer law
Schedule 2 of the bill seeks to clarify existing unfair contract terms
provisions, reduce the prevalence of unfair contract terms
in consumer and small
business standard form contracts, and introduce a civil penalty regime
prohibiting the use of and reliance
on unfair contract terms in standard form
contracts
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Portfolio
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Treasury
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Introduced
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House of Representatives, 28 September 2022
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Right
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Right to a fair hearing
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1.70 This bill seeks to increase the maximum financial penalties for contravention of various civil penalty provisions under the Competition and Consumer Act 2010 (the Act) to $2.5 million for individuals.[2] In most cases, this is a 400 per cent increase in the penalty amount (from $500,000 to $2,500,000).
1.71 The significant increase in civil penalties to $2.5 million for individuals who are found to have contravened the Act raises the risk that these penalties may be considered criminal in nature under international human rights law. Under Australian law, civil penalty provisions are dealt with in accordance with the rules and procedures that apply in relation to civil matters (the burden of proof is on the balance of probabilities). However, if the new civil penalties are regarded as 'criminal' for the purposes of international human rights law, they will engage the criminal process rights under articles 14 and 15 of the International Covenant on Civil and Political Rights, including the right not to be tried or punished twice[3] and the right to be presumed innocent until proven guilty according to law,[4] which requires that the case against the person be demonstrated on the criminal standard of proof of beyond reasonable doubt. The statement of compatibility acknowledges that the measure engages the criminal process rights under articles 14 and 15 and states that the increased civil penalties may be viewed as 'criminal' for the purposes of human rights law.[5]
1.72 The test for whether a civil penalty should be characterised as 'criminal' for the purposes of international human rights law relies on three criteria:
(a) the domestic classification of the offence as civil or criminal;
(b) the nature of the penalty; and
(c) the severity of the penalty.[6]
1.73 In relation to (a), the penalties would be classified as 'civil' not criminal penalties. However, the term 'criminal' has an autonomous meaning in international human rights law, such that a penalty or other sanction may be 'criminal' for the purposes of the International Covenant on Civil and Political Rights even though it is considered 'civil' under Australian domestic law. Consequently, the domestic classification of the penalties as 'civil', while relevant, is not determinative.
1.74 In relation to (b), a civil penalty is more likely to be considered 'criminal' in nature if it applies to the public in general rather than a specific regulatory or disciplinary context, and where there is an intention to punish or deter, irrespective of the severity of the penalty. The statement of compatibility states that the penalties do not apply to the general public, but to a sector or class of people, such as individuals who hold positions of high responsibility in corporations, who should reasonably be aware of their obligations under the Act.[7] However, having regard to the nature of offences to which these civil penalties apply, it appears that the provisions may apply to a broad range of people, some of whom may not necessarily be aware of their legal obligations or hold positions of high responsibility in large corporations. For example, the bill proposes new civil penalty provisions relating to unfair contract terms. A person contravenes these provisions if they:
• make a consumer or small business contract that is a standard form contract, and they propose and include an unfair term in the contract;
• apply or rely on, or purport to apply or rely on, an unfair term of a consumer or small business contract that is a standard form contract.[8]
1.75 Under existing Australian Consumer Law, a court may find that a person has contravened a civil penalty provision in a broader range of circumstances, including where a person has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of such a provision.[9] Thus, an individual may have indirectly been a party to a contravention of the prohibition of unfair terms in consumer contracts and, as a result of the amendments in this bill, be liable for a maximum penalty of $2.5 million.[10] In such circumstances, while the provision could be said to operate in a regulatory context, it appears it still may apply to a broad range of people.
1.76 As to the purpose of the penalties, the statement of compatibility states that the penalties are intended to be deterrent in nature and proceedings would be instituted by a public authority with statutory powers of enforcement.[11] It states that imposing civil penalties will enable an effective disciplinary response to non-compliance.[12] The statement of compatibility explains that increasing the severity of the penalties will ensure the price of misconduct is high enough to deter unfair activity and improve competition in Australia for the benefit of consumers and small businesses.[13] As deterrence is the stated primary objective of this measure, it would seem to meet the test that the penalty is intended to deter and punish.
1.77 In relation to (c), in determining whether a civil penalty is sufficiently severe as to amount to a 'criminal' penalty, the nature of the industry or sector being regulated and the relative size of the penalties in that regulatory context is relevant.[14] The penalty is more likely to be considered criminal for the purposes of international human rights law if the penalty carries a term of imprisonment or a substantial pecuniary sanction. While the civil penalty provisions would not carry a term of imprisonment, the maximum penalty amount of $2.5 million for individuals is a substantial pecuniary sanction. Indeed, the statement of compatibility acknowledges that the new penalties are intentionally significant, stating that the penalties must be high enough to achieve deterrence and protect consumers.[15] The statement of compatibility states that the large penalties are, however, appropriate for regulatory and disciplinary purposes, as individuals involved in contraventions of the Act may receive large financial benefits from their misconduct, and paying a penalty should not become a cost of doing business.[16] It also notes that the increased penalties are more comparable with international jurisdictions.[17] The statement of compatibility further notes that there is flexibility in the penalty amount, as the court has the discretion to consider the seriousness of the contravention and impose an appropriate penalty in the circumstances.[18] Where a civil penalty is imposed by the court, the individual may have that decision reviewed.
1.78 While some factors may support classifying the penalties as 'civil', namely the domestic classification, the regulatory context and the lack of a term of imprisonment, other factors indicate that the penalties could be regarded as 'criminal', including the fact that the penalties are intended to deter misconduct and may amount to a substantial pecuniary sanction. In cases where the maximum pecuniary order is made, there is a greater risk that the civil penalty may be considered so severe as to constitute a criminal sanction for the purposes of international human rights law.
1.79 While the civil penalty provisions may be characterised as 'criminal' for the purposes of international human rights law, this neither means that the relevant conduct must be turned into a criminal offence in domestic law nor that the civil penalty is illegitimate. Instead, it means that the civil penalty provisions must be shown to be consistent with the criminal process guarantees set out in articles 14 and 15 of the International Covenant on Civil and Political Rights, including the right to be presumed innocent until proven guilty according to law.[19] This right requires that the case against the person be demonstrated on the criminal standard of proof, that is, it must be proven beyond reasonable doubt. The standard of proof applicable in civil penalty proceedings is the civil standard of proof, requiring proof on the balance of probabilities. As the civil penalties in this bill appear to be characterised as 'criminal' for the purposes of international human rights law, the lower standard of civil proof would not appear to comply with article 14.
1.80 Another criminal process guarantee is the right not to be tried and punished twice for an offence for which a person has already been finally convicted or acquitted (sometimes referred to as the principle of double jeopardy).[20] The statement of compatibility states that the related legislative scheme does not permit proceedings to be brought against the person for substantially the same conduct.[21] In particular, where a person contravenes one or more civil penalty provisions, they will not be liable to more than one pecuniary penalty in respect of the same conduct.[22] Additionally, a court must not order a pecuniary penalty in relation to a contravention of a civil penalty provision if the person has already been convicted of an offence for substantially the same conduct.[23]
1.81 However, in certain circumstances, the legislative scheme does allow a person to be subject to both criminal and civil law proceedings for conduct that is substantially the same. For example, after a pecuniary order has been made against a person for contravention of a civil penalty provision and regardless of the fact that this pecuniary order has been made, criminal proceedings can be started against that person for conduct that is substantially the same as the conduct giving rise to the civil penalty.[24] In other words, a person could be liable to pay a pecuniary penalty and then be subject to criminal proceedings for the same conduct. Alternatively, if a person was subject to criminal proceedings but not convicted, a civil penalty order could then be made against them in relation to conduct that is substantially the same as the conduct constituting the offence.[25] This therefore may limit the right to not be tried and punished twice for an offence for which the person has been finally convicted or acquitted.
1.82 The committee considers that increasing the maximum penalty for contravention of civil penalty provisions in competition and consumer law is an important measure to deter serious misconduct and protect consumers against egregious conduct. However, noting the substantial pecuniary sanctions of up to $2.5 million that would apply to individuals, there is a risk that the penalties may be so severe as to constitute a 'criminal' sanction under international human rights law. If the penalties were considered to be 'criminal', the committee notes that this does not mean the relevant conduct must be classified as a criminal offence or that the civil penalty is illegitimate. Rather, it must be shown that the provisions are consistent with the criminal process guarantees set out in article 14 of the International Covenant on Civil and Political Rights.
1.83 The committee notes the related legislative scheme applies a civil standard of proof and in certain circumstances allows a person to be subject to civil and criminal proceedings for substantially the same conduct. In light of this, the committee considers that, depending on the severity of the pecuniary penalty applied and whether a person is also subject to criminal proceedings, there may be a risk that the increased civil penalty provisions are not consistent with the criminal process guarantees.
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Suggested action
1.84 The committee recommends that when civil penalties are so severe such
that there is a risk that they may be regarded as 'criminal'
under international
human rights law, consideration should be given to applying a higher standard of
proof in the related civil penalty
proceedings.
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The committee draws these human rights concerns to the attention of the Assistant Minister and the Parliament.
[1] This entry can be cited as: Parliamentary Joint Committee on Human Rights, Treasury Laws Amendment (More Competition, Better Prices) Bill 2022, Report 5 of 2022; [2022] AUPJCHR 37.
[2] Schedule 1, items 25, 36, 39, 42, 45, 48, 51, 54, 57, 60, 63, 66, 69, 72, 75, 78, 81, 84, 87, 90, 93, 96, 99, 102 and 103; Schedule 2, item 12. The civil penalty provisions to which these increased penalties relate are held in Parts IV, IVBA, X, XIB and XICA and Schedule 2, section 224 of the Australian Consumer Law in the Competition and Consumer Act 2010. See Statement of Compatibility, p. 52.
[3] International Covenant on Civil and Political Rights, article 14(7)
[4] International Covenant on Civil and Political Rights, article 14(2).
[5] Statement of compatibility, p. 53.
[6] For further detail, see the Parliamentary Joint Committee on Human Rights, Guidance Note 2: Offence provisions, civil penalties and human rights (December 2014).
[7] Statement of compatibility, p. 54.
[8] Schedule 2, item 1. A consumer contract and a small business contract are defined in section 23 of the Competition and Consumer Act 2010.
[9] Schedule 2, section 224 of the Australian Consumer Law in the Competition and Consumer Act 2010.
[10] Schedule 2, items 11 and 12.
[11] Statement of compatibility, p. 53.
[12] Statement of compatibility, p. 54.
[13] Statement of compatibility, p. 52.
[14] See Simon NM Young, ‘Enforcing Criminal Law Through Civil Processes: How Does Human Rights Law Treat “Civil For Criminal Processes”?’, Journal of International and Comparative Law, vol. 2, no. 2, 2017, pp. 133-170.
[15] Statement of compatibility, pp. 52, 54.
[16] Statement of compatibility, p. 54.
[17] Statement of compatibility, p. 52.
[18] Statement of compatibility, p. 54.
[19] International Covenant on Civil and Political Rights, article 14(2).
[20] International Covenant on Civil and Political Rights, article 14(7)
[21] Statement of compatibility, p. 54. See, eg, subsection 76(3) of the Competition and Consumer Act 2010 and Schedule 2, section 224 of the Australian Consumer Law in the Competition and Consumer Act 2010.
[22] Statement of compatibility, p. 54. See, eg, subsection 76(3) and Schedule 2, subsection 224(4) of the Australian Consumer Law in the Competition and Consumer Act 2010.
[23] See eg Schedule 2, subsection 225(1) of the Australian Consumer Law in the Competition and Consumer Act 2010.
[24] See eg Schedule 2, subsection 225(3) of the Australian Consumer Law in the Competition and Consumer Act 2010.
[25] See eg Schedule 2, subsection 225(2) of the Australian Consumer Law in the Competition and Consumer Act 2010.
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URL: http://www.austlii.edu.au/au/other/AUPJCHR/2022/37.html