Assessing the level of penalties for breaches of corporations and similar laws.
We are accustomed, in talking about penalties for breaches of the law, to have regard to the huge penalties handed down for breaches of the Trade Practices Act. However, it is rare to assess the impact of cases decided by the court in which the level of penalties for breaches of the Corporations Law or similar legislation is evaluated. In Australian Prudential Regulation Authority v Holloway and Anor ((2000) 35 ACSR 276) Mansfield J in the Federal Court had some interesting observations to make about the level of penalties in such matters. The case concerned contravention of the Superannuation Industry (Supervision) Act 1993. The court had found in May 2000 that a company and its major director had contravened relevant provisions of the Act by entering into and carrying out schemes in a way which involved inappropriate investments. The Australian Prudential Regulation Authority, the supervisor in this area, argued that the important factor in determining the level of pecuniary penalty was deterrence. There were two offenders – the company and its principal director. For their part the defendant director and the company submitted that it was relevant in considering the appropriate level of penalty that neither of them gained directly from the contraventions. They were acting in what they thought were the best interests of the company.
The court awarded quite significant penalties (in the context of breaches of this type of law) because the court felt that in this case the relevant defendants' actions had led to what appeared to an artificial reduction in the market value ratio of certain regulated superannuation funds. The court felt that in determining the level of penalties it should impose such penalties that are "sufficiently high to deter contravention by others." Mansfield J in evaluating the penalties relied on a trade practices case – Northwest Frozen Foods Pty Ltd v Australian Competition and Consumer Commission ((1996) 141 ALR 640). In fixing the penalty on the individual he ruled that it was appropriate to remember that he was the "alter ego" (or in other words the brainchild) of the company. More often than not the courts are looking behind the corporate veil to see who is really responsible for the running of the company, and to articulate remedies, damages or penalties by reference to the fact that where breaches occur, directors or managers are really at the control of actions that are taken by companies.
In addressing the issues of both penalties and costs Mansfield J noted that this was a test case and was being brought in the public interest. However, he was satisfied that the parties had behaved in an appropriate and responsible manner in defending the case and that in the circumstances the level of legal costs awarded against them should be reduced. This is an interesting decision and one that shows the importance of the trade practices cases in establishing both the level of penalty and related matters.
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