In a decision which will have come as a welcome relief to ASIC, the Full Federal Court has clarified that where a contravention of a provision of the Corporations Act may have separate civil and criminal consequences, the provisions of the Criminal Code that would apply to a criminal prosecution do not apply to a civil action.
In ASIC, in the matter of Whitebox Trading Pty Ltd v Whitebox Trading Pty Ltd [2017] FCAFC 100, ASIC asked the Full Federal Court to clarify the law on whether there is a requirement to prove any fault elements of Chapter 2 of the Commonwealth Criminal Code in civil penalty proceedings relating to certain breaches of the Corporations Act.
ASIC sought clarification from the Full Federal Court following a decision, in February 2017, by a differently constituted Full Federal Court in Gore v ASIC [2017] FCAFC 13. In that case, the Full Court reasoned, in obiter dicta, that where a contravention of a provision of the Corporations Act could lead to both civil and criminal liability, the elements of the contravention must be the same irrespective of whether the question arises in civil or criminal proceedings.
The observations in Gore were clearly of concern to ASIC as, if correct, ASIC would have been required to prove a fault element of intention or recklessness in order to obtain civil remedies (prior to this ASIC acted on the basis that it only had to prove fault in criminal proceedings). This would have constituted a significant obstacle to ASIC's ability to successfully pursue civil actions for alleged breaches of the Corporations Act where breach of the relevant provision has potential criminal and civil consequences.
Accordingly, ASIC applied to have the issue determined as a separate question by the Full Federal Court in its ongoing civil proceedings against Whitebox Trading Pty Ltd, in which it is seeking civil penalties against Whitebox Trading for allegedly engaging in market manipulation practices in breach of sections 1041A and 1041B of the Corporations Act.
Contraventions of these provisions may lead to civil penalties (pursuant to section 1317E) and criminal liability (pursuant to section 1311(1)). No allegations have been made by ASIC that Whitebox Trading committed a criminal offence and there are no criminal proceedings on foot. If the reasoning in Gore were to apply, ASIC would be required to prove criminal fault elements derived from the Chapter 2 of the Criminal Code for each of the proscribed physical elements in order for the Court to impose a civil penalty.
In June 2017, the Full Federal Court in Whitebox Trading (comprising Allsop CJ and Middleton and Bromwich JJ) unanimously accepted ASIC's submissions that the reasoning in Gore was incorrect. The Court found that a textual analysis of the relevant provisions of the Corporations Act leads to the conclusion that Chapter 2 of the Criminal Code does not apply to civil penalty proceedings relating to market manipulation. The structure adopted by the Corporations Act whereby Part 9.4 relates only to criminal proceedings and Part 9.4B relates only to civil consequences of contravening civil penalty provisions is a telling indicator that a crossing of the criminal and civil streams is not contemplated by the Corporations Act.
The Court concluded that proof to the civil standard of failure to comply on the balance of probabilities suffices to establish a contravention of the civil penalty provisions listed in section 1317E of the Corporations Act. The Court also confirmed that Chapter 2 of the Criminal Code does not apply to proceedings for contravention of a civil provision, including civil penalty proceedings. ASIC will therefore not need to prove criminal fault to obtain civil remedies against Whitebox Trading for market manipulation at the recommencement of the proceedings in September.
