Non-criminal penalties in other jurisdictions
Unlike in New Zealand and Australia, civil pecuniary penalties, in the sense we have defined them, do not form part of the United Kingdom regulatory environment. Instead, discretionary non-criminal penalties are imposed directly by regulators. Like in New Zealand, criminal sanctions (especially strict liability offences) retain a significant presence in some areas, for example environmental law. However, the introduction of the Regulatory Enforcement and Standards Act 2008 (UK) is likely to result in further growth in the use of non-criminal penalties under a more uniform system than previously (see below).
Existing field of discretionary penalties
Where discretionary civil penalties appear in legislation, they are almost exclusively imposed directly by a regulator (or by an internal enforcement branch or decision-maker). Examples include penalties imposed under the Competition Act 1998 (UK), the Financial Services and Markets Act 2000 (UK), and the Pension Act 1995 (UK).
Penalties under the Competition Act are imposed by the Office of Fair Trading for intentional or negligent breaches of the statutory chapter I or II prohibitions. The penalties are at the discretion of the Office of Fair Trading, but cannot exceed 10 per cent of the turnover of the company in question. Both the decision and the penalty can be appealed to the Competition Appeal Tribunal and then to the Court of Appeal. Previous penalties imposed have amounted to several millions of pounds.
The Financial Services Authority (FSA) regulates financial markets and imposes penalties (for example, for market abuse) under the Financial Services and Markets Act. In practice, penalties are imposed by the Regulatory Decisions Committee, an internal board-appointed sanctioning body, upon recommendation by the FSA. All cases are reviewed by the Litigation and Legal Review Unit before they are transferred to the Regulatory Decisions Committee, which is intended to promote further separation between the investigation and prosecution functions of the FSA. The Act provides for the person subject to the penalty to refer the matter to the Financial Services and Markets Tribunal.
Mhairi Fraser has recently commented on the FSA’s use of higher penalties and its increased attention on individual culpability, with more individuals being subject to penalties and greater fines being imposed.
The Occupational Pensions Regulatory Authority (OPRA) regulates occupational pensions schemes under the Pensions Act 1995. It can impose penalties of up to £5000 (individuals) and £50,000 (companies) on trustees or employers who fail to comply with a range of statutory duties. Penalties are imposed by a committee of OPRA board members who decide whether a breach has been committed and if so, what penalty should be imposed. The party can seek an internal review of the penalty within 28 days. OPRA’s use of civil penalties is optional – where a criminal offence is suspected, OPRA can bring a criminal prosecution or refer the matter to the Police.
There are some exceptions to the regulator-imposed discretionary civil penalty. Under the Taxes Management Act 1970, penalties for minor income tax infringements are imposed by officers of Her Majesty’s Revenue and Customs, but penalties for more serious infringements are imposed by a tribunal and a court, in proceedings specifically designated “civil”.
Finally, a non-pecuniary civil intervention that has garnered much scrutiny is the anti-social behavioural orders (ASBO) imposed by the magistrates court. These may be sought by a local authority against a person who has acted “anti-socially” and, if imposed, prohibit the person in question from acting in any way specified in the order. ASBOs may be characterised as a non-pecuniary penalty in that breach of the order is a criminal offence. However, the House of Lords has classified them as a civil order in terms of the European Convention on Human Rights.
Regulatory Enforcement and Standards Act 2008 (UK)
The Regulatory Enforcement and Standards Act 2008 (RESA) creates a process whereby regulators are able to impose administrative sanctions, including variable monetary penalties, where the regulator is satisfied beyond reasonable doubt that the person has committed a relevant criminal offence. It was introduced following a 2008 report which suggested that many sanctioning regimes were ineffective, over-reliant on criminal prosecution and lacking in flexibility and that a wider range of non-court sanctions should be created.
The RESA sanctions are conferred by ministerial order to listed regulators, who must satisfy the Minister that they will comply with the principles in s 5(2) of the Act: that regulatory activities will be carried out in a way which is transparent, accountable, proportionate and consistent; and will be targeted only at cases in which action is needed. RESA also requires that the regulator publish guidance as to its use of the sanctions in the order.
Examples of RESA orders containing variable monetary penalties are the Environmental Civil Sanctions (England) Order 2010 (containing a maximum penalty of £250,000) and the Political Parties, Elections and Referendums (Civil Sanctions) Order 2010 (maximum £20,000). The maximum penalty amount and the offences for which it is available are listed within each order, though the regulator decides how much to impose in each case. Regulators employing variable monetary penalties must issue a notice of intent to impose, hear objections, provide for circumstances in which a penalty may not be imposed (for example where the regulator is satisfied that the person would not be liable for the offence by reason of a defence) and provide appeal pathways.
Role of the courts
As penalties are imposed administratively, the role of the courts is largely limited to assessing the compatibility of civil penalties with art 6 of the European Convention of Human Rights (the Convention) which has been implemented in the UK by the Human Rights Act 1998 (UK). In determining questions relating to Convention rights, UK courts and tribunals must take account of decisions of the European Court of Human Rights, which are not considered binding but are strongly persuasive.
Art 6(1) of the Convention confers the right to “a fair and public hearing” by an independent tribunal on any person subject to “the determination of any criminal charge”. “Criminal charge” has been given an autonomous meaning by the European Court of Human Rights, meaning that when determining whether the procedural requirements of art 6(1) apply to a penalty, it is the underlying nature of penalty in question which is important, rather than the label assigned to it under domestic law.
The leading UK case relating to the status of civil penalties under art 6(1) is Han v Commissioners of Customs and Excise, a case concerning tax penalties. Following European Court jurisprudence, the Court of Appeal examined the underlying nature of the penalties for dishonest evasion of VAT and excise duty under the Value Added Tax Act 1994 (UK) and Finance Act 1994 (UK), and determined that they amounted to a “criminal charge” attracting the right to a fair and public hearing by an independent tribunal under art 6(1).
UK courts have since heard a number of cases concerning the compatibility of various penalties deemed civil under domestic law, and the decision of whether these in fact amount to a criminal charge in terms of art 6(1) has varied. In International Transport Roth GmbH v Secretary of State for the Home Department the Court of Appeal held that the fixed penalty regime applied to carriers of clandestine entrants to the UK under the Immigration and Asylum Act 1999 (UK) did amount to determination of a criminal charge. The Court observed that the regime was “disproportionate to the objective to be achieved”, and particularly objectionable was the lack of an independent decision-maker determining the penalty. Contrastingly, in Pow Trust v Chief Executive and Registrar of Companies House the High Court found that fixed penalties of £100 for failure to deliver company accounts under the Companies Act 1985 (UK) were modest, proportionate, and did not attract the protections of art 6(1).
Even if the courts find that a penalty should be categorised as the determination of a criminal charge, questions remain around what procedural safeguards are required to achieve compatibility with art 6(1) and its requirement for a fair and public hearing. This was not clarified in Han v Commissioners of Customs and Excise. For example, the UK Competition Commission Appeal Tribunal has observed that even though its proceedings are categorised as “criminal” and subject to art 6(1), it is not obligated to apply the criminal burden of proof to the determination of civil penalties.
There were calls in the 1980s for greater use of civil sanctions to control certain behaviour in order to reduce the over-burdening of the criminal system and decriminalise certain regulatory offences. For example in 1981, David Tench (then the legal officer of the Consumer Association) proposed what he described as a “third legal system” between the civil and criminal systems. He recommended the gradual introduction of civil penalties as a preventive means of dealing with regulatory offences.
More recently, Robin M White has written a number of articles criticising the use of regulator-imposed civil penalties and discussing the importance of maintaining familiar civil-criminal distinctions. But civil penalties also have their supporters in the UK; for example in a governmental study undertaken in 2003 Martin Woods and Professor Richard Macrory called for their greater use in environmental law, drawing on comparisons with high financial civil penalties used in the United States for environmental breaches.
The advent of RESA may generate further interest in this area. For example, early commentary suggests the expanded enforcement powers under RESA raise a need for closer attention to the institutional design of regulatory agencies and proper systems of external accountability.