Contents

Appendix 2
Non-criminal penalties in other jurisdictions

United Kingdom

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.614  Both the decision and the penalty can be appealed to the Competition Appeal Tribunal and then to the Court of Appeal.615  Previous penalties imposed have amounted to several millions of pounds.616
The Financial Services Authority (FSA) regulates financial markets and imposes penalties (for example, for market abuse)617  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.618  The Act provides for the person subject to the penalty to refer the matter to the Financial Services and Markets Tribunal.619
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.620

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,621  but penalties for more serious infringements are imposed by a tribunal and a court, in proceedings specifically designated “civil”.622
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.623

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.624  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.625
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.626  RESA also requires that the regulator publish guidance as to its use of the sanctions in the order.627
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.628

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.629
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.630
The leading UK case relating to the status of civil penalties under art 6(1) is Han v Commissioners of Customs and Excise,631  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.632  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).633
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.634

Academic commentary

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.635
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.636  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.637
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.638
614Competition Act 1998 (UK), s 36(8).
615Competition Act 1998 (UK), s 49.
616For example, the Office of Fair Trading recently imposed a £58.5m penalty on British Airways for price fixing in breach of the Competition Act 1998 (UK): Case ref CE/7691–06 (19 April 2012) <www.oft.gov.uk>.
617Financial Services and Markets Act 2000 (UK), s 123.
618The creation of the Litigation and Legal Review Unit resulted from a report initiated by the Financial Services Authority, which found a lack of transparency in the operation of the Regulatory Decisions Committee and the need for a more formal separation of investigation, enforcement and determination of liability: Financial Services Authority Enforcement Process Review: Report and Recommendations (The “Strachan Report”) (Financial Services Authority, London, July 2005).
619Financial Services and Markets Act 2000 (UK), s 127(4).
620Mhairi Fraser “Regulators Increase Pressure on Individual Negligence and Crime” Operational Risk and Regulation (online ed, London, 1 December 2011).
621Taxes Management Act 1970 (UK), s 100.
622Taxes Management Act 1970 (UK), s 100C–D.
623R (on the application of McCann) v Manchester Crown Court [2003] 1 AC 787 (UKHL).
624Regulatory Enforcement and Standards Act 2008 (UK), s 42.
625RB Macrory Regulatory Justice: Sanctioning in a Post-Hampton World (Cabinet Office, London, December 2005). That followed an earlier report carried out by Peter Hampton and published by the Treasury, which considered the scope for reducing administrative burdens through more efficient approaches to inspection and enforcement: P Hampton Reducing Administrative Burdens: Effective Inspection and Enforcement (HM Treasury, London, 2005).
626Regulatory Enforcement and Standards Act 2008 (UK), s 66.
627Regulatory Enforcement and Standards Act 2008 (UK), s 63.
628Regulatory Enforcement and Standards Act 2008 (UK), s 43.
629Human Rights Act 1998 (UK), s 2(1).
630Engel v Netherlands (1979–80) 1 EHRR 647 (ECHR). The criteria applied in that case for determining whether an offence is a “criminal charge” was further developed in Ozturk v Germany (1984) 6 EHRR 409 (ECHR). See further chapter 5.
631Han v Commissioners of Customs and Excise [2001] EWCA Civ 1040, [2004] All ER 687.
632International Transport Roth GmbH v Secretary of State for the Home Department [2002] EWCA Civ 158.
633Pow Trust v Chief Executive and Registrar of Companies House [2002] EWHC 2783.
634Napp Pharmaceutical Holdings Ltd v Director General of Fair Trading, Case No 1001/1/1/1/01, 15 January 2002 unreported, cited in The Competition Commission of South Africa v Federal Mogul Aftermarket Southern Africa (Pty) Ltd, 08/CR/Mar 2001 at [51].
635D Tench Towards a Middle System of Law (Consumers Association, 1981). See also the Justices Clerks’ Society Decriminalisation: An Argument for Reform (G Sullivan, Bristol, 1981).
636RM White “‘Civil Penalties’: Oxymoron, Chimera and Stealth Sanction” (2010) 126 LQR 593, RM White “‘Decriminalisation’ – a Pernicious Heresy?” (2009) 13 Edin LR 112, and RM White “Out of Court and Out of Sight: How Often are ‘Alternatives to Prosecution’ Used?” (2008) 12 Edin LR 481.
637M Woods and R Macrory Environmental Civil Penalties: A More Proportionate Response to Regulatory Breach (Study undertaken for the Department of Environment, Food and Rural Affairs, University College London, 2003).
638N Garoupa, A Ogus and A Sanders “The Investigation and Prosecution of Regulatory Offences: Is there an Economic Case for Integration?” (2001) 70 CLJ 229 at 259.