3.5 Infringement notices

Infringement notices, or penalty notices, are notices authorised by statute that set out the particulars of an alleged contravention and a penalty for that contravention.[1] The recipient of a notice from a Commonwealth regulator may elect to pay the amount stated in the notice. By doing that, the breaches alleged in the notice will be resolved and the issuing authority will be barred from taking further legal action. Alternatively, the recipient may elect not to pay, leaving the regulator to decide whether to commence proceedings in the ordinary way.[2] The usefulness of infringement notices in punishing contraventions is limited.

Historically, infringement notices were applied to minor criminal offences, and did not extend to non-criminal contraventions.[3] The policy rationale for this is that infringement notices expedite the collection of monetary penalties arising from minor offences, and avoid court time and resources from being unduly burdened by minor matters.[4] In essence, infringement notices were designed to provide a system for punishment of an offence proportionate to the seriousness of the conduct.[5]

Over time, the types of provisions for which an infringement notice can issue have expanded. The ASIC Enforcement Review Taskforce explained in its December 2017 report that ASIC’s powers in respect of infringement notices first started to widen in 2004, when it was given a power to issue an infringement notice for alleged breaches of continuous disclosure obligations.[6] ASIC now has powers to issue infringement notices for certain unconscionable conduct and consumer protection provisions of the Australian Securities and Investments Commission Act 2001 (the ASIC Act), for strict liability offences and certain civil penalty provisions under the NCCP Act, and for breaches of market integrity rules, derivative transaction rules and derivative trade repository rules under the Corporations Act.[7]

The ASIC Enforcement Review Taskforce recommended that further provisions be made infringement notice provisions.[8] The Bill currently before the Senate that implements the Taskforce’s recommendations will, if enacted, have the effect that all strict liability and absolute liability offences in the Corporations Act, and certain civil penalty provisions in the Corporations Act and Insurance Contracts Act, will be subject to an infringement notice regime.[9]

The availability of infringement notices for non-criminal provisions is relatively new and the range of conduct in respect of which they may be issued has expanded quickly. The Taskforce’s recommendations will increase the number of provisions within the infringement notice regime.

The use of infringement notices for types of contraventions that involve matters of judgment has been criticised.[10] In particular, the Australian Law Reform Commission (ALRC) criticised the proposal to introduce an infringement notice regime for contraventions of continuous disclosure provisions, and the Law Council of Australia has described the use of infringement notices for substantive contraventions as ‘lazy regulation’ that does not ‘provide guidance to the community as to what conduct should be proscribed or not’.[11] Those criticisms were not accepted by the Enforcement Review.[12]

Further attention should be given to those criticisms. It cannot be doubted that infringement notices serve as a practical regulatory tool for dealing with non-compliance with some provisions. But I doubt that expanding the infringement notices regime can be shown to have served the public well.

Infringement notices give the regulator a course of action (reportable as an ‘enforcement action’) that is unlikely to have any real deterrent (or punitive) effect. That was amply borne out by the evidence of Mr Gary Dransfield of AAI in the sixth round of hearings.[13]

Mr Dransfield’s evidence was that AAI paid the sum of the four infringement notices issued by ASIC that alleged that representations made about a particular policy were misleading and deceptive, despite maintaining throughout ASIC’s investigation that it did not believe the advertising was misleading or deceptive. In Mr Dransfield’s words, AAI paid the infringement notices because it felt that it was appropriate [to] meet the requirements of [the] regulator.[14] The sum of the infringement notices AAI paid – $43,200 – represented 0.01% of the total amount it received in premiums from the policies for the relevant year – $426 million.[15] When asked whether the reputational effects that flowed from the infringement notice caused AAI to want to defend the allegations put against it, Mr Dransfield’s evidence was that, generally, the view was taken that ‘we should pay the penalty [and] move on’.[16]

That is, AAI saw paying the infringement notices as a way of bringing an issue to an end. And no doubt payment of the infringement notices did bring the issue to an end. But with what effect? Issuing the infringement notices may have been ‘convenient and expeditious’ but it achieved neither punishment nor deterrence.

Infringement notices are a useful way to deal with lax administrative conduct such as failure to file a return on time. But their use beyond purely regulatory matters will rarely be appropriate. And if the provision involves contestable matters of judgment – for example, an alleged breach of the prohibition on false and misleading conduct or the duty of utmost good faith – the issue of an infringement notice will rarely, if ever, be an appropriate regulatory response.

One risk of the use of infringement notices for a broader range of conduct risks is that it can encourage financial services entities to treat the consequential penalties as a cost of doing business, which is not compatible with the intent to deter further misconduct. That risk is heightened if the recipient of the notice is a large financial institution.

Ultimately, the use of infringement notices is dependent on the enforcement culture of the regulator. An enforcement culture that is properly focused upon effective enforcement of the law will recognise that infringement notices can play only a minor role in that task and, ordinarily, that role will be limited to penalising administrative failings.

I recommend that ASIC’s enforcement policy in respect of infringement notices be redrawn to reflect that:

  • infringement notices should principally be used in respect of administrative failings by entities;
  • the use of infringement notices for provisions that require an evaluative judgment will rarely, if ever, be appropriate; and
  • beyond purely administrative failings, infringement notices will rarely be the appropriate enforcement tool where the infringing party is a large corporation.

[1]ALRC, Report 95, December 2002, 426 [12.4].

[2]ALRC, Report 95, December 2002, 426 [12.4].

[3]ALRC, Report 95, December 2002, 426–7 [12.5].

[4]ALRC, Report 95, December 2002, 426–7 [12.5]–[12.8].

[5]ALRC, Report 95, December 2002, 427 [12.8].

[6]Treasury, ASIC Enforcement Review Taskforce Report, 18December 2017, 80.

[7]Treasury, ASIC Enforcement Review Taskforce Report, 18December 2017, 80–1.

[8]Treasury, ASIC Enforcement Review Taskforce Report, 18December 2017, 81.

[9]Explanatory Memorandum, Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Bill 2018 (Cth), 12.

[10]ASIC Taskforce Review, Report, 81.

[11] ASIC Taskforce Review, Report, 81.

[12] See ASIC Taskforce Review, Report, 81–3 Recommendation 44.

[13] Transcript, Gary Dransfield, 20 September 2018, 6305–23, particularly at 6321–2.

[14] Transcript, Gary Dransfield, 20 September 2018, 6321.

[15] Transcript, Gary Dransfield, 20 September 2018, 6321–2.

[16] Transcript, Gary Dransfield, 20 September 2018, 6322.