High Court's decision on corporate criminal offending

What is the “value of the benefit” of corporate criminal offending?  Should it be the gross benefit received by the offending corporate?  Or should it be that sum with deductions for the offender’s costs?  Those are the questions answered by the High Court in its recent decision in The King v Jacobs Group (Australia) Pty Ltd formerly known as Sinclair Knight Merz [2023] HCA 23. 

The appeal considered the correct approach to setting the maximum available penalty for SKM’s offending in conspiring to bribe foreign officials.  In short, the High Court held that under s 70.2(5) of the Criminal Code the maximum available penalty must be set with reference to the “gross” value of the benefit obtained from the offending, as opposed to the “net” value.

Corporate offenders can now expect to pay higher penalties as sentences are more likely to be ordered with reference to a higher maximum.  But the decision’s impact is not confined to bribery.  Similar language is found in the criminal and civil penalty provisions of other Commonwealth legislation regulating corporate conduct including the Australian Securities and Investments Commission Act 2001, the Competition and Consumer Act 2010 and the Corporations Act 2001.  The High Court’s ruling may therefore have relevance to a range of civil and criminal offence provisions, including misleading or deceptive conduct, insider trading, market manipulation and cartel conduct. 

SKM’s bribery offending and the maximum available penalty

SKM pleaded guilty to three counts of conspiracy as a body corporate to bribe foreign officials under ss 11.5 and 70.2(1) of the Code. SKM, an engineering, project delivery and consulting company, admitted that bribes had been made over a number of years in the Philippines and Vietnam for projects funded by the World Bank or the Asian Development Bank.  The third count was for securing contracts for the carrying out of three construction projects.

The appeal concerned only the third count of bribery.  Only that offending had taken place when the amended maximum penalty provision of s 70.2(5) was in force.  Section 70.2(5) as amended provides that the maximum monetary penalty for those offences is a fine not more than the greatest of the following:

1. 100,000 penalty units (set at the time at $110, giving a total penalty of $11 million);
2. If the court can determine the value of the benefit that the body corporate, and any corporate related to the body corporate, have obtained directly or indirectly and that is reasonably attributable to the conduct constituting the offence, three times the value of that benefit; or
3. If the court cannot determine the value of the benefit, 10 per cent of the annual turnover of the body corporate during the 12 month period ending at the end of the month in which the conduct constituting the offence occurred. 

The Crown and SKM agreed that the value of the benefit was capable of determination by the Court by reference to the value SKM obtained for performing the contracts (and therefore that a determination of the penalty under the third limb of s 70.2(5) was not necessary).  However, the Crown and SKM disagreed on whether the maximum penalty should be set with reference to the first limb or second limb.

SKM contended for the “net benefit” approach:  the amount it received for performing its contractual obligations less the costs paid to third parties in doing so, excluding those costs paid as part of the conduct amounting to bribery.  SKM calculated the net amount as $2,680,816.  As three times this amount was less than $11 million, SKM contended the maximum penalty was calculated with reference to the first limb:  an $11 million quantum.

The Crown contended for what was referred to as the “gross benefit” approach.  That is, the value of the benefit SKM obtained was the gross amount SKM received for performing its obligations under the contracts, with no deductions.  The Crown’s position was that SKM received a gross amount of $10,130,354 from the three projects.  As three times that amount far exceeded $11 million, the Crown contended that the maximum penalty was determined under the second limb and was therefore $30,391,062.

Decisions of the lower courts

At first instance in the NSW Criminal Court, the Court held that the “net benefit” approach was correct.  The Crown appealed against the sentence, but SKM successfully defended the appeal.  The NSW Criminal Court of Appeal upheld the “net benefit” approach.

The Crown was granted special leave to appeal to the High Court.  The only issue on appeal was whether, as the Crown contended, the value of the benefit obtained by SKM should be calculated using the “gross benefit” approach. 

Decision of the High Court

The High Court unanimously allowed the appeal and held that the “gross benefit” approach was correct.  The Court then remitted the matter back to the NSW Criminal Court for resentencing with a maximum potential penalty of $30,391,062.

A majority (Kiefel CJ, Gageler, Gordon, Steward, Gleeson and Jagot JJ) of the Court held that, on its proper construction in the context of the statutory scheme, s 70.2(5)(b) required the value of the benefit obtained to be calculated using the “gross” approach. Edelman J also allowed the appeal and substantially agreed with the majority’s reasoning. The majority noted that the portion of the Code relating to bribery of foreign officials was enacted to implement the OECD Convention on Combating Bribery of Foreign Officials in International Business Transactions.  The “gross benefit” approach was considered the most consistent with international law and Australia’s obligations as a signatory to the Convention. 

The Court did not accept SKM’s argument that the natural and ordinary meaning of “benefit” was the “net benefit”.  The majority held that the “net benefit” approach would not give the statutory provisions a harmonious and coherent operation and would not achieve the statutory purposes of implementing effective, proportionate, and dissuasive penalties for bribery offences. 

Impact of the decision: High Court's verdict on corporate targets

Future courts sentencing under s 70.2(5) will be bound to apply the “gross benefit” approach.  The judgment confirms that the courts will continue to take Australia’s obligations as a signatory to the Convention seriously and will interpret domestic legislation in a manner that is consistent with its goals.  The rejection of the “net benefit” approach is also the latest decision in a line of authority emphasising that penalties ought not to be seen by the market as an acceptable price to pay for business practices in breach of the law.  

But the decision has a much wider reach than just its international corruption context.  While it is true the case was concerned with bribery offences, the same (or very similar) penalty provisions are found in various other criminal conduct statutes.  Many of the same arguments that found favour with the Court may apply in those other contexts.  Accordingly, courts may find the decision highly persuasive when setting penalties for other criminal offences, such as insider trading, market manipulation and cartel conduct.     

The decision may also have relevance in the civil context given that similar wording is also found in a number of civil pecuniary provisions.  For example, s 1317G of the Corporations Act provides for a similar test in the context of the pecuniary penalties for certain civil contraventions of the Act.  Given the ever-increasing use of civil pecuniary penalties in Australia’s regulatory environment, this is potentially where the decision has the most significance, especially if regulators use the decision in seeking to obtain larger civil penalties against corporate targets.

Authors: Richard Harris, Colleen Platford, Antonia Garling, Peter Munro and David Wiseman