Telstra is the latest company to be slapped with a civil fine, this time $600,000 for spamming Australians with more than 10 million texts. But HUGH SELBY wonders if civil penalties are really acting as a deterrent.

This article is about gobsmacking civil fines (known as civil penalties), now a feature of protective legislation such as work and safety in the building and transport industries, and consumer protection in the insurance, telco and superannuation industries.

The questions are first, whether these fines are paid, and second, are they acting as a deterrent? Informed answers are welcome.

In February, CityNews reported on a local building company being fined not much less than a quarter million dollars for work safety breaches in 2022. One of its workers was trapped because formwork was not installed as per instructions. To have followed the instructions would have cost very little. 

The worker, fortunately, survived. It was their first day on the job. They had no training, no white card, no asbestos training and no site induction.

The incident wreaks of penny pinching and incompetence. However, whether or not the fine in whole or part is paid depends on the funds in the building company accounts. 

If the company can’t pay the fine then it is wound up. In that case the fine is illusory. It is never paid.

Business operators of every industry and profession have long chosen to incorporate their business because doing so limits their exposure to personal liability.

This is a fundamental part of modern capitalism. A shonky operator can have their failed company “sell” the name of the business to a new company also set up by the shonky operator. Life then goes on as before.

Although the ACT Work Health and Safety Act provides for the prosecution of individuals within a building company, as well as the building company entity, the recent report does not suggest that any individual was prosecuted.

Fines for individuals are much less than for companies. However, if an individual fails to pay a fine then they can be made bankrupt. A bankrupt cannot be a director of a company. That fact may increase the chances that the fine, albeit for a smaller amount, is paid.

Also in February the Sydney Morning Herald reported that our largest superannuation fund, AustralianSuper, was fined $27 million for overcharging around 90,000 members to the tune of $69 million.

Those members have been compensated. The case went to the Federal Court following a joint investigation by ASIC and APRA (the prudential regulator).

AustralianSuper management was alerted to the problem in 2015. It did nothing until 2018 and not enough until 2021. The court noted that some, but not all, staff had forgotten that AustralianSuper was required to act in the best interests of its individual members. One staffer stood out in repeatedly pointing out the problem over some years.

That said, AustralianSuper did not profit from its contraventions.

The judgment usefully distils the purposes of the fine, saying: “Civil penalty provisions… are intended to secure a public protective purpose by ensuring that wrongdoers, and would-be wrongdoers, are adequately deterred. 

“As the parties submitted, this requires putting a price on contraventions that is sufficiently high to ensure that the penalty cannot be seen as an acceptable cost of doing business, and that contraventions will be seen as an economically irrational choice.”

That’s $27 million that might otherwise benefit member accounts. Which leads me to ponder if the members haven’t been done over twice: first, by their fund mismanagement, and then by the Commonwealth taking $27 million plus a half mill in costs (I am not a fund member).

The judgment does look at the effect of the penalty on members. AustralianSuper keeps a “trustee risk reserve fund” that is topped up by an annual fee payable out of the fund assets.

As of mid 2023 it had more than 1.2 million members and $311 billion in assets. That works out at a fine contribution of $22.50 per member, or a pittance until you have no money.

In Australia, there are 1000 million in a billion. Hence if we calculate how much the $27 million fine is as a fraction of $311,000 million assets, the result is 0.00008. With all due respect to the public servants, the lawyers, and the diligent judge, what kind of deterrent is that?

ASIC’s 2023/24 Annual Report records that the value of the civil fines was $185.4 million in the previous year, $90.8 million for 2023/24. The bumper previous year is explained by “several record penalties”. Details of how much ASIC can seek from misbehaving individuals and companies can be found here. 

From small builder to multi-billion dollar enterprise, it’s people who stuff up, people who should be held to account for what they did and didn’t do.

These enormous dollar penalties are like a dazzling tapestry, hung to avoid the hard work of identifying who was responsible. The corporate entity (and its beneficiaries or shareholders) takes the rap for those who have failed to comply with the law.

Would we all be better off if we replace the existing system with one that requires the managers of mismanagement to “show cause” why they should not be penalised for their shortcomings? Oh dear. Shock, horror.

Former barrister Hugh Selby is the CityNews legal columnist. His free podcasts on “Witness Essentials” and “Advocacy in court: preparation and performance” can be heard on the best known podcast sites.