R v Jacobs Group

Catchwords

[1999] HCA 46 Agius v The Queen (2013) 248 CLR 601[2013] HCA 27 CMB v Attorney-General for New South Wales (2015) 256 CLR 346[2015] HCA 9 Director of Public Prosecutions (Cth) v Gregory (2011) 34 VR 1[2011] VSCA 145 Everett v The Queen (1994) 181 CLR 295[1994] HCA 49 Green v The Queen (2010) 244 CLR 462[2011] HCA 49 Griffiths v The Queen (1977) 137 CLR 293[1977] HCA 44 House v The King (1936) 55 CLR 499[1936] HCA 40 Kentwell v The Queen (2014) 252 CLR 601[2014] HCA 37 Kline v Official Secretary to the Governor-General (2013) 249 CLR 645[2013] HCA 52 Lacey v Attorney-General of Queensland (2011) 242 CLR 573[2011] HCA 10 Markarian v The Queen (2005) 228 CLR 357[2005] HCA 25 Mondelez Australia Pty Ltd v Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union [2020] HCA 29(2020) 381 ALR 601 R v Ellis (1986) 6 NSWLR 603 R v Hernando (2002) 136 A Crim R 451[2002] NSWCCA 489 Registrar of Titles (WA) v Franzon (1975) 132 CLR 611[1975] HCA 41 Savvas v The Queen (1995) 183 CLR 1

Judgment (22 paragraphs)

[1]

Introduction

BELL CJ: This sentence appeal, which follows pleas of guilty by Jacobs Group (Australia) Pty Ltd (the respondent), raises an important question of statutory construction in the context of foreign bribery provisions of the Criminal Code Act 1995 (Cth). Its outcome affects the calculation of the maximum penalty payable by a body corporate for offences committed after 20 February 2010.
On the Crown's construction, the applicable maximum penalty on the facts of the current case for one of the offences (sequence 3) to which the respondent pleaded guilty was $30,392,062. By contrast, on the respondent's construction, which was that given to the legislation by the sentencing judge, Adamson J, the maximum penalty was $11,000,000. The question of the proper construction of s 70.2(5) of the Criminal Code lies at the heart of the Crown's first ground of appeal.
Given the significance to be attached to a maximum penalty in any sentencing exercise as a yardstick in the overall synthetic sentencing process (see eg Markarian v The Queen (2005) 228 CLR 357; [2005] HCA 25) and the general importance of the foreign bribery provisions, the question of construction raised by ground 1 of this Crown appeal is obviously of great importance and the respondent does not contend that this Court should decline to entertain it.
By way of contrast, the respondent contended that the Court would not exercise its discretion to resentence under s 5D of the Criminal Appeal Act 1912 (NSW) in relation to the various matters raised by the remaining four grounds of the Crown's appeal. Section 5D(1) provides: "The Attorney-General or the Director of Public Prosecutions may appeal to the Court of Criminal Appeal against any sentence pronounced by the court of trial in any proceedings to which the Crown was a party and the Court of Criminal Appeal may in its discretion vary the sentence and impose such sentence as to the said court may seem proper." (emphasis added)
At least two of the grounds of appeal in the present case build upon the fact that, in the particular circumstances of the case, the penalty imposed for sequence 3, namely $1,350,000, was, after discounts for an early plea and co-operation with various authorities, only slightly over half of what the Crown alleged was the agreed profit ($2,680,816) derived from the offending constituting sequence 3. As shall be seen, however, while the respondent agrees that that figure represents the agreed net benefit derived from the transactions the subject of sequence 3, it does not accept that the figure of $2,680,816 represents the profit derived from those transactions.

[2]

The charges and penalties

On 3 September 2020, the respondent, formerly known as Sinclair Knight Merz Pty Ltd (SKM), pleaded guilty to three offences of conspiring to cause a bribe to be offered to a foreign public official, contrary to ss 11.5(1) and 70.2(1)(a)(iv) of the Criminal Code. When the offending took place, SKM was a private, employee-owned Australian consulting, engineering and project delivery firm involved in infrastructure projects in Australia and abroad. In December 2013, after the offending conduct had ceased, SKM was acquired by Jacobs Group. For the purposes of these reasons, the name SKM will be used to refer to the respondent prior to the acquisition, as well as its related and holding companies.
Section 70.2(1) of the Criminal Code relevantly provides: "(1) A person commits an offence if: (a) the person: … (iv) causes an offer of the provision of a benefit, or a promise of the provision of a benefit, to be made to another person; and (b) the benefit is not legitimately due to the other person; and (c) the first-mentioned person does so with the intention of influencing a foreign public official (who may be the other person) in the exercise of the official's duties as a foreign public official in order to: (i) obtain or retain business…"
The three offences against s 70.2(1) related to two conspiracies, one in the Philippines and one in Vietnam, involving the payment of monetary bribes to public officials following the award of public infrastructure contracts to SKM. The first offence (sequence 1) related to a conspiracy to cause a bribe to be offered to a foreign public official in the Philippines between 1 January 2000 and 20 May 2005. The second offence (sequence 2) related to a similar conspiracy in relation to a foreign public official in Vietnam between 1 December 2006 and 19 February 2010. The third offence (sequence 3) related to the continuation of the same conspiracy which is the subject of sequence 2, from 20 February 2010 to 15 June 2012. Sequences 2 and 3 were charged separately because an amendment to the maximum penalty for the offence came into force on 20 February 2010. [1]
The maximum penalty for sequences 1 and 2 was 3,000 penalty units, or $330,000. The maximum penalty for sequence 3 falls to be determined by s 70.2(5) of the Criminal Code. That provision relevantly provides: "An offence against subsection (1) committed by a body corporate is punishable on conviction by a fine not more than the greatest of the following: (a) 100,000 penalty units; (b) if the court can determine the value of the benefit that the body corporate, and any body corporate related to the body corporate, have obtained directly or indirectly and that is reasonably attributable to the conduct constituting the offence - 3 times the value of that benefit; (c) if the court cannot determine the value of that benefit--10% of the annual turnover of the body corporate during the period (the turnover period) of 12 months ending at the end of the month in which the conduct constituting the offence occurred." At all material times, a penalty unit was $110, and 100,000 penalty units was therefore $11 million. The term "benefit" in Chapter 4, Division 70 of the Criminal Code in which s 70.2 is located is defined as including "any advantage and is not limited to property".

[3]

Grounds of Appeal

By Notice of Appeal filed on 5 July 2021, the Crown appeals from these sentences pursuant to s 5D of the Criminal Appeal Act. The appeal is brought on the following grounds: "1. The sentencing judge erred in identifying the benefit for the purpose of ss 70.1 and 70.2(5)(b) of the Criminal Code (Cth) as the amounts received by the respondent less expenses incurred in performing the contracts (SJ [123]-[141]) and accordingly erred in identifying the maximum penalty which was to operate as the yardstick for punishment for sequence 3. 2. The sentencing judge erred in relation to sequence 3 in not taking into account the material consideration that the fine imposed would be treated as a cost of doing business, particularly when regard is had to the fact that the fine imposed (SJ [195]) was significantly less than the amount of profit made from the offending conduct (SJ [81]). 3. In relation to all three sequences, the sentencing judge applied a wrong principle, or constructively failed to take general deterrence into account, in reasoning that general deterrence of others is achieved in this case not by punishing and denouncing the respondent's conduct with a substantial fine but rather by rewarding it for disclosing its offending (SJ (187]). 4. The sentence for sequence 3 is manifestly inadequate. 5. The sentences for sequences 1 and 2 are manifestly inadequate."

[4]

Background

The circumstances of the respondent's offending conduct are set out in some detail in the sentencing judgment, [2] and in the three statements of facts agreed by the parties. The first statement of facts and supplementary statement of facts relate to the conduct which forms the subject of the offences, while the further supplementary statement of facts concerns matters relevant to the calculation of the maximum penalty for sequence 3. It should be noted that, although the respondent agreed to the statements of agreed facts, they were not the subject of agreement by the individuals referred to therein and do not constitute and may not be taken to be admissions by them of the matters referred to in them.
For present purposes, only a relatively brief summary of the salient facts taken from the agreed facts is necessary.
The three offences involved the operations of the SKM Overseas Development Assistance (SODA) business, an 'operations centre' within SKM which provided project management and technical services for engineering projects in developing countries in the Asia-Pacific. SODA was one of around fifty 'operations centres' within SKM, which contributed around 1% of SKM's total revenue. The division provided services for public infrastructure projects administered by the Australian Agency for International Development (AusAID), as well as for projects managed by foreign governments and funded by the World Bank and the Asian Development Bank (ADB). The offending conduct related only to projects administered by foreign governments, and not by AusAID.

[5]

Sequence 1: Philippines, 1 January 2000 to 20 May 2005

In 1999, Lyndsay Chapple was appointed to the position of Country Manager for SKM in the Philippines. In about 2000, Yolanda Fernandez, who was a Business Development Manager for SKM in Manila, suggested to Mr Chapple that it was necessary to make illegitimate payments to public officials in order to win contracts in the Philippines.
At some point in the early 2000s, Mr Chapple met with Paul Dougas, who was the Chief Executive Officer (CEO) of SKM, and raised the prospect of making payments to public officials after the award of contracts to SKM. Mr Dougas told Mr Chapple that any such payments by SODA were to be subject to the following guidelines: "a. the payments should always be made at 'arms length' through a third party and not directly by SKM; b. The 'circle of knowledge' within SKM in relation to the payments was to be kept to an absolute minimum; c. The payments should only be made after the contract was awarded to SKM; and d. Payments should always be recorded through an auditable invoice."
This conversation formed the basis for what was referred to by the sentencing judge as the "Philippines conspiracy". As Mr Dougas was the CEO of SKM, it was common ground that the physical and fault elements of the offence were attributable to SKM pursuant to ss 12.2 and 12.3 of the Criminal Code. As such, Jacobs Group is liable for Mr Dougas' participation in the Philippines conspiracy.
Between early 2000 and 20 May 2005, Ms Fernandez, Mark Read, Geoffrey Linke, and Mohit Kumar, who were all employees or officers of SKM, variously became parties to the Philippines conspiracy. At some time in the early 2000s, Mr Read suggested to Mr Chapple that illegitimate payments should be constrained to 5% of the budget for each project.
The method by which bribes were to be paid to public officials was as follows. SKM made payments to a third party company, and received invoices for various services which were not in fact provided. From late 2003 until 2005, payments were made to an entity named Intelmar Enterprises (Intelmar), which was associated with Ms Fernandez. Intelmar provided invoices to SKM for expenses such as 'marketing and representation'. The funds were then intended to be withdrawn and provided to Filipino public officials by Ms Fernandez. Inducements paid to public officials were referred to in correspondence within SKM as 'external marketing costs' or 'marketing fees'. They were intended to influence public officials in their consideration of SKM's bids for contracts, and to ensure that public officials performed their obligations under existing contracts.

[6]

Sequence 2: Vietnam, 1 December 2006 to 19 February 2010

During a trip to Vietnam, Mr Chapple met Nguyen Ngoc Thang, who was then the in-country agent for Landell Mills Ltd, an international development consulting firm. SKM retained Mr Thang as its in-country agent to provide various services, including liaising with Vietnamese public officials and sourcing foreign and local consultants. By late 2006, Mr Chapple and Mr Thang agreed that, where necessary, illegitimate payments would be paid to Vietnamese public officials (the Vietnam conspiracy).
At various times between 1 December 2006 and 19 February 2010, Adam Carey, Andrew Counihan, Mr Kumar and Mr Linke each became a party to the Vietnam conspiracy with Messrs Chapple and Thang. All were employees or officers of SKM except Mr Thang, who was engaged as an agent. Mr Linke was then the General Manager, Water and Environment, and therefore a high managerial agent of SKM. As such, it was common ground that liability for the offence is attributable to SKM pursuant to ss 12.2 and 12.3 of the Criminal Code.
Mr Linke became a party to the Vietnam conspiracy by no later than 26 June 2007. On that day, Mr Kumar sent an email to Mr Linke and Mr Chapple concerning three infrastructure contracts in Vietnam which were expected to be finalised shortly thereafter. In the email, Mr Kumar stated: "As we move towards mobilization, we are required to make payments for proposal preparation and marketing costs incurred (as you are aware on loan projects). All the usual internal guidelines will be followed i.e. payment for services rendered under proper invoices etc. Total payment will not exceed 5% of project budget (as discussed in the past)."
Later that day, Mr Linke replied to the above email, requesting further details about the payments. Mr Kumar replied on 27 June 2007, and stated: "Yes, rest assured all payments will be structured in a way that are at 'arms length', w/n the 5% limit; in terms of timing occur when we get paid by the client at appropriate milestones etc. Hope that is ok."
The terms and method of the Vietnam conspiracy were substantially similar to those of the Philippines conspiracy. SKM entered into contracts with two companies associated with Mr Thang, being Nhat Phuong Investment & Trading Company Ltd (NPIT) and Hai Dang Tourism Development and Investment Joint Stock Company (HTD). Both companies provided false invoices to SKM for services which were never provided. In reality, the payments made to each company were intended to be redirected to Vietnamese public officials, in order to influence them in their consideration of tenders submitted by SKM, and in their performance of obligations under contracts which had been awarded.

[7]

Sequence 3: Vietnam, 20 February 2010 to 15 June 2012

As has been explained, sequence three relates to the continuation of the Vietnam conspiracy described above. At some time between 20 February 2010 and 15 June 2012, Paul Casamento, then the Commercial Manager of SKM's Water and Environment Business Unit, became a party to the conspiracy.
During the period relevant to sequence 3, the contract relating to the VUUP remained on foot. SKM made two further payments to HDT for the fictitious "study tour" referred to in paragraph [32], which were in fact intended to be redirected for public officials in connection with the VUUP project. SKM also entered into an additional contract with NPIT, under which it made a further payment for the same purpose. The combined total amount of these three payments was approximately AUD $25,262.08.
SKM was also awarded two further contracts during this period, for the following projects: 1. the Thanh Hoa Comprehensive Socioeconomic Development Project Metro (the Thanh Hoa project), to improve urban infrastructure in the city of Thanh Hoa; and 2. the Da Nang Priority Infrastructure Investment Project (the Da Nang project), to upgrade urban infrastructure in Da Nang City.
In order to facilitate the payment of bribes in relation to these two projects, SKM entered into a number of new agreements with NPIT, HDT and Mr Thang personally, for the provision of various services which were never provided. One of these agreements, and the invoices for payments made under it, were falsely backdated by several months.
In total, seven payments were made in connection with the Thanh Hoa project, amounting to a total of approximately AUD $164,328.30. In respect of the Da Nang project, SKM entered into an agreement with NPIT which contemplated payments of approximately AUD $98,360.89. However, only one payment was made under that contract, in the amount of approximately AUD $15,070.93.
The total amount of the illegitimate payments made during the period relevant to sequence 3 was approximately AUD $204,661.21 and, as has already been noted, the agreed net benefit to SKM of the transactions the subject of sequence 3 was $2,680,816.

[8]

Contemplated projects for which no bribes were paid

In addition, SKM was involved in the preliminary stages of obtaining contracts for two further infrastructure projects in Vietnam, for which no bribes were ultimately paid.
First, SKM staff members engaged in internal preparations for a tender to be submitted for the Hai Phong Roads Budget Upgrade Project (the Hai Phong project). In October 2010, Mr Counihan prepared two versions of a draft budget for the Hai Phong Roads project, which he labelled "actual" and "alternative presentation". The "actual" budget contained a line item named "PM support" in the amount of USD $343.859.07. In the "alternative" budget, the line item had been relocated and reduced to USD $22,000. The "PM support" entry in the "actual" budget related to bribes that were intended to be paid to Vietnamese public officials. SKM ultimately did not lodge a successful tender for the Hai Phong project, and no illegitimate payments were made in relation to the project.
On about 13 July 2011, SKM submitted an expression of interest for a contract in relation to the Northern Mountains project in Vietnam. Over the following months, a number of iterations of a draft budget were circulated between Messrs Counihan, Chapple and Thang. Several of these included a line item for "PM Support", which fluctuated in value between zero dollars and USD $240,763. These amounts represented the budget for bribes that were intended to be paid to Vietnamese public officials. In the final spreadsheet to be circulated, the "PM costs" had been incorporated into the line item for payments to Mr Thang, which were listed under "national specialist". Around this time, both Mr Chapple and Mr Counihan had conversations with Mr Thang, in which Mr Thang expressed concerns that he felt nervous and unsafe about the personal risk posed by his direct involvement in delivering bribes.
On 14 November 2011, SKM submitted a tender for the Northern Mountains project. Before the tender process was concluded, the General Counsel of SKM became aware of the possibility that members of SODA had caused bribes to be offered to foreign public officials. She began conducting enquiries into the operations of SODA, which are described in further detail below. On 11 June 2012, SKM was notified that it was the first ranked firm in the tender process, and was invited to enter into contract negotiations for the Northern Mountains project. On 15 June 2012, SKM terminated the Vietnam conspiracy, and on 20 June 2012, the company withdrew its tender for the Northern Mountains project. As such, SKM made no illegitimate payments in relation to the Northern Mountains project.

[9]

Benefit obtained by SKM attributable to sequence 3

As has been explained, the maximum penalty for sequence 3 is determined by reference to the 'benefit' that was obtained by SKM and that was reasonably attributable to the offence. While the parties advanced opposing submissions as to the meaning of the word 'benefit', there was no dispute about the underlying income and expenditure figures with respect to sequence 3, which were contained in a further supplementary statement of facts.
During the period relevant to sequence 3, SKM provided services and received payments in relation to three projects: the VUUP, the Thanh Hoa project, and the Da Nang project. It was common ground that the gross income received by SKM in respect of these three projects was AUD $10,130,354. For the purposes of calculating the net benefit, the parties agreed upon the deductions to be made from the gross income. These deductions did not include bribery payments, nor did they include any payments made to Mr Thang, whether lawful or not. Accordingly, it was agreed on this basis that the net benefit received by SKM in respect of the conduct constituting sequence 3 was AUD $2,680,816.
As has been noted at [5] above, the respondent does not accept that this agreed figure represented the profit derived from the transactions the subject of sequence 3 but, rather, was simply the gross amount paid to SKM and related bodies corporate less third-party payments to Vietnamese contractors for performing the underlying contractual obligations together with incidental expenses. This characterisation issue as to whether the agreed net benefit was synonymous with profit is relevant to grounds 2 and 3 of the Crown's appeal.

[10]

The respondent's post-offence conduct

As heavy reliance was placed by the sentencing judge on the respondent's post-offence conduct, it is necessary to briefly set out the series of events which followed the commission of the three offences described above. These events were explained in detail in the two unchallenged affidavits of Matthew Latham of Jones Day, affirmed on 26 April 2021 and 28 May 2021.

[11]

How the offending came to light

The offending conduct initially came to light in 2012, during preparations within SKM for a proposed merger or acquisition. In early 2012, SKM engaged Jones Day to provide advice in relation to the proposed merger or acquisition process which ultimately led to the acquisition of SKM by Jacobs Group. In the course of conducting vendor due diligence enquiries, Mr Latham, a partner of Jones Day, met with Mr Carey, who was then in charge of SODA. During this conversation, Mr Carey disclosed that SODA had been paying bribes to foreign public officials in Vietnam for years, under the pretext of 'training contracts' or 'study tours'. He said these practices had been endorsed by members of SKM's senior management.
SKM's General Counsel, Chief Operating Officer and CEO were promptly informed of Mr Carey's disclosures. The CEO was then Santo Rizutto, who had recently been appointed following Mr Dougas' retirement. In April 2012, SKM initiated an internal inquiry into the allegations made by Mr Carey, which spanned five to six weeks and was ultimately inconclusive.
In light of the inconclusive findings of that inquiry, in June 2012, SKM engaged Jones Day to conduct an independent investigation into the disclosures made by Mr Carey. This decision appears to have been made in light of advice by Mr Latham that SKM would be required to disclose Mr Carey's allegations to any prospective merger partners or acquirers, and those parties would likely be dissatisfied with the inconclusive outcome of the internal inquiry. The investigation became known as "Project Blue" and scrutinised the activities of SODA over the decade from 2002 to 2012. SKM allowed Jones Day to interview any of its employees, provided unfettered access to its business records, and imposed no limitation on the fees that might be charged. The efforts to secure a merger or acquisition were put on hold pending the outcome of the independent investigation.
The investigation resulted in the completion of a 177-page draft report, presented to SKM in late August 2012, and a final report, which was completed on 22 November 2012. The final report relevantly concluded that: 1. Over the relevant period, SODA made a number of payments that were intended to be directed to foreign public officials in the Philippines and Vietnam; 2. Four employees or officers of SKM (being Messrs Carey, Chapple, Counihan, and Aman Mehta) were involved in the arranging or making, or had knowledge of, illegitimate payments; and, 3. Emails located during the investigation suggested that some members of SKM's senior management, being Messrs Dougas, Read, Katari, Clarke and Linke, may have been aware of illegitimate conduct in the Philippines and Vietnam. Although some of these individuals could not be interviewed, those who were interviewed denied having any knowledge of the illegitimate payments.

[12]

Assistance provided to the AFP and CDPP

Shortly after Jones Day presented the draft Project Blue report in August 2012, the non-conflicted directors of SKM unanimously voted to report the findings of the investigation to the Australian Federal Police (AFP). To do so, the company waived legal professional privilege over the draft Project Blue report and provided it to the AFP in its entirety. At this time, the matters which were the subject of the report were not known to the AFP.
SKM later provided the final Project Blue report to the AFP when it was completed in November 2012. The sentencing judge accepted the evidence of Mr Latham that due to the complexity of the conspiracies, "it would have been nigh impossible [for investigating authorities]… to detect or appreciate the significance of what had occurred within SODA without the benefit of the company's independent investigation." [3]
After the acquisition of SKM (discussed below at [62]), the respondent continued to provide assistance to the AFP in relation to investigations against both the respondent and the individuals involved in the conspiracy. These investigations spanned six years from the time of the self-report until May 2018. The assistance provided by the respondent during the investigations included: 1. providing business records on over 13 occasions, including contract agreements, invoices, accounting records, profit and loss spreadsheets, and emails; 2. arranging for the AFP to interview the respondent's employees, and preparing draft witness statements for some of those employees; 3. responding to requests for information from the AFP; and 4. preparing and providing factual analyses in relation to the Vietnam conspiracy.
The respondent continued to assist the AFP and the CDPP after the commencement of proceedings in May 2018. This assistance included meeting with counsel for the CDPP to discuss aspects of the Crown case against the individuals accused, and providing the CDPP with further business records and privileged material associated with the Project Blue report. On 27 May 2021, the respondent gave an undertaking pursuant to s 16AC of the Crimes Act 1914 (Cth) to cooperate in the prosecution of Messrs Casamento, Counihan, Dougas, Linke and Read.
The AFP provided a letter of assistance for the purposes of sentence proceedings, which stated that the respondent's assistance "provided crucial intelligence and information otherwise unavailable to the AFP". Before the sentencing judge, AFP Assistant Commissioner Peter Crozier gave evidence that the AFP would have been unlikely to become aware of the offending without the benefit of the respondent's self-report, and that there was "no higher level" of assistance in terms of the respondent's self-report and subsequent assistance. The sentencing judge accepted Assistant Commissioner Crozier's evidence that the company's response to the offending was "best practice" and its assistance was of the highest quality. [4]

[13]

Assistance provided to other relevant authorities

After the completion of the draft Project Blue report, SKM also reported the findings of the investigation to a number of other relevant authorities, namely, the World Bank, the ADB, AusAid, and the Australian Securities and Investments Commission (ASIC). Neither the World Bank nor the ADB was aware of the conduct which was the subject of the self-report, and there was no evidence to suggest that any other authorities had knowledge of the offending conduct. Each agency's response is briefly explained below. 1. World Bank: the World Bank undertook its own investigation, which culminated in the conclusion of a Negotiated Resolution Agreement (NRA) with SKM in July 2013. The NRA imposed a conditional non-debarment for two and a half years, meaning that SKM's eligibility for World Bank funded projects was subject to certain conditions - including that it implement a new integrity compliance program and engage an independent compliance monitor. SKM engaged an independent monitor at its own expense, who conducted a review of changes which had been made to the company's anti-bribery and corruption policies since the offending conduct. The review generally found that SKM's compliance policies were rigorous and satisfied World Bank guidelines. SKM incurred expenses "in the millions of dollars" in connection with this appointment. 2. ADB: the ADB also undertook an investigation, during which Mr Latham travelled to Manila to present the findings of the Project Blue report to ADB staff. In August 2013, the ADB informed SKM that it had determined to enter into a confidential NRA with the company on substantially the same terms as that agreed with the World Bank - that is, a conditional non-disbarment for two and a half years. However, ultimately no such agreement eventuated. 3. AusAid: Representatives of SKM met with representatives of AusAid, and provided the agency with information to establish that there had been no corrupt conduct involving projects administered by AusAid. In July 2013, AusAid prepared a memorandum for the Director-General of DFAT which concluded that AusAid had no grounds to terminate agreements with SKM, or to prevent SKM from tendering for AusAid projects. 4. ASIC: in September 2012, SKM disclosed the offending conduct by lodging a 'Misconduct and Breach' form with ASIC. In October 2012, ASIC notified Jones Day that it did not intend to take any action, as it considered the matter to fall within the remit of the AFP, but reserved the right to do so should it be considered necessary.

[14]

Steps taken by the respondent in response to investigation

In response to the findings of the internal investigation, SKM took a number of steps to reform its internal governance mechanisms, and in particular its anti-bribery and corruption policies. These included: 1. forming an internal working group to implement 22 recommendations provided by Jones Day in relation to changes to anti-bribery and corruption risk management; 2. introducing a new Code of Conduct which explicitly prohibited the offering of inducements to public officials; 3. introducing a requirement for the completion of a bribery and corruption risk assessment before committing to new projects; 4. upgrading various internal policies, including SKM's Whistleblower Policy, Political and Charitable Donations Policy, and Gifts and Entertainment policy; 5. updating and expanding existing bribery and corruption training programs for staff; 6. introducing policies which discouraged the use of agents, and required the screening of all new suppliers and sub-consultants for bribery and corruption risk; and 7. modifying internal audit practices to more closely scrutinise non-financial risks such as bribery and corruption.
Mr Latham gave evidence that the implementation of these changes lifted SKM's anti-bribery and corruption program to 'global best practice standards'.

[15]

The acquisition

In September 2013, SKM was acquired by Jacobs Group. The purchase price was paid to SKM's shareholders, who were its employees. One of the terms of the merger was that a proportion of the payment would be placed in an escrow account, to be used as a security for certain costs which Jacobs might incur after the merger. One of several costs to which the escrow funds applied was the payment of fines for SKM's non-compliance with anti-bribery and corruption laws. The effect of this arrangement is, in essence, that the former shareholders of SKM will incur the costs of any fine imposed by this Court. Some reliance was placed on this arrangement by counsel for the respondent, both at sentence and on appeal, who stressed that the fine would largely be paid by former employees who bore no responsibility for the offending conduct.

[16]

The sentencing judgment

An important element of the judgment concerned the proper meaning and application of s 70.2(5)(b) of the Criminal Code, which provides for the calculation of the maximum penalty for sequence 3. That section is set out at [9] above. As I have indicated, at the sentencing hearing, there was a dispute about whether the word 'benefit' within the meaning of s 70.2(5)(b) meant 'gross benefit', as was contended by the Crown, or 'net benefit', as was contended by the respondent. It was agreed that on the former construction, the applicable maximum penalty would be $30,391,062, whereas on the latter construction, the maximum penalty would be $11,000,000.
The sentencing judge ultimately accepted the respondent's submission that the word "benefit" within the meaning of s 70.2(5)(b) of the Criminal Code meant "net benefit". As such, her Honour found that the maximum penalty was $11,000,000. Her Honour's reasons for adopting this construction are set out at SJ [123]-[141], which relevantly include the following: "124 The word 'benefit' in s 70.2 of the Criminal Code is defined in s 70.1 as including 'any advantage and is not limited to property.' … 126 If 'benefit' in s 70.2 of the Criminal Code means, as the company contended, net benefit, the maximum penalty for sequence 3 is $11m as three times the net benefit is $8,042,448 (or, on the corrected figure, $8,042,146.14), which is less than $11m. If 'benefit' means, as the Crown contended, the gross income, the maximum penalty for sequence 3 is three times $10,130,354, which is $30,391,062, since this figure is greater than $11m. 127 The Crown was unable to identify any basis on which the value of the contract would represent the benefit to the company. It conceded that the consequence of the construction for which it contended was that the maximum penalty for an offence under s 70.2 of the Criminal Code would be the same for a loss-making contract, a profitable contract or a break-even contract as long as the contract price was the same. The only rationale given by the Crown for such a capricious consequence was that it was easier to work out contract price than to work out net benefit and it could not be expected that such an important guidepost in the sentencing process as maximum penalty would require, potentially, detailed calculations and value judgments. 128 The policy behind the calculation of maximum penalty in s 70.2 is evident. As Mr Walker submitted, there are powerful reasons why a penalty ought be calibrated by reference to the gains of the offender. To specify a flat maximum penalty is, at least potentially, apt to disadvantage the impecunious and benefit the wealthy. For commercial crimes, such as bribing a foreign official, the law seeks to achieve the consequence that crime does not pay. In other words, the general deterrent effect of a sentence is designed to persuade those who might be tempted to commit the offence that the risk/reward ratio tends in favour of compliance with the law rather than breach by commission of such a crime. To calibrate the penalty by reference to the benefit received makes the penalty both rational and commensurate (since three times a sum, whether measured as profit or damages, is accepted to be penal). 129 Further, the legislative policy accords with the plain meaning of the word 'benefit'. The contract sum may confer a benefit, but it also may not. Thus, as Mr Walker submitted, liquidators are entitled to disclaim onerous contracts: that is, contracts which do not confer a benefit on the company for the reason that they are unprofitable. 130 This construction of s 70.2(5)(b) of the Criminal Code also makes sense in the context of s 70.2(5)(c), which selects turnover as a default determinant of the maximum penalty. Whereas benefit requires a comparison between income and the costs incurred in earning that income, turnover, which is referable to gross income, requires no such comparison. It would be odd if the relevant integer in s 70.2(5)(b) were, in effect, the same as the integer in s 70.2(5)(c). The evident purpose of s 70.2(5) is to provide a significant incentive to offenders, such as the company in the present case, to establish the benefit obtained from the offending conduct, which, especially for large companies with substantial businesses, is likely to be less than 10% of their annual turnover. An offender is in a pre-eminent position to establish the benefit obtained since both the knowledge and the means of proof are at its disposal: Blatch v Archer (1774) 1 Cowp 63 at 65 (Lord Mansfield CJ); (1774) 98 ER 969. 131 The construction for which Mr Walker contended is consistent with the legislative intention to be derived from Chapter 4 of the Criminal Code, which is entitled 'The integrity and security of the international community and foreign governments'. Division 70, entitled 'Bribery of foreign public officials' is intended to facilitate Australia's compliance with the obligations undertaken by it as a party to the OECD Convention on Combating Bribery of Public Officials in International Business Transactions which came into force on 15 February 1999 (the Convention). The Convention will be addressed further below in the context of the objective seriousness of the offence. However, for present purposes, it is important to note that article 3.1 of the Convention requires criminal penalties to be 'proportionate and dissuasive'. Thus, given the evident purpose of Division 70, an interpretation of the provisions which is consistent with Australia's international obligations is to be preferred: see, Minister for Immigration and Ethnic Affairs v Teoh (1995) 183 CLR 273 at 287 (Mason CJ and Deane J); [1995] HCA 20 and the Malaysian Declaration Case (2011) 244 CLR 144; [2011] HCA 32 at [98] (Gummow, Hayne, Crennan and Bell JJ). 132 Where offenders are natural persons, maximum penalties for serious offences are generally expressed in terms of years of imprisonment on the basis of the assumption that this is an appropriate measure of punishment since we all have finite lives, which are assumed to be of equal value. For companies, the calculus of penalty is more difficult. A requirement of proportionality invites the question: proportional to what? The obvious answer is that the penalty must be proportionate to the benefit obtained by the offender for the criminal conduct. The relationship between the offending conduct and the benefit (and therefore the maximum penalty) is evident from the wording of s 70.2(5)(b): the benefit must be obtained and must be reasonably attributable to the conduct constituting the offence. In this context, s 70.2(5)(b) of the Criminal Code can be seen to be the primary determinant of maximum penalty and s 70.2(5)(c) as being the evidentiary incentive on an offender to facilitate proof of the benefit. 133 For a penalty to be dissuasive, it must be sufficiently high to deter the conduct, both prospectively (in terms of general deterrence) and retrospectively (in terms of specific deterrence). This purpose is achieved by the multiplier of three in s 70.2(5)(b). 134 The construction of maximum penalty on the basis for which Mr Walker contended would require, in many cases (though not the present because of the agreement on figures), a judicial determination of, first, whether the quantum of benefit could be ascertained and, second, if so, the actual quantum. I reject the Crown's submission that this tells against the construction for which Mr Walker contended. The assessment of benefit (or, more usually, its converse, loss) is a task commonly undertaken by courts. Indeed the measure of damages for tort (the amount of money required to put the plaintiff in the position he or she would have been in had the tort not occurred) and contract (the amount of money required to put the plaintiff in the position he or she would have been in had the contract been performed) illustrate that it is a task performed as a matter of course by a court in every case where such an assessment is required. Courts exercising equitable jurisdiction may be required to determine the benefit received by errant fiduciaries before making orders for disgorgement or restitution. The comparative difficulty of the task is no barrier to its being required. 135 There are analogies in the criminal context which are of assistance. 136 In Mansfield v Director of Public Prosecutions (WA) (2007) 33 WAR 227; [2007] WASCA 39 (Mansfield), the offender had disposed of shares while in possession of inside information. The Director of Public Prosecutions for Western Australia (the Director) sought to confiscate the whole of the proceeds of the sale of the shares under the Criminal Property Confiscation Act 2000 (WA). Section 16(1)(c) of the Act provided that the Director could apply for a criminal benefit declaration in respect of 'property … wholly or partly derived or realised, directly or indirectly, as a result of the person's involvement in the commission of the … offence, whether or not it was lawfully acquired'. Section 145(1) of the Act provided that a person had 'acquired a criminal benefit if … any property … that is a constituent of the person's wealth was directly or indirectly acquired as a result of the person's involvement in the commission of a confiscation offence, whether or not the property … was lawfully acquired.' The Director's submission that the whole of the proceeds of sale of the shares was acquired as a result of the offender's 'sale of the shares with inside information' was rejected. 137 The Court (Steytler P, McLure and Buss JJA agreeing) said at [49]: 'I accept, as did the courts in Nieves, Peterson and Pedersen that the relevant provisions of the Act are concerned with benefits and not with net profits, with the consequence that expenses incurred in the course of committing a crime will not ordinarily be taken into account in assessing the value of the benefit obtained. But the point remains that the assessed value of the benefit (whether it be in the form of property, a service, an advantage or something else) must be no more than what was acquired (or presumed to have been acquired in the absence of proof to the contrary) as a result of the person's involvement in the commission of the offence (in a case falling within s 145(1)(a)). In a case involving the supply of drugs for money, rather than in return for some other property, service, advantage or benefit, the whole of the money will be the benefit derived (if the offender is not merely a conduit, as in Peterson) because the whole of the purchase price will be the benefit that has been derived, or acquired by the offender as a result of involvement in the commission of the transaction giving rise to the offence. However, that will not necessarily be so in cases in which the sale of an item is not absolutely prohibited, but is only prohibited in specified circumstances. In such a case, depending upon the nature of the prohibition, and the effect of its breach, the property, advantage or benefit that is acquired by the offender may be different to, or less than, the sale price.' 138 This reasoning is also consistent with the approach of McCallum J in Commissioner of the Australian Federal Police v Fysh [2013] NSWSC 81; (2013) 224 A Crim R 523 in the context of proceeds of crime derived from insider trading. Her Honour said, at [21]: 'Based on the ordinary usage of the language of those provisions, I would have little difficulty in concluding that the value of the benefit derived from the sale of shares purchased unlawfully with inside information was the net amount received upon sale of the shares after deducting the original purchase price. In its ordinary meaning, the term 'benefits' means the good or gain received. In the present context, the term may be understood to refer to the amount by which Dr Fysh's financial position had improved at the conclusion of the transaction as a result of his having sold the shares for more than he paid for them. If he had sold the shares for the price for which he bought them (or less), one would readily accept that he derived no 'benefit' from his offending.' 139 The reasoning was also followed and applied in Director of Public Prosecutions (Cth) v Gay (2015) 26 Tas R 149; [2015] TASSC 15, which was also an offence of insider trading. Estcourt J considered that an assessment of the value of the benefits derived from the commission of the offence necessarily required the cost price of the shares to be brought to account against the gross proceeds of sale. In Director of Public Prosecutions (Cth) v Gay (No 2) (2015) 256 A Crim R 194; [2015] TASSC 58, Estcourt J held, at [34], that the 'benefit' was the difference between the price achieved on the sale of the shares and the 'price that he would have achieved at the earliest time that he was lawfully able to dispose of those shares, and the market had been fully informed by reason of the inside or price sensitive information being generally available.' An assessment which requires a comparison between a known figure and a hypothetical counterfactual is, as referred to above, a task commonly undertaken by courts in various contexts. 140 The approach of assessing the net benefit, which I have found is the correct one, is consistent with comparable decisions in the United Kingdom: see, for example, Director of Serious Fraud Office v Airbus SE [2021] Lloyd's Rep FC 159; [2020] 1 WLUK 435 at [66] (Sharp P). 141 For these reasons, the maximum penalty for the offence in sequence 3 is $11m." (emphasis in original)

[17]

Appeal Ground 1

The first ground of appeal, the terms of which have been set out at [15] above, concerns the proper construction of s 70.2(5)(b) of the Criminal Code and, in particular, the meaning of the word "benefit" as used in that sub-section. On this issue turns the calculation of the maximum penalty for sequence 3.
At the most general level, the Crown contended that the term "benefit", defined to include "any advantage", was of broad compass and would include any moneys received, directly or indirectly, as a result of the offending conduct. This would include, in the case of contracts secured from foreign governments, moneys payable under such contracts including the contract price.
It was submitted that the receipt of "money flows" as a result of contractual payments was advantageous, and thus a "benefit", even if performance of the contract in question was not profitable, i.e. the contract or transaction to which the bribe related was break-even or loss-making. In other words, any payment of money in relation to the transaction was argued by the Crown to be a benefit or advantage within the meaning of the section, even if insufficient to defray or balance the cost of performing the contract or contracts in question.
The Crown pointed out that the amendments introduced in 2010 which led to the form of s 70.2(5) of the Criminal Code were intended radically to increase the penalties capable of being imposed for an offence contrary to s 70.2(1) of the Criminal Code. Thus, under the predecessor provision, the maximum monetary penalty was $330,000, whereas under s 70.2(5), the "minimum" maximum penalty was $11 million, an increase by a factor of approximately 33.
Mr Gleeson SC, who appeared for the Crown, referred to passages from the Explanatory Memorandum concerning the maximum penalties for both individuals and corporate defendants. He contended that the mischief to which the amendments introduced in 2010 were directed was to avoid the risk that a monetary penalty was simply perceived as a "cost of doing business". It was submitted that there needed to be a sufficient deterrent to avoid cynical breaches, hence the significant increases in monetary penalty introduced by the amendments.
In this context, it was submitted that the Crown's construction of s 70.2(5) was consistent with and advanced the statutory purpose underpinning the section.

[18]

Consideration

It is first necessary to note some matters of statutory background.
First, the formulation of a penalty being expressed by reference to a multiple of benefits obtained by the offending party did not originate with s 70.2(5) of the Criminal Code. Similarly structured and expressed penalty provisions were introduced in 2007 and 2009 in ss 76(1A), 45AF(3) and 45AG(3) of the Competition and Consumer Act 2010 (Cth) in relation to a number of offences against that Act, and related civil penalty provisions.
Secondly, both parties referred to the following extract from the Explanatory Memorandum to the Bill that introduced s 70.2(5): [20] "The temptation to bribe a foreign public official increases with the size of a potential transaction/benefit. The alternative sanctions available under subsection 70.2(5) have the effect of penalising a body corporate proportionately to either the benefit obtained, or 10% of the annual turnover of the body corporate, so that the risk of being successfully prosecuted for this offence outweighs the potential benefit from the transaction/benefit procured through the bribe."
It should be noted that s 70.2(5) operates in a "stepped" way: 100,000 penalty units (relevantly $11 million) is the "minimum" maximum fine; if the benefit obtained can be identified and, once trebled, exceeds $11 million, it in turn becomes the maximum; and finally, if the court cannot determine the value of the benefit, the maximum penalty becomes (assuming it exceeds $11 million) 10% of the body corporate's annual turnover during the period of 12 months preceding the commission of the offence. As Mr Gleeson pointed out, s 70.2(5)(c) will only come into play when the relevant body corporate's turnover exceeds $110 million because, otherwise, s 70.2(5)(a) supplies the maximum penalty.
In an important submission, the respondent noted, by reference to the language of proportionality in the Explanatory Memorandum, that: "the "three times multiplier" in the provision only works proportionately if it applies to the benefit calculated as what the company in fact gained from the conduct. To illustrate, consider a situation involving two different contracts. The first has a price of $50 million (expenses of $49 million), whilst the second has a price of $5 million (expenses of $4 million). Each yields a benefit to the company of $1 million. On the Crown's preferred construction, the maximum penalty for the first contract would be ten times higher than the second. That is plainly disproportionate. It does not reflect the relevant criminality involved. The competitively priced contactor is penalised, proportionately, more than the rapacious one." (emphasis added)

[19]

Ground 2

By its second ground of appeal, the Crown contended that: "The sentencing judge erred in relation to sequence 3 in not taking into account the material consideration that the fine imposed would be treated as a cost of doing business, particularly when regard is had to the fact that the fine imposed (SJ [195]) was significantly less than the amount of profit made from the offending conduct (SJ [81])."
The Crown made the following written submission in support of this ground: "Imposing a fine at an amount that permits the offender to retain almost half of the profits made from the crime is flatly inconsistent with the legislative amendment made in 2010. Nor can that inconsistency be avoided by bringing to account the respondent's expenses incurred in uncovering the wrongdoing. There was evidence that it spent millions in professional fees: J[107]. But the fees it spent in uncovering its own wrongdoing are brought to bear in the instinctive synthesis in crediting its past cooperation, for which an Ellis discount was applied. It cannot be double counted so as to justify the startling result that the fine has been reduced to a trifling cost of doing business. That the fine imposed was only half the profit gained from sequence three was a material consideration, in light of the legislative purpose of s 70.2(5), that the sentencing judge did not advert to in explicit terms, and which she can be understood to have overlooked by not mentioning it. Had it been considered, one would expect her Honour to have addressed it. Especially where the penalty regime was designed to ensure that the penalty for making bribes is not a cost of doing business, the sentencing judge was required to reconcile the fine with the amount which the respondent retained by way of profit. That this was not done constitutes specific error."
The Crown's reference in this submission to "specific error" reflects its recognition that, on a Crown appeal, two stages are involved: the Crown has to establish an error in the House v The King (1936) 55 CLR 499; [1936] HCA 40 sense, but must also negate any reason why the discretion of the Court of Criminal Appeal not to interfere should be exercised: R v Hernando (2002) 136 A Crim R 451; [2002] NSWCCA 489 at [12]; Green v The Queen (2010) 244 CLR 462; [2011] HCA 49 (Green) at [1]; CMB v Attorney-General for New South Wales (2015) 256 CLR 346; [2015] HCA 9 (CMB) at [54].

[20]

Grounds 3 and 4

By its third ground of appeal, the Crown contended that: "In relation to all three sequences, the sentencing judge applied a wrong principle, or constructively failed to take general deterrence into account, in reasoning that general deterrence of others is achieved in this case not by punishing and denouncing the respondent's conduct with a substantial fine but rather by rewarding it for disclosing its offending (SJ (187])."
Ground 4 is closely related to ground 3 and is that the sentence imposed in respect of sequence 3 was manifestly inadequate.
Paragraph [187] of the sentencing judgment upon which appeal ground 3 focuses appears under the heading "General Deterrence" and is in the following terms: "The purpose of general deterrence is to deter others from committing the same or a similar crime. This is commonly regarded as being best achieved by the imposition of a punishment on the wrongdoer. But in the present case, for the reasons given above, the prevention of this particular crime is more readily advanced by rewarding the self-reporting company, who assists the investigating and prosecuting authorities, rather than by punishing it with a substantial fine, with all the opprobrium associated with such a penalty. Nonetheless, I have taken into account the need to deter others from committing similar crimes, as well as the need to encourage corporations such as the company to self-report." (emphasis added)
It was submitted by the respondent that the sentencing judge's observations in respect of general deterrence must be considered in the context of SJ [181]-[184]: "181 While a usual purpose of a sentence is to punish the offender, denounce its conduct and deter the commission of like offences, this sentence is required to fulfil a further, and perhaps even more important purpose: to encourage those companies who learn of offending within their own operations to disclose it, even though it might otherwise never be revealed and even though it might, as in the present case, lead to the company and its officers and employees being prosecuted for an offence which would otherwise have gone unnoticed by the investigating authorities. This purpose can be achieved through rewarding the company for its wholly exemplary and extraordinary assistance by applying a substantial discount to the sentence that would otherwise be imposed. 182 To achieve this purpose in this way is consistent with the approach taken in other jurisdictions, where different measures have been taken to prevent the corruption of foreign public officials. For example, several jurisdictions (although not yet Australia) have introduced deferred prosecution agreements (DPAs), whereby corporations are encouraged to self-report such crimes when they come to their attention. The way in which such agreements operate was described by Sir Brian Leveson in Serious Fraud Office v XYZ Limited [2016] Lloyd's Rep FC 517; [2016] 7 WLUK 211 at [1] as follows: "By s. 45 and Schedule 17 of the Crime and Courts Act 2013 ('the 2013 Act'), a new mechanism of deferred prosecution agreement ('DPA') was introduced into the law whereby an agreement may be reached between a designated prosecutor and an organisation facing prosecution for certain economic or financial offences. The effect of such an agreement is that proceedings are instituted by preferring a bill of indictment, but then deferred on terms: these terms can include the payment of a financial penalty, compensation, payment to charity and disgorgement of profit along with implementation of a compliance programme, co-operation with the investigation and payment of costs. If, within the specified time, the terms of the agreement are met, proceedings are discontinued; a breach of the terms of the agreement can lead to the suspension being lifted and the prosecution pursued." 183 His Honour said, at [33]: "Putting these features together, there is no doubt that XYZ's conduct was very serious both in terms of type and scale so that it is not straightforward that a proposed DPA is in principle in the interest of justice. However, it is important to send a clear message, reflecting a policy choice in bringing DPAs into the law of England and Wales, that a company's shareholders, customers and employees (as well as all those with whom it deals) are far better served by self-reporting and putting in place effective compliance structures. When it does so, that openness must be rewarded and be seen to be worthwhile." 184 An important objective of the criminal law is to prevent crime. An effective way of preventing foreign bribery, and the conspiracies which facilitate such bribery, is to encourage self-reporting by the companies of their human agents who engage in it. Whether the mechanism is a DPA or a discount for past and future assistance, or an exercise of the prosecutorial discretion in accordance with the Guidelines not to prosecute, the reward must be real in order to constitute an incentive to self-report and assist, including in the prosecution of the company's human agents." (emphasis added)

[21]

Endnotes

Crimes Legislation Amendment (Serious and Organised Crime) Act (No 2) 2010 (Cth), Schedule 8. See Agius v The Queen (2013) 248 CLR 601; [2013] HCA 27 at [34]-[49] (French CJ, Hayne, Crennan, Kiefel, Bell and Keane JJ).
R v Jacobs Group (Australia) Pty Ltd [2021] NSWSC 657.
SJ [97].
SJ [180].
SJ [149].
Ibid.
SJ [150].
SJ [151].
SJ [155]; [149]; [55]; [78].
SJ [161].
SJ [165].
SJ [168].
SJ [170].
SJ [191].
SJ [177].
SJ [181].
SJ [185].
SJ [186].
SJ [187].
Replacement Explanatory Memorandum, Crimes Legislation Amendment (Serious and Organised Crime) Bill (No 2) 2009 (Cth), 189.

[22]

Amendments 20 July 2022 - * removed from [13]; [36]; [47]; [56]; [63]; [78]; [93]; [94]; [97]; [98]; [99]; [101]; [123]; and [126]. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 20 July 2022

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (22 paragraphs)

Parties

Legislation Cited (6)

Cases Cited (51)

Cited By (2)