15 October 2018 James Mason Senior Adviser Corporations Policy Unit Consumer and Corporations Division The Treasury Langton Crescent PARKES ACT 2600 By email Dear James Reforms to strengthen penalties for corporate and financial sector misconduct – Draft Legislation I refer to the draft legislation released on the Treasury website and the invitation for responses. The proposed amendment to s9 and repeal of s1041G(2) in the words of the Explanatory Memorandum seeks to “introduce a new test that applies to all dishonesty offences under the Corporations Act”. No explanation is given in the Explanatory Memorandum that this change places the Corporations Act outside of the considered approach to the meaning of dishonesty in the Criminal Code and other Commonwealth legislation, and that it is a significant step away from a subjective test for dishonesty. The Commonwealth Parliament has recently amended s135.1 of the Criminal Code to increase the maximum penalty to 10 years imprisonment (Crimes Legislation Amendment (Powers, Offences and Other Measures) Act 2018). That offence criminalises behaviour otherwise lawful entirely on the basis that the person acted “dishonestly”. The test for dishonesty in that offence is (a) dishonest according to the standards of ordinary people; and (b) known by the defendant to be dishonest according to the standards of ordinary people (s130.3) There should be a consistent meaning applied to terms across Acts of Parliament. The law is brought into disrespect if dishonesty means one thing for the general public and another thing for company officers. As the Parliament has seen fit to amend this offence recently without amendment to the definition of ‘dishonesty’ it is inappropriate to amend the Corporations Act to remove this test. UNSW SYDNEY NSW 2052 AUSTRALIA T +61 (2) 9385 1000 | F +61 (2) 9385 0000 | ABN 57 195 873 179 | CRICOS Provider Code 00098G 2 As the Victorian Supreme Court’s Court of Appeal made clear in SAJ ([2012] VSCA 243) the complicated legislative history of the offences in the Corporations Act - and by implication the fear legislators had of upsetting precedent decisions, led to inconsistent tests in s184. There is thus a good basis for amendment to ensure consistency. However, a change away from the status quo generally, should require far more justification than has been presented to date. For example, the following issues should be taken into account: • Dishonesty is a community-based standard, and one linked to morality in modern law. Community-based standards are less certain than prohibited forms of conduct. The form of community standard most well known in law is that of negligence. The standard of negligence is context sensitive. Thus the standard of behaviour expected of a sole director, family-based corporation is likely to be less than that of the executive director of a multinational corporation. There is no case-law to date that suggests dishonesty is similarly context specific. Indeed the moral basis to the concept might suggest it could not be. Because of this inflexibility, the Criminal Code test for dishonesty provides a method to account for the differing expectations of accused by requiring that they be aware of the relevant community standard. That may well be an awkward way to achieve appropriate flexibility, but any move away from that should explore the implications. • Serious criminal offences should involve the accused being subjectively aware of their wrongdoing, unless there is an articulated reason for this not to be the case. Again, it might be the case that directors should be liable for negligently failing to appreciate the standards of behaviour expected of them, but if so negligence is the appropriate standard. Creating negligence by default through an objective dishonesty standard confuses the communicative function of the law. • If it is considered that requiring proof that the accused is aware of the standard of behaviour expected of them is too difficult to prove, this should be stated and evidence given of prosecutions that have failed as a result of the requirement. Reform should be evidence-based. • If a form of subjective dishonesty is in fact too vague and uncertain an element to base liability on, legislators should search for an alternative fault element rather than forcing dishonesty into a legal term of art that departs from common community understandings. It is highly unlikely that the community would accept that a person can be unknowingly dishonest. • It may be that directors of companies and those providing financial advice have a moral or fiduciary duty to others that is greater than the general public. If so, that should be identified as a specific duty, and that duty more clearly articulated beyond a vague notion of acting ‘honestly’. If there is no such attenuated duty, the standard of honesty that they should be judged against should not differ from that of the general criminal law as set out in the Criminal Code. As you would be aware, the recent decision of the Supreme Court of the United Kingdom in Ivey ([2018] AC 391) has thrown the test for dishonesty into some confusion. For your information, I attach a draft of a chapter forthcoming in the UNSW SYDNEY NSW 2052 AUSTRALIA T +61 (2) 9385 1000 | F +61 (2) 9385 0000 | ABN 57 195 873 179 | CRICOS Provider Code 00098G 3 Supreme Court Yearbook that outlines the current meaning of dishonesty across the common law world. The range of meanings only underlines the importance of a well- articulated reason to change tests in the Corporations Act. The conclusion to my chapter reiterates the concerns I have expressed in this submission. Yours sincerely, Professor Alex Steel Scientia Education Fellow UNSW Law University of New South Wales [email protected] UNSW SYDNEY NSW 2052 AUSTRALIA T +61 (2) 9385 1000 | F +61 (2) 9385 0000 | ABN 57 195 873 179 | CRICOS Provider Code 00098G Draft paper subject to revision. Alex Steel [email protected] Dishonesty outside of England and Wales: Ivey in international comparison The enactment of the Theft Act 1968, and its adoption of the adverb ‘dishonestly’ have had ongoing repercussions throughout the common law world. Variants of the English concept of theft have now been adopted in most of these jurisdictions. Even in those jurisdictions where there has not been a reform of theft laws that led to the introduction of dishonesty as a statutory concept, Parliaments have adopted the term as a convenient way of expressing fault in an increasing array of acquisitive and relational crimes. The one significant exception is Canada, but even there the approach taken to fraudulence, dishonesty’s predecessor, is an instructive contrast. This chapter considers the way dishonesty has been interpreted and defined in three countries: Canada, New Zealand and Australia – which has nine statutory criminal jurisdictions,1 and an overlaying national common law. 2 In all of these jurisdictions the English decisions of Feely3 and Ghosh4 have been central to the discussion. Thus, the decision in Ivey v Genting Casinos (UK) Ltd t/a Crockfords5 to revisit those decisions can be read against a range of alternative international approaches.6 The chapter outlines the range of judicial and legislative approaches to dishonesty since 1968.7 Often Parliamentary intervention has been in reaction to the judicial approaches. Although the judicial and statutory interpretations overlap and at times are ignorant of each other this chapter places them in a rough taxonomy for analytical purposes. That taxonomy is: a) mens rea approaches – i) minimalist approaches that read the term down to synonyms of pre-existing legal concepts; and ii) entirely mental state elements which conform to ideas of ‘subjective’ or ‘mens rea’ elements; b) actus reus approaches - entirely physical elements which conform to ideas of ‘objective’ or ‘actus reus’ elements; and c) hybrid approaches - these include subjective/objective and actus reus/mens rea combinations Before considering those approaches, it is necessary to consider a fundamental preliminary issue, that of determining the role of dishonesty in criminal law. What is the role of dishonesty? The strongest theme that emerges from this chapter is the inability of courts and Parliaments to consistently agree on an approach to dishonesty because of competing understandings of the basis and role of the criminal law. In this sense ‘dishonestly’, rather than being a difficult concept, is instead one that lays bare an unresolved controversy in the philosophy of the law itself. That is the 1 Under the Australian Constitution criminal law generally is a power that residually remains with each State (New South Wales, Queensland, South Australia, Tasmania, Victoria, Western Australia). The Commonwealth Government additionally has power to create criminal laws ancillary to its enumerated powers, and has also devolved criminal law powers to the Northern Territory and the Australian Capital Territory. Other external territories are governed using Western Australian or Australian Capital Territory Law. Norfolk Island was formerly self governing and had adopted the ACT offences. 2 Lipohar v The Queen (1999) 200 CLR 485 at 505 3 [1973] QB 530 4 [1982] EWCA Crim 2; [1982] QB 1053 5 [2017] UKSC 67 6 Supplementing and critiquing those approaches are a wide array of academic articles. It is beyond the scope of this chapter to do all that academic work justice, but a number are referred to where relevant. 7 For the history of dishonesty prior to 1968 see Alex Steel, ‘The Meanings of Dishonesty in Theft’(2009)’ 38 Common Law World Review 103. 1 Draft paper subject to revision. Alex Steel [email protected] question of whether there are any pre-legal moral or ethical bases to criminalisation8 and the related question of whether dishonesty should be a basis of distinguishing criminal from non-criminal behaviour.9 Surprisingly there is little judicial recognition of these underlying issues post 1968, and it was not explored in Ivey.