What courts and regulators expect from corporate compliance

In brief 8 min read

The recent decision of ACCC v Bupa Aged Care contains valuable lessons on the importance of compliance programs. They include how quickly improving or implementing such programs can lead to lower penalties; the extent to which regulators and courts favourably view effective compliance programs when assessing penalties, and what features they consider to be essential.

Key takeaways

• In ACCC v Bupa Aged Care, the Australian Competition and Consumer Commission (the ACCC) agreed to a discounted penalty for contraventions of the Australian Consumer Law (the ACL) for reasons including the respondent's early cooperation and willingness to implement a comprehensive compliance program.
• Although Justice Mortimer considered that the agreed penalty of $6 million was on the 'low end' of the appropriate range, Her Honour was ultimately persuaded to approve the amount due in large part to the breadth of the customer remediation, the compliance measures that Bupa had undertaken and agreed to undertake, and its early admission and ongoing cooperation with the ACCC.
• The decision highlights:
  • if a company's compliance programs were not sufficient to prevent a contravention, quickly improving or implementing compliance programs once a contravention is identified could lead to lower penalties;
  • how effective compliance programs may be viewed favourably by regulators and courts when assessing penalties; and
  • the features of a compliance program that a court and the regulator consider necessary. Bupa and the ACCC jointly submitted a detailed compliance program, which the court ultimately approved in its order. The court's order provides guidance on the components of those programs that require the most attention by boards and senior management.
• Bupa's compliance program covers many of the issues that we discuss in the Allens corporate culture guide, and emphasises the importance of:
  • the appointment of specialist compliance staff;
  • the implementation of an effective compliance policy;
  • the operation of a complaints handling system;
  • whistleblower protections;
  • staff training;
  • periodic compliance reviews; and
  • compliance reporting to the board and senior management.

The facts

Bupa Aged Care admitted to contraventions of the ACL in relation to fees charged to residents at 20 of its 72 aged care facilities between April 2013 and June 2018.

The fees were for packages of 'extra services' to be provided to residents, such as access to specialised leisure facilities, hot breakfasts, travel escorts to outside appointments, and individually controlled heating and cooling systems. Bupa admitted that it failed to supply these services, or only partially provided them.

The evidence did not indicate that Bupa made deliberate attempts to mislead or deceive the affected residents. Instead, the court found that there were insufficient compliance systems and controls in place to detect when extra services were not being provided to residents who had paid for them.

The penalty decision

The parties jointly submitted that $6 million was an appropriate penalty and this was approved. Despite expressing some reluctance when approving the penalty, Justice Mortimer was satisfied that the proposed penalty was appropriate when Bupa's significant corrective action was taken into account.

In particular, Her Honour found the following persuasive. Bupa:

• self-reported the contraventions to the ACCC, and then consulted with the regulator to design and implement a remediation program;
• took steps to improve its governance systems and processes immediately after the contraventions were discovered;
• agreed to create a new compliance function, which included recruiting compliance staff, creating a customer feedback and complaints team, improving complaints and feedback reporting to the board and management, and overhauling and simplifying staff manuals;
• implemented a customer remediation payment plan estimated to cost approximately $18 million, where payments were made with assumptions designed to favour residents and promote prompt payments. For example, where a particular service was only partially provided, credit was given on the assumption that the service was not provided at all; and
• had expressed its contrition to affected residents both publicly and privately.

In considering penalties in this case, Justice Mortimer also referred to the decision in ACCC v Volkswagen,¹ where Justice Foster increased the penalty from the jointly agreed figure of $75 million to $125 million. This occurred due to a number of aggravating factors, but, in particular, Justice Foster noted that Volkswagen had 'not shown any contrition whatsoever in respect of its admitted contraventions of the ACL'.² Justice Mortimer noted that the facts of Volkswagen were 'admittedly, far from this [ie Bupa's] case.' In particular, Her Honour viewed favourably Bupa's swift identification of potential non-compliance in response to a complaint, implementation of systems to prevent a repeat of the conduct and establishment of a customer remediation process.

Elements of the compliance program

The compliance program that the court ordered at the parties' request is notable for its level of detail, which is more like an enforceable undertaking (eg under section 87B of the Competition and Consumer Act 2010 (Cth) than a traditional court order. Its key features include:

• appointing qualified staff to lead the compliance program;
• conducting a competition and consumer law risk assessment within three months of the appointment of a compliance advisor;
• executing a policy statement that will include an outline of how Bupa’s commitment to complying with the ACL will be realised, a requirement for staff to report compliance issues, and a statement that Bupa will take internal action against persons who are knowingly or recklessly involved in a contravention of the ACL;
• establishing a complaints handling system;
• establishing whistleblower protection mechanisms;
• regular training for staff on ACL compliance;
• compliance officer reporting directly to the board and/or senior management on the continuing effectiveness of the compliance program;
• an annual independent review of the compliance program, with a report to the board or relevant governing body (material failures must be promptly addressed and notified to the ACCC); and
• prompt implementation of recommendations the ACCC considers reasonably necessary to ensure continued maintenance and implementation of the compliance program.

The significance of the compliance program in the penalty calculation

The ACCC applied a 50% discount to the penalty it was seeking because of Bupa's admissions and early cooperation. Justice Mortimer ultimately accepted that the overall penalty sought was appropriate in light of Bupa's customer remediation process and enhancements that it had made, and agreed to make, to its compliance program.

The approach is also consistent with other past cases, such as ACCC v Luv-a-Duck, where Luv-a-Duck was ordered to implement a compliance program with similar features to the program annexed to the judgment.⁵ In her consideration of the pecuniary penalty, Justice Davies said, 'The absence of an internal compliance program is perhaps significant',⁶ suggesting that this contributed to Luv-a-Duck's misleading representations about the quality of its ducks.This approach is consistent with other penalty determinations, such as CDPP v NYK,³ where a substantial penalty discount was granted to NYK for having implemented a compliance program between discovering the contravening conduct and the penalty hearing (plus pleading guilty and cooperating with the ACCC). Although NYK involved criminal cartel conduct, rather than contraventions of the ACL, the overarching principles for determining penalties are similar. The court observed that the compliance program demonstrated NYK's genuine contrition and rehabilitation, and NYK's steps to prevent reoffending:⁴

NYK has taken a large range of measures to strengthen the culture of compliance with competition laws… [which] include… management changes; consultation with external specialist competition law advisers; the establishment of an entirely new compliance regime…; the establishment of the Compliance Executive Committee, which includes NYK’s most senior executives; a compliance pledge that all NYK employees are required to sign; a leniency policy and whistle-blower protection…; the conduct of formalised and systematic competition law risk assessments of each group within NYK; and global face to face competition law compliance training…concerning competition laws in the jurisdictions relevant to them.

It is uncommon for the ACCC to prosecute a self-reported contravention of the ACL where the reporting party, like Bupa, has undertaken significant compliance and redress measures. Relevantly, the ACCC's non-cartel cooperation policy states that the ACCC will recognise cooperation and assistance including in the forms of '… complete or partial immunity from action by the Commission…'. The prominence of Bupa in the sector and the vulnerability of affected consumers (factors in the ACCC's Compliance and Enforcement Policy) are likely to have played an important role in the ACCC's decision to ultimately proceed against Bupa despite the positive steps it had taken. This suggests the ACCC may exercise greater discretion in prosecuting self-reported ACL contraventions compared with cartel conduct, where there appears to be greater certainty of securing immunity if the conditions of the ACCC's cartel immunity policy are satisfied.

How we can help

The Bupa, NYK and Luv-a-Duck decisions provide a comprehensive picture of what regulators and the courts expect from compliance programs. As outlined above, these elements are contained in Allens' corporate culture guide. If you are looking to update or implement a compliance program, Allens can assist, including by providing Online Compliance Training, which we can tailor to your business and industry. For further information, please see our Online Compliance Training hub.