Volkswagen Aktiengesellschaft v Australian Competition and Consumer Commission

[2021] HCATrans 194

[2021] HCATrans 194

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S66 of 2021

B e t w e e n -

VOLKSWAGEN AKTIENGESELLSCHAFT

Applicant

and

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

Respondent

Application for special leave to appeal

KIEFEL CJ
GAGELER J
EDELMAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA BY VIDEO CONNECTION TO BRISBANE AND SYDNEY

ON FRIDAY, 12 NOVEMBER 2021, AT 9.30 AM

Copyright in the High Court of Australia

KIEFEL CJ:   In accordance with the protocol for remote hearings, I will announce the appearances of the parties.

MR J.T. GLEESON, SC appears with MS R.C.A. HIGGINS, SC and MR B.K. LIM for the applicant.  (instructed by Clayton Utz)

MR J.K. KIRK, SC appears with MS J.E. DAVIDSON for the respondent.  (instructed by Australian Government Solicitor)

KIEFEL CJ:   Yes, Mr Gleeson.

MR GLEESON:   Thank you, your Honours.  The civil penalty is now a distinctive feature of the federal regulatory landscape in Australia, appearing in close to 40 federal statutes and comprising a major part of the Federal Court’s jurisdiction.  The first special leave question concerns the allocation of responsibility between the primary judge and the Full Court in fixing the appropriate penalty.  In short, where the Full Court finds specific legal error in the primary judge’s assessment of the penalty, is it the Full Court’s task to determine for itself the appropriate penalty, as we would contend, or is there an intermediate counterfactual exercise of the very particular and peculiar kind identified by the Full Court which is an inquiry into whether the primary judge would have come to a different decision but for the error.

Your Honours will see on page 58 of the book at paragraph 138 the statutory text under section 224 of the ACL but typical of civil penalty statutes.  The court, on the suit of an arm of the State, is to determine the penalty it considers appropriate and must have regard to three mandatory considerations plus any other relevant considerations.

In the present case, it is the third of those considerations, whether there is prior proven contravention of relevant ACL provisions, which the primary judge failed to take into account because he misconstrued the provision as operating only as a potentially aggravating factor, whereas it could operate as a mitigating factor in the contravener’s favour. 

GAGELER J:   Mr Gleeson, another characterisation might be because no submission was put to the primary judge that he should take this provision into account in any particular way.

MR GLEESON:   Your Honour, certainly the primary judge was given the relevant fact which engages the consideration, namely, there was no relevant prior contravention.  So, the fact was there before his Honour and his Honour found the fact.  Your Honour is then correct, with respect, that from that point his Honour was not assisted by further submissions as to how the fact should be used under the instinctive synthesis.  However, we would say - - -

KIEFEL CJ:   But more particularly, Mr Gleeson, as the respondent points out, your client did not submit to the primary judge that the absence of prior contraventions was capable of being a mitigating factor in the circumstances of this case.

MR GLEESON:   I have to accept that is correct, your Honour.  What my client did was, with the ACCC, prove the relevant fact and place it before his Honour.  From that point, the Full Court has found, correctly, with respect, that it was a legal error by his Honour not to consider the matter as anything other than what he did, namely not an aggravation – and that finding of error is at page 212, paragraphs 134 to 137.

The legal question we seek to raise is that, given the primary judge was conducting an instinctive synthesis – which is the approach that has been taken in civil penalty matters, page 83, paragraph 204 – similar, functionally, to the approach in criminal matters – where that error is established, is it the task of the Full Court to then conduct the instinctive synthesis for itself? 

We would submit that it is because what is occurring here is that the power of the State is being exercised to impose a penalty on the subject and the Parliament has identified that there are certain matters that must be taken into account.  What has occurred here is that the instinctive synthesis required by the statute has not occurred at first instance and what the Full Court has done is not consider the matter for itself but, instead, engage in the exercise that you will see most clearly at page 215, paragraphs 145 to 146.

Could I just observe something about the exercise in those paragraphs – particularly in the last – in the first sentence it is clear that the premise of the analysis is the primary judge’s findings and reasoning as a whole.  Then in the last sentence, the exercise that is being done is a counterfactual into whether his Honour would have considered the matter as deserving any weight had his Honour not made the error of law.

So, there are two aspects of this.  The first is it is a “would” exercise, it is the appeal court seeking to determine what would have happened at first instance had the error not – it is not even a “could” exercise – could any judge conducting the instinctive synthesis have come to a different conclusion to his Honour if the error had not been made.  But, secondly, the result is that there is no instinctive synthesis being given by the Full Court, merely this attempt to consider what might have happened before his Honour. 

KIEFEL CJ:   Mr Gleeson, for the purpose of this application for special leave, do you submit that there are reasonable prospects that if remitted to a differently constituted Full Court, that this ground would be made out - that you would be able to show that the outcome should be changed?

MR GLEESON:   Yes, your Honour.  Could I just say briefly how that argument would be run?  Another judge could quite reasonably, we would say perhaps persuasively, have come to this assessment.  Firstly, the proposed agreed penalty of 75 million was the highest in the history of the ACL by a long way.  Secondly, the fact that VW had no prior contraventions of the ACL was a factor which counted in its favour, to at least some extent.  Thirdly, the court needed to closely consider whether 75 million was appropriate - not only whether it was too low, but whether it was too high and, potentially, with a party as a first contravener, there might be an argument that the 75 million was too high.  Fourthly, there are other matters to consider which pull the other way.  An important one was the finding that this was deliberate, serious contravention over a period of time and that would tend to suggest the 75 million was within the ‑ ‑ ‑

KIEFEL CJ:   Mr Gleeson, are not these submissions really directed to what was ground 2 before the Full Court - whether what was the agreed penalty was sufficient for deterrence?  The point here is, is it not, whether or not prior good conduct should be given much weight, and normally it is not.

MR GLEESON:   Your Honour, the submission that I did seek to put a moment ago was to indicate that if we were correct on the legal point, and the Kentwell criminal approach were applied to this case, once the error was established the appeal court was required to do the resentencing, or in this case, the repenalising.  In that argument it is certainly open to the Full Court, we would submit, to have given this factor weight, and real weight, but critically, be doing so as part of its own synthesis.

It would not simply be doing the paragraph 145, trying to hold everything equal as per the primary judge and see whether this factor pushed a little in the other direction.  It would be doing the entire task from the ground up, and it would be doing it asking two questions.  Firstly, is the 75 million agreed penalty within the range of the appropriate, and that is the first matter I have just been addressing.

The second question it would ask is, even if the 75 million were not appropriate what do I, as the Full Court, consider to be appropriate, and what do I consider to be appropriate, properly taking into account all the relevant factors, including this factor?  That is the exercise which has never been done, which we submit, as a matter of law, was required to be done.

EDELMAN J:   Mr Gleeson, what do you say in relation to the factor of prior good conduct about the final sentence of paragraph 142, where the Full Court say that:

the agreed facts demonstrated that Volkswagen had been engaged in deliberately deceptive conduct relating to, or arising from, the two mode software in overseas jurisdictions well before it engaged in the contravening conduct in Australia. 

MR GLEESON:   I will say something on that in relation to ground 2, which is whether if that type of approach to penalty – which holds against the contravener that the conduct is part of a worldwide scheme is to be taken – it must, with respect, be moderated by the fact that significant penalties have been imposed in those jurisdictions.

But on ground 1, what I would submit is that when the instinctive synthesis is done by the Full Court, unaffected by this error, it would recognise…..prior good conduct as framed in section 224 is specifically about prior good conduct or lack of bad conduct in respect to contravention of the ACL.  That counts in VW’s favour. 

It would then recognise the sentence your Honour is taken to as something pulling in the other direction, and they would both be put into the synthesis together with other factors.  That is what has not happened, and when that happens we would argue that it is possible – and indeed there is a good case to say that the factors pulling in different directions would comfortably lead a court to conclude 75 million was within the appropriate range.  Certainly, even if the court thought 75 million was not, there is no assurance that 125 million is the appropriate penalty, and there has never been that ground‑up consideration by the Full Court of whether that is so.

Your Honours, the other aspect I wish to put on question 1 in terms of its suitability as a vehicle and its importance, its general importance, is that as the parties have conducted their researches, we found no authority in this Court or in the Full Court, save for one decision in 2016, which has supported this kind of counterfactual inquiry.  The only decision in 2016 is the Reckitt Benckiser decision, which was addressed at page 241.  If this decision is allowed to stand, this will become the approach across the civil penalty jurisdiction of the Federal Court, and if it is wrong we submit it should be overturned now.

Your Honours, in terms of the analogies which will inform the legal question and indicate its true significance, there really are three that are being propounded by the parties.  We propound the criminal approach in Kentwell which would deny the Full Court’s approach.  The ACCC propound the approach of judicial review of administrative action, which we would submit is obviously a different context.  But, in any event, even in that context, as the Court recently confirmed in MZAPC, there are categories of errors which do not engage any counterfactual inquiry. 

Your Honour Justice Edelman described them as fundamental errors.  Your Honour the Chief Justice referred to errors such as legal unreasonableness and bias which infect the process such that one does not engage in a counterfactual inquiry.  That, we submit, shows the administrative law cases do not support this judgment. 

Finally, there is a suggested analogy by the ACCC to the new trial case.  That raises a fairly profound question whether what is occurring here is relevantly similar to a new trial.  We would submit it is not.  In the new trial context, something has gone wrong in the fact finding or the process of the trial and the question is whether the cost and expense of a new trial should be ordered as against the deficiency of leaving a judgment infected by error intact.  In that context, a particular approach has been taken to materiality.  Here, we have the Full Court ‑ ‑ ‑

GAGELER J:   Mr Gleeson, what if the primary judge had said something just a tiny bit different from what he said?  What if he said, “I am required to look at section 224(2)(c), but as I have received no submissions from the parties that that makes any difference up or down, I do not need to consider it further”.  What if he had said that?

MR GLEESON:   That would still be an error, your Honour, because what he was required to do was to understand that the provision was capable of operating in each direction.  What he was not entitled to do, with respect, is take the approach that you see at paragraph 141 of put the matter aside and, accordingly, the approach he took at paragraph 261 of not including it in the relevant factors and the approach which then appears at 273 to 274 of not including it.

GAGELER J:   My point, Mr Gleeson, is that this is a curial setting.  This is adversary litigation.

MR GLEESON:   Yes. 

GAGELER J:   I understand that the way in which the matter was put to his Honour was not entirely adversary, but it is still inter partes and judges are expected to address issues.

MR GLEESON:   Your Honour, what was put – which is at page 213, paragraph 139 – the quote is there – on a fair reading that is saying to the judge, we have not been found to engage in prior contraventions, i.e. little more needs to be said.  That would count in our favour.  Then the next sentence is to say that when you take that matter into account which is in our favour, of course you cannot go to the further distance of concluding that means we have a completely perfect culture of compliance, so take both those matters into account.  That is what his Honour has not done.

Your Honours, given the time, could I just say something about question 2 which is independent but also important?  The overseas aspects of VW and its conduct were critical to his Honour’s instinctive synthesis.  You will see that on page 87 between paragraphs 219 and 231.

What his Honour had in mind was two things.  Firstly, the punishment needs to be heavy, because they are a big company and we do not want this to be a cost of business, and secondly, paragraph 231, what occurred in Australia was a manifestation of a worldwide scheme.  His Honour clearly put that at the centre of the synthesis – page 99, there is the almost Old Testament approach that his Honour was putting to counsel in argument about the size of the penalty that was needed.

So, having done that – treated that not at the margins, but at the centre of the synthesis, what his Honour was then asked to consider was the fact of the overseas penalties, which you will see most clearly at page 193.  In paragraph 43, it was a $2.8 billion penalty in the US which, on the face of it, was for US contraventions.

Even more critically, at paragraph 44, it was a €1 billion penalty in Germany, €5 million for the fine; €995 million “disgorgement of economic benefits” described as the worldwide sale of 10.7 million vehicles over the relevant period.  It is not hard to read that as a finding that VW has been punished, perhaps appropriately, in the two major jurisdictions in the world in an ample size, including, in one case, in respect to worldwide conduct.  Now, what his Honour did with that and he did ‑ ‑ ‑

EDELMAN J:   Mr Gleeson, in circumstances in which this matter came before the primary judge as an agreed penalty, to what extent was the underlying overlap between the US or the European penalties explored – or in material that was available before the primary judge?

MR GLEESON:   It was in the material summarised at the paragraphs I have taken you to and no further.  So, with that material – I will conclude on this, if the Court goes back to 101 where we say the error occurs, his Honour received submissions on the topic at paragraph 271.  Yes, they were from the ACCC, but that is unsurprising, because a submission on the weight of overseas penalties would have more powerful force coming from the local regulator.  Your Honour, could I just conclude on paragraph 272?  That is the error.

KIEFEL CJ:   Yes, please continue.

MR GLEESON:   Thank you, your Honour.  Paragraph 272, even leaving aside the rather large factual misunderstanding of the size of the penalty in Germany, 100 million as opposed to a billion, for his Honour to say there was no proven overlap contradicts the press release, but more importantly, having been penalised in the two major worldwide jurisdictions that needed to be brought…..to moderate what was otherwise the key feature in the synthesis that a worldwide corporation needed to be punished heavily. 

KIEFEL CJ:   Mr Gleeson, the Full Court held that the primary judge did give some consideration to this topic.  We are really talking about the weight that his Honour gave, are we not?

MR GLEESON:   Well, your Honour, the language is difficult because his Honour gave little, if any, weight to it.  His Honour was entitled to give little if any weight to it, was the way the Full Court expressed the point.  It is fairly clear on reading his Honour, his Honour gave no weight to it.  That is at page 225, paragraph 180:

It was open to the primary judge to give . . . little, or no, weight -

to it.  We submit he gave no weight to it.  May it please the Court.

KIEFEL CJ:   Mr Gleeson, would I be right in thinking that if special leave were granted, that the main topic which would be addressed in argument would be ground 2 that the Full Court dealt with, which is whether or not the agreed penalty was sufficient for deterrence, and that these errors that are pointed out in your grounds 1 and 2 are the means by which that argument would be addressed?

MR GLEESON:   Your Honours, these errors are the entry point.  Without these errors, there is no direct challenge to the matter your Honour raises.  If the errors are found in the way we put them, and if there is then a duty on the appellate court to conduct a rehearing free of the error, then yes, the intended endpoint of the appeal is either to get back to the agreed penalty of 75 million or a penalty of less than 125.

KIEFEL CJ:   Yes, thank you, Mr Gleeson. Yes, Mr Kirk.

MR KIRK:   May it please the Court.  Can I start respectfully with the points your Honour the Chief Justice just raised because it rather illustrates the artificiality of this special leave application.  VW has retained three of the best legal minds in the country - our opponents - to seek to find some technical legal errors to then give themselves an entrée to reargue the whole thing about whether or not it was an appropriate penalty.  The two errors they have sought to identify are really of the most technical kind, if they are errors at all.  Can I start with the first ‑ ‑ ‑ 

EDELMAN J:   Mr Kirk, on the first error, which you describe as technical, if that first error, or alleged error – if that approach were adopted in the criminal law, would it not mean that an intermediate appellate court would not need to consider the whole of the record, but, when it found an error it could simply say, well, the particular error by itself is harmless, and the appeal is therefore dismissed, without considering the whole of the record in reaching its own conclusion? 

MR KIRK:   Well, your Honour, I do not want to get bogged into the whole complex jurisprudence in relation to the proviso and so forth, but we have made some analogy about that so let me seek to grapple with it directly.  In terms of establishing whether there is a miscarriage of justice even before one comes to applying the proviso, at least on one view of the law, there has to be a real chance or a significant possibility that the error of law or of direction by the trial judge would have made a difference. 

EDELMAN J:   But we are not talking about a miscarriage of justice.  It is an error of law here and if there is an error of law one goes straight to the proviso. 

MR KIRK:   It is said to be an error of law, and I will grapple with the nature of the error in just a minute.  But the nature of the issue sought to be raised by VW would not just be limited to an error of law because they effectively say if there is any error established, going into an exercise of discretion to which House v The King applies, here it is an error of law that requires the Court to re‑exercise the discretion.

It is hard to see why that would then be limited where they give such emphasis to the instinctive synthesis and so forth - why would that be limited not to include a mixed issue of fact and law or, indeed, an error of fact because they put all this emphasis on saying, well, it is an instinctive synthesis, so if there is any error, you hit the tripwire, and the whole thing needs to be done again by the appeal court.  That is itself, we respectfully submit, a very radical proposition.  But can I come back to the nature of the error, or the alleged error ‑ ‑ ‑

EDELMAN J:   Mr Kirk, that is exactly the proposition that was put and rejected in Weiss.  You may be right, but you have the whole of the Court in Weiss in the criminal context that says it is wrong.

MR KIRK:   As I said, your Honour, I do not want to get too bogged into the details about the proviso in the criminal law.  Can I turn to the nature of the error here and ask your Honours to go back, please, to application book page 212.   Your Honours will recall that the mandatory relevant consideration under 224(2)(c) is prior conduct of a similar kind.  At paragraph 135, the Full Court notes there are two ways that can be relevant.  One, it can be aggravating; two, and your Honours will see this in the fourth‑last line on page 212:

the fact that the contravener had not been found to have previously engaged . . . could in some circumstances be considered to be a mitigating consideration.

There is nothing in the statute which says it is always a mitigating circumstance.  The statute does not address aggravating or mitigating.  Then if your Honours look at paragraph 136:

There could be no doubt that the primary judge had regard to the fact that Volkswagen had not previously been found to have engaged in similar conduct.

His Honour referred to the relevant consideration.  His Honour did not refer to the spin that Volkswagen now seeks to place on it and, indeed, for the first time below in the Full Court sought to place on it.  As to the actual error that the Full Court perceived, if your Honours turn to page 215, paragraph 145, third line, the error seems to be that the primary judge had not:

given some consideration to whether the fact that Volkswagen had not engaged in similar conduct . . . was capable of constituting a mitigating circumstance –

considered whether it was capable, not that it automatically was.  So, then I come back to the issue raised by your Honour Justice Gageler.  Where the application of the law is contingent on a particular set of facts and where this is, in essence, adversarial legislation, and where his Honour has considered the core points, if you want to put some particular spin on it, it is incumbent on you to raise the point and Volkswagen simply did not do so.

KIEFEL CJ:   Mr Kirk, if the matter was granted leave, would you be arguing on appeal that the Full Court was in error in the approach they took to the primary judge’s ‑ ‑ ‑

MR KIRK:   For the sorts of reasons I am now giving, your Honour, yes, that may require a notice of contention.  I accept that, in light of what is said at paragraph 145.

KIEFEL CJ:   Yes, I see.

MR KIRK:   Below the Full Court did characterise it as an error.  They then gave four reasons, as your Honours know, which really are on the borderline as to whether there is an error at all, or whether it goes to materiality and they are almost two sides of the same coin.  So, if your Honours come back to paragraph 139, the Full Court notes how it was raised in the joint submissions and that is the only way that it was raised in submissions.  Then over the page at the end of paragraph 140, last sentence, the joint submission they say was a bit opaque.  Unsurprising - these documents are much argued about.  Their Honours say:

the submission appeared to be that, despite the fact that it had not been found to have previously engaged in similar conduct, it could not be accepted or concluded that Volkswagen had any acceptable “corporate culture of compliance”.

So, the way their Honours understood it, with some reason, was that this was not saying it is mitigating, this is saying you cannot count it as mitigating.  You cannot count the fact that, all right, they do not have any priors, somehow reflects well on them.  That is then articulated as the second factor in paragraph 145.  There is a reference to the Nippon Yusen case in the Full Federal Court, that merely because you have not done it in the past does not mean you are a good corporate citizen – and I think your Honour Justice Edelman drew attention to the last sentence at 142 about that.

Then that is echoed in paragraph 144 with the third factor and this picks up the point your Honour the Chief Justice was making earlier.  Simply because you have not contravened does not mean you are necessarily entitled to some significant discount.  Then we come to the fourth point in paragraph 145, which in a sense is a denouement of the argument.

This has to be seen too in a context where, as your Honours would appreciate, the primary judge found – without going to it at paragraph 234 – that this was corporate conduct of the worst possible kind.  It was a dishonest scheme deliberately concocted and put into effect which was designed to deceive the regulator, and which inevitably deceived consumers.  The Full Court echoed that, without going to it, at paragraph 158 - and that was done over a…..period.  It was part of a deliberate system which had been set up, it actually originated in Audi in Germany, which is part of the VW Group, and then was spread throughout the world and infected Australia too. 

So that was the core point, in our respectful submission, being made by the joint submissions, not some foundation to say that this should be treated as mitigation.  It was just simply not raised.  I think my learned friends describe in writing in their reply, they say this was a fundamental misconstruction of the section.  It was not anything of the sort, in our respectful submission.

Then to turn to the substance of the issue a little more, it is important, in our respectful submission, to appreciate how radical this proposition would be in the first appeal ground sought to be raised by VW.  It is inconsistent, in our respectful submission, with the approach taken in a range of other legal areas.  If VW’s position was accepted, it would create a disjunction in the law in relation to, first, the way that appeal courts treat whether or not a new trial should be ordered in civil matters – and we sought to articulate that in writing.

That disjunction is all the more significant when – as your Honours very well appreciate – the very point of applying a House v The King standard as opposed to a Warren v Coombes correctness standard, is in acknowledgement of the fact that discretions are multifactorial.  To say that there needs to be an intensive correctness review of that will inevitably generate a lot of work – will commonly not produce very different outcomes – and that will be to the detriment of litigants in the particular case and in the whole legal system.  So, that is the first disjunction.  

The second disjunction we point to is in criminal law – I will not go back to that.  The third disjunction is in relation to judicial review where, in‑chief, Volkswagen sought to make a virtue of this saying, it is crossing some constitutional boundary here.  We pointed out, in response, that Sir Anthony Mason in Peko‑Wallsend spoke about the close analogy between judicial review, administrative action and appellate review of a judicial discretion. 

The response in the reply of Volkswagen is to say, but there is a difference between requiring a re‑exercise of power – which is what they say happens here – as opposed to requiring a new decision – which is what happens in judicial review.  That does not undermine the analogy.  The issue is, what sort of error tripwires a need for a new decision – whoever the decision‑maker is – whether it is the appeal court, or whether it has to go back to the administrative decision‑maker.

So, it is strange that, where the law has developed these mechanisms in a range of ways to say, if there is no realistic possibility that could have made a difference, we are not going to require going through the whole thing again, that for this type of area where appellate restraint applies, there should be a more intrusive test.  We note too that VW in its reply appeared to concede some ground – paragraph 4 – in saying that:

truly immaterial errors that might be discerned in some entirely peripheral comment not leading to the making of the impugned order –

would not, necessarily, lead to a need for re‑exercise of the discretion.  So, they themselves concede some ground.  But it is an odd sort of test in our respectful submission.  The basis or heritage of it is not explained.  It seems to have no content in practice because even a slight error – if any error, as here – is enough to meet the test seemingly and it does not solve the disjunction problem.

In any event, on ground 1, in our respectful submission, this is not an apposite vehicle to test the issues, even if there is some legal issue there, and even apart from the issues I have raised about the nature of the error.  As we sought to show in our response, this issue about materiality was not really put in play before the Full Court, and we have quoted an exchange of transcript in that respect. 

Now, in its reply, VW says, well, there is a distinction between something being “trivial”, which I think was the word Justice Wigney used in argument, and something…..material, which has a degree of dancing on the head of a pin.  Indeed, they say in their reply:

it begs the question of what “trivial” means.

Well, we say…..  In that light, what that means is that for this issue, which VW says was of great importance and it affects all House v The King errors and so forth, the Full Court did not engage in a detailed analysis of the kind that my learned friend, Mr Gleeson, now seeks to put and invites your Honours to, and so your Honours do not have the benefit of a detailed examination by a court below of this issue which they now say is so critical.  For those reasons, in our respectful submission, special leave should not be granted on ground 1.

As to ground 2, the claimed foreign overlap, if I could – there are some similarities with ground 1 here.  As the Full Court noted at page 223, paragraph 174, this argument:

appeared to assume much greater significance . . . on appeal –

before the Full Court:

than they did before the primary judge.  Indeed, it is ‑

not clear:

if Volkswagen made any submissions in relation to this issue before the primary judge.

The Full Court, in our respectful submission, was correct in its analysis from paragraph 174 as follows, in particular to indicate that a key issue, if you are going to refer to overseas penalties at all, is the degree of correspondence between what occurred overseas and what is at issue here.

Now, in this particular case, there were a range of legal norms, in Australia and internationally, which were at play in relation to the so‑called “dieselgate” affair.  Your Honours would have picked up Justice Foster had been observed for quite some time on a stage one preliminary question about whether or not the so‑called two‑mode software was a “defeat device”.  That is a notion which originated in Europe, it is also in American law and Australian law and Australian law incorporates by reference some of the European law, and a “defeat device” in the context of emissions testing and so forth is prohibited. 

His Honour reserved on that question.  The resolution of that question had potential consequences for many other jurisdictions.  The matter settled before his Honour resolved that issue and it settled in a way that involved no concession about defeat device – rather the conventions that - contraventions that were agreed upon involved misleading conduct directed to the Australian regulators – first a delegate of the Minister who had to make a particular decision, secondly the Department more generally – two broad contraventions relating to obtaining authorisation in effect to import, and then also about a Green Vehicle Guide which had consumer significance.

So, the settlement here was directed to misleading conduct to the Australian regulators, based on the distinctive Australian norm of the various prohibitions we have in the ACL about misleading conduct.  As your Honours will appreciate, there may well be consumer fraud and misleading conduct prohibitions in the US or in Germany – which was the other relevant jurisdiction of the EU – it was German. 

But it is very important if you are going to say, well that has to be taken into account as some kind of mitigating factor to identify what is the degree of overlapping the legal norm at issue, were the overseas regulators punishing the defeat device for misleading conduct - if so, was the misleading conduct to consumers or to regulators?  If it was to regulators, did that include for some odd reason Australian regulators?

None of that was clearly established by the very limited factual foundation that was before his Honour – recalling that this issue was not raised by Volkswagen at first instance.  The €1 billion penalty imposed in Germany – an administrative penalty – the factual foundation for that that VW now seeks to rely on was a press release.  There was little detail in the press release as to the legal norms at stake, or the facts giving rise to the penalty.

Volkswagen seems to suggest in its reply in my learned friend’s submissions, well it is enough to know what the sums were paid for – well, all right, they are really large sums – that does not establish anything about whether there is any real overlap at all.

It is also important to note, in our respectful submission, that the Full Court actually found there was no overlap of any materiality.  If your Honours go to page 225, paragraphs 180 and 181, based on the limited information that was before the Court, as regards Germany, third‑last line:

that conduct did not overlap in any material way with the contravening conduct in Australia, which involved the calculated deception of the Australian government and Australian consumers.

As regards the US, paragraph 181, first sentence:

the penalties imposed . . . did not involve any of the contravening conduct which had occurred in Australia.

It should also be recalled of course that the key issue in any civil penalties case, as was said in the agreed penalties case – this…..paragraph 55 – that the principal object is to achieve deterrence and that is deterrence of contravention of the Australian norms.  That was the key issue which had to drive the analysis below.

As to the claim to symmetry, which my learned friend has referred to today, it is said to be unfair that the primary judge took account of overseas conduct in some way, but then did not in relation to the penalties.  But as the Full Court said at paragraph 181, fifth line:

That is because the overseas conduct was part of the overall factual matrix.

In dealing with this “dieselgate” scandal, it could not ignore the whole nature and origin of the two‑mode software – it came from Audi, et cetera, it spread throughout the Volkswagen group.  That was part of the matrix his Honour took into account.  That does not mean his Honour was seeking to penalise for contravention of overseas norms or the section of overseas regulators or overseas consumers or the like.  So, for this issue too, in our respectful submission, the grant has insufficient prospects of success and it is not an appropriate vehicle.  May it please the Court.

KIEFEL CJ:   Thank you, Mr Kirk.  Any submissions in reply, Mr Gleeson?

MR GLEESON:   Thank you, your Honour.  Firstly, in terms of the principle we are seeking to propound under ground 1, Mr Kirk described it as radical, as odd, as having variable content.  He has not pointed you to a single authority in the area of civil penalties which supports the approach taken at paragraphs 145 and 146 of the Full Court.  He has not sought to argue that the only case we have identified as possibly in play which is Reckitt Benckiser has that effect.  Truly if the judgment stands, this will become for the first time the approach which we adopted in civil penalties, and that illustrates the general importance of the question. 

Secondly, in terms of the content of the principle, it is quite precise what we contend for.  It is that the Kentwell standard applies in civil penalties, and if I could read the critical sentence in paragraph 35 of Kentwell 252 CLR 601:

In the case of specific error, the appellate court’s power to intervene is enlivened and it becomes its duty to re‑sentence –

and here are the critical words:

unless in the separate and independent exercise of its discretion it concludes that no different sentence should be passed. 

That separate and independent exercise of discretion, we submit, is relevant in the civil penalty context and has not been done here.

Your Honours, thirdly, in answer to your Honour the Chief Justice’s question, Mr Kirk accepted, I think, that his first line of defence is really a notice of contention point.  It is tolerably clear at paragraphs 145 to 146 of the Full Court on page 215, the Full Court has found legal error, and it is only after finding that error that it has applied the counterfactual test that it has in order to avoid appellate intervention. 

If leave were granted, we would be contending that the Full Court were correct to find error on that ground, and that our appeal would then proceed on that basis.  May it please the Court.

KIEFEL CJ:   The Court will adjourn to consider the course that it will take. 

AT 10.16 AM SHORT ADJOURNMENT

UPON RESUMING AT 10.23 AM:

KIEFEL CJ:   Given the manner in which this matter has been argued below, we do not consider that it is a suitable vehicle to determine the issues now sought to be raised.  Special leave is refused with costs.

The Court will now adjourn.

MR KIRK:   May it please the Court.

AT 10.24 AM THE MATTER WAS CONCLUDED