Federal Court of Australia Australian Energy Regulator v EnergyAustralia Pty Ltd [2022] FCA 644 File number: VID 236 of 2020 Judgment of: COLVIN J Date of judgment: 1 June 2022 Catchwords: CORPORATIONS - where EnergyAustralia admitted to numerous contraventions of the National Energy Retail Rules - where contraventions concerned a failure to properly register customers depending upon life support equipment - where registration protects such customers from disconnection in particular circumstances, including non-payment - where registration serves to notify customers of planned disconnections - where regulator and EnergyAustralia have agreed on proposed orders - where orders contemplate a penalty of $12,000,000 - orders made in terms of proposed orders Legislation: National Energy Retail Law s 294 National Energy Retail Rules Cases cited: Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; (2015) 258 CLR 482 Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd [2004] FCAFC 72 Division: General Division Registry: Victoria National Practice Area: Commercial and Corporations Sub-area: Economic Regulator, Competition and Access Number of paragraphs: 21 Date of hearing: 1 June 2022 Counsel for the Applicant: Mr A McClelland QC with Ms C Van Proctor Solicitor for the Applicant: Baker & McKenzie Counsel for the Respondent: Mr M Borsky QC with Ms A Lord Solicitor for the Respondent: Ashurst Australia Table of Corrections 7 June 2022 The fourth line of [11] has been amended to correctly read: ' … the period from February 2018 to July 2020'. ORDERS VID 236 of 2020 BETWEEN: AUSTRALIAN ENERGY REGULATOR Applicant AND: ENERGYAUSTRALIA PTY LTD (ACN 086 014 968) Respondent order made by: COLVIN J DATE OF ORDER: 1 JUNE 2022 THE COURT DECLARES THAT: 1. During the period 1 February 2018 to 31 January 2019, EnergyAustralia Pty Ltd (EnergyAustralia) contravened: (a) rule 124(1)(a) of the National Energy Retail Rules (NERR) (as then in force) on 3,396 occasions by failing to register that a person residing at a customer's premises requires life support equipment when advised by the customer; (b) rule 124(1)(a) of the NERR (as then in force) on 4 occasions by failing to register that a person residing at a customer's premises requires life support equipment when advised by the distributor; (c) rule 124(1)(b) of the NERR (as then in force) on 3,531 occasions by failing to notify a distributor that a person residing at a customer's premises requires life support equipment when advised by the customer; and (d) rule 124(1)(e) of the NERR (as then in force) on 5,217 occasions by failing to provide an emergency telephone number for the distributor to customers when registering the premises. 2. From 1 February 2019, EnergyAustralia contravened: (a) rule 124(1)(a) of the NERR (as then in force) on 1,022 occasions by failing to register that a person residing or intending to reside at a customer's premises required life support equipment and the date from which the life support equipment was required, when advised by the customer; (b) rule 124(1)(b) of the NERR (as then in force) on 31 occasions by failing to provide in writing to the customer the information prescribed by rule 124(1)(b) of the NERR (as then in force) within 5 business days of receipt of advice from the customer that life support equipment is or will be required at the customer's premises; (c) rule 124(1)(c) of the NERR (as then in force) on 1,176 occasions by failing to notify a distributor that a person residing or intending to reside at a customer's premises requires life support equipment and the date from which the life support equipment is required, when advised by the customer; (d) rule 124(3) of the NERR (as then in force) on 259 occasions by failing to register that a person residing or intending to reside at a customer's premises required life support equipment and the date from which the life support equipment was required, when advised by the distributor; and (e) rule 126(a) by failing to establish policies, systems and procedures for registering and deregistering a premises as requiring life support equipment to facilitate compliance with the requirements of Part 7 of the NERR. THE COURT ORDERS THAT: Pecuniary Penalty 3. Pursuant to s 291(2)(a) of the National Energy Retail Law, EnergyAustralia pay to the Commonwealth of Australia a pecuniary penalty in the sum of $12,000,000 in respect of the contraventions referred to in the declarations in paragraphs 1 to 2 of these orders, to be paid within 30 days of this order. Other 4. The applicant's claims against the respondent are otherwise dismissed. 5. The respondent shall pay a contribution to the applicant's costs in the sum of $300,000, pursuant to s 43 of the Federal Court of Australia Act 1976 (Cth) within 30 days of this order. THE COURT DIRECTS THAT: 6. An officer of the Registry provide an electronic copy of the joint submissions or statement of agreed facts or both, upon request by any person. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT (Revised from the transcript) COLVIN J: 1 EnergyAustralia Pty Ltd (EnergyAustralia) has admitted numerous contraventions of provisions in the National Energy Retail Rules concerned with procedures to protect customers who depend upon electricity supply for the operation of life support equipment. The relevant provisions provide a mechanism by which a party who depends upon life support equipment may be registered. Registration affords the protection of notification of any planned disconnection of supply. It also provides protections from disconnection in particular circumstances, such as for non-payment. Delay in registration deprives a customer of these important protections which obviously may have consequences that may jeopardise, potentially, the life of the customer. 2 There is provision in the legislation for a civil penalty to be imposed in an amount not exceeding $100,000 for each contravention and an amount not exceeding $10,000 for every day during which the breach continues. 3 The Australian Energy Regulator and EnergyAustralia have agreed the terms of proposed orders consequent upon the admissions of contravention. The orders contemplate the Court making declarations of contravention and the determination of a pecuniary penalty to be paid by EnergyAustralia in the sum of $12 million. They also contemplate an order for the payment of a contribution towards the costs of the Regulator. The penalty is proposed on the basis that the contraventions stem from what amounts to a single serious policy failure in relation to the systems of EnergyAustralia. The parties both consent to the proposed orders. They have agreed the relevant facts and have provided what I would describe, with due respect, as careful and comprehensive joint written submissions, both as to the facts and the law to support the making of the proposed orders. 4 In cases where a regulator such as the Australian Energy Regulator has reached an agreement with a contravening party as to an appropriate penalty for contravening conduct, the following propositions, as stated by this court in Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd [2004] FCAFC 72 at [51], were approved by High Court in Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; (2015) 258 CLR 482 at [47]-[48], [60]-[61] (French CJ, Kiefel, Bell, Nettle and Gordon JJ), [68] (Gageler J). 5 First, it is the responsibility of the court to determine the appropriate penalty. 6 Secondly, determining the quantum of the penalty is not an exact science. Within a permissible range, the courts have acknowledged that a particular figure cannot necessarily be said to be more appropriate than another. 7 Thirdly, there is a public interest in promoting settlement of litigation, particularly where it is likely to be lengthy. Accordingly, when the regulator and contravener have reached agreement, they may present to the court a statement of facts and opinions as to the effect of those facts, together with joint submissions as to the appropriate penalty to be imposed. 8 Fourthly, the view of the regulator as a specialist body is a relevant but not determinative consideration on the question of penalty. 9 Fifthly, in determining whether the proposed penalty is appropriate, the court examines all the circumstances of the case and where the parties have put forward an agreed statement of facts, the Court may act on that statement if it is appropriate to do so. I interpose to say that I am satisfied that it is appropriate in this particular case to do so. 10 Sixthly, where the parties have jointly proposed a penalty, it will not be useful to investigate whether the court would have arrived at that precise figure. The question is whether that figure is, in the court's view, appropriate in the circumstances of the case. In answering that question, the court will not reject the agreed figure simply because it would have been disposed to select some other figure. It will be appropriate if the proposed penalty is within, as it is said, the permissible range. 11 As to the contraventions in this case, I note that there have been thousands of occasions on which the relevant rules have been contravened by reason of the failure of the policy and systems of EnergyAustralia. It is agreed that there were more than 14,000 contraventions over the period from February 2018 to July 2020. Of particular concern is the extent to which, in some instances, there were very significant delays in providing the required information and registering in the required way, those persons dependent upon life support equipment after they had notified EnergyAustralia of their circumstances. 12 I should say that in most instances, it is accepted that the delays were for a day or two. However, there were many occasions when there were longer delays. Indeed, on 92 occasions, the delay was in excess of 50 days. 13 EnergyAustralia has now made significant changes to support and improve its processes in order to comply with the relevant rules. It has made an investment of $6.5 million in system automation to reduce the potential for error. It has established dedicated life support teams and has enhanced the training of its employees. 14 Nevertheless, I accept the agreed characterisation of the contraventions as serious in terms of number, duration, and particularly the life-threatening risk to which thousands of vulnerable customers were exposed. The conduct continued for a considerable period. The breaches themselves were not deliberate, but the issues took a long time to resolve. 15 Whilst EnergyAustralia has cooperated in notifying contraventions and taking steps to address the problem, the process of resolution has been unduly extended. Indeed, the cooperation has been necessary because investigations by the regulator after self-reporting by EnergyAustralia were hampered by the lack of access to data on the part of EnergyAustralia. Therefore, although it is the case that EnergyAustralia disclosed its conduct by a process of self-reporting, that disclosure itself was delayed for a considerable period of time, although not deliberately, and the process of redressing the issue has been extended. Ultimately, as the form of the present application indicates, EnergyAustralia has admitted its contravening conduct. 16 Having said that, it is agreed that no customers requiring life support were wrongly or wrongfully de-energised or had their energy supply wrongfully interrupted, and there was no identifiable financial or other loss or injury to customers. On the other side of the equation, it is not said that there was any particular financial benefit to EnergyAustralia, although it must be said that the failure to implement the required systems did mean that for a significant period there was a substantial cost that ought to have been incurred in order to meet its obligations that was avoided by EnergyAustralia. 17 Nevertheless, it is apparent from the extent and duration of the contraventions that the risk to which customers were exposed by the breaches were serious and continued for a considerable period. 18 EnergyAustralia is a very large company. In 2021 it generated total income of approximately $5.6 billion. It has not been previously found to have breached the rules or the relevant regulatory legislation. However, it is apparent that senior management did not give sufficient care and attention to the issue of compliance with the life support equipment provisions, and as I have said, there was delay in taking the necessary steps to deal with the problem. In particular, the period from 1 February 2018 until April 2019, on the admitted facts, was one during which the contraventions continued without decisive steps being taken to remedy the problem. 19 Any penalty needs to be sufficient to deter both EnergyAustralia and other parties in similar circumstances from repeating the contravention. In part, that means looking to the costs that are necessary to be invested in order to comply. A penalty which did not reflect the extent of those costs would be insufficient. 20 Having regard to the relevant cases, and in particular the term of s 294 of the National Energy Retail Law (which takes effect pursuant to legislation in South Australia, the Australian Capital Territory, New South Wales and Queensland) which sets out a non-exhaustive list of relevant matters to which the court must have regard in determining penalty, and having considered the joint written submissions and the agreed facts, I am satisfied that for the reasons I have just expressed, as well as the matters more fully expressed in the joint submissions, that there should be orders in the terms proposed, and there will be orders accordingly. 21 I will also formally direct that the officers of the registry of the court provide an electronic copy of the joint submissions or the agreed facts (or both) upon request by any person. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Colvin. Associate: Dated: 3 June 2022