The proposed changes under the Therapeutic Goods Amendment Bill 2005

The new Therapeutic Goods Amendment Bill 2005 (Cth) (Bill)1 has far-reaching implications. The Bill will introduce:

  • a new regime of criminal/civil penalty offences
  • higher penalties for such offences, and
  • new enforcement powers

for the Therapeutic Goods Administration (TGA) to deal with manufacturers and sponsors not complying with the Therapeutic Goods Act 1989 (Act), as well as their 'executive officers'.

New criminal/ civil penalty regime

The Bill provides that certain criminal offences2 under the current Act will attract a new criminal/civil penalty regime of sanctions.

Criminal offences

Criminal offences will be re-structured into three main ‘tiers’3 of criminal culpability, depending on the level of fault and consequences of the conduct, as follows:

  1. existing fault-based offences:4 these are the current unchanged fault based criminal offences without any aggravating element
  2. new strict liability offences with an aggravating element: these offences do not carry a fault element but have an aggravating element defined as ‘likely to result in harm or injury to any person’, and
  3. new fault-based offences with a higher aggravating element: these offences have both fault and aggravation elements, the latter being defined as ‘has, will or would result in harm or injury to any person’.

Civil penalties

There will also be new corresponding civil penalty provisions applying to the same act as would result in relevant criminal offences.5 However, the new civil penalties will:

  • have no elements of fault or any aggravating circumstances, and
  • be subject to the civil standard of proof imposed through the Federal Court.6

The same act, if pursued as a civil penalty contravention, will also attract significantly higher penalties than any criminal offences (see below).

Executive officers

Liability for all criminal offences/ civil penalty contraventions under the Bill will also be extended generally to all ‘executive officers’, defined broadly as ‘a person by whatever name called and whether or not a director of the body, who is concerned in or takes part in the management of the body’. Any executive officer who:

  • ‘knew’ about an offence or contravention
  • was in a ‘position to influence the conduct of the corporation in relation to the offence/contravention’, and
  • ‘failed to take all reasonable steps’ to prevent the offence or contravention

may be liable for the maximum penalties applicable to individuals committing the relevant offence or contravention. In determining whether that officer ‘took all reasonable steps’, a court may have regard to that officer’s actions:

  • towards ensuring that ‘employees, agents and contractors have a reasonable knowledge and understanding of the relevant requirements of the Act’, and
  • taken after becoming aware of an offence/ contravention’.7

Higher penalties

Criminal offences under the current Act typically attract a maximum penalty of up to $110,000 and/or 12 months imprisonment. The Bill seeks to:

  • introduce penalties for a tiered criminal offence regime ranging from the same or higher maximum penalties (for the current fault-based offences), to $220,000 (for the new aggravated strict liability offences) and $440,000 and/or five years imprisonment (for the new aggravated fault based offences)
  • impose penalties for corresponding civil penalty contraventions of typically up to $550,000 for individuals and $5.5 million for corporations, and
  • increase penalties for other existing criminal offences of up to $440,000 and/or five years imprisonment.

New enforcement powers

As an alternative to legal proceedings, the TGA will also have the following additional enforcement options to restrain non compliant conduct:

  • infringement notices: these allow the TGA to impose an infringement notice on ‘a person who is alleged to have committed an offence8 or civil penalty contravention’. The maximum penalties entitled to be imposed are:
    1. 1/5th of the maximum penalty for that offence for individuals (and five times that amount for corporations) eg for an offence under the new section 14(1) of the Bill (with a maximum penalty of $440,000), the TGA may issue an infringement notice imposing $88,000 for an individual and $440,000 for a corporation, and
    2. 1/10th of the maximum penalty for the contravention of a civil penalty provision9 eg for a contravention under the new section14A(1) relating to the same conduct (with a maximum penalty of $550,000 for individuals and $5.5 million for corporations), the TGA may issue an infringement notice of $55,000 for individuals and $550,000 for corporations.
  • enforceable undertakings: these allow the TGA to accept a written undertaking from a person ‘in connection with a matter to which the Secretary of the Department of Health and Ageing (Secretary) has a power or function under the Act or regulations’.10 Such undertakings may be enforced by the Federal Court, which can make orders:
    1. to require compliance with the undertaking
    2. to account to the Commonwealth any financial benefit gained from breaching an undertaking
    3. to pay compensation to any person who has suffered loss or damage as a result of the breach, or
    4. that the court otherwise considers appropriate.11

Other elements

The Bill also includes the following other elements:

  • pre-disclosure notices: defendants will be required to provide a written notice of the evidence proposed to be adduced in support of an exception to the offence of importing, manufacturing, or supplying goods not on the Australian Register of Therapeutic Goods prior to the hearing12
  • release of information to public: the secretary will have the power to ‘release to the public therapeutic goods information relating to any decision or action taken under the Act or regulations’,13 and
  • extension to overseas conduct: certain criminal offences will be extended to cover the conduct outside Australia, the result of which occurs in Australia, or is undertaken by an Australian citizen, resident, or corporations incorporated under a law of Australia.14

The US approach

It is interesting to note that the new sanctions and powers of the TGA under the Bill are generally more extensive than those of the comparable US body, the Food and Drug Administration (FDA), a body broadly viewed to be a rigorous regulator.

In particular, under the Federal Food, Drug and Cosmetic Act (U.S.C 21 Chapter 9) (FD&C Act):

a. criminal offences/ civil penalties: whilst the criminal offences enforced by the FDA (‘prohibited acts’) relate to some similar matters,15 there is a much more limited and specific ‘civil penalty’ regime for separate conduct (ie selling drug samples,16 violations of the FD&C Act requirements for devices,17 giving false or misleading statements etc, provision of services by a debarred person18 and failing to comply with certain requirements for electronic product radiation19)

b. penalties for offences/ civil penalty provisions lower: the maximum penalties for criminal offences are generally lower (up to $US1,000 fine and/or one year imprisonment for each violation, with three years and $US10,000 where there is an intent to defraud or mislead and for second offences). (Death, bodily injury or extreme psychological injury may be taken into account in such assessment by judges.20) Similarly, the maximum penalties for civil penalties are significantly lower (ranging from $US1,000 for individuals to up to $US1,000,000 for corporations)21

c. enforcement of civil penalties by court or administratively: unlike what is proposed for the TGA, the limited civil penalties available to the FDA may either be enforced through the courts, or imposed administratively by the Health Secretary (subject to judicial review)22

d. opportunity to be heard: unlike the Bill, there are express requirements for the FDA under the FD&C Act, to notify respondents and to provide an opportunity to answer all allegations and be heard on all disputed issues - both for criminal prosecutions23 and civil penalty contraventions24

e. no executive officer liability: unlike the Bill, there does not appear to be an express extension of liability under the FD&C Act to executive officers although US courts have extended liability to executives when interpreting the FD&C Act25

f. no infringement notice/ enforceable undertaking: unlike the Bill, there are no comparable ‘infringement notice’ or ‘enforceable undertaking’ powers open to the FDA, although:
  • as mentioned, a civil penalty order may be imposed administratively by the Health Secretary, and
  • it is the FDA’s policy to issue ‘warning letters’ before initiating any enforcement action to achieve voluntary compliance although the FDA is not legally obligated to do so,26 and

g. information to public: as compared to the TGA’s proposed new power, the Health Secretary has a more limited power to disseminate information to the public, namely only information regarding drugs and devices which involve imminent danger to health or gross deception of the consumer’.27

Comparable enforcement regimes in the Australian jurisdiction

It is also interesting to note that while there are many aspects of the enforcement and sanctions regime of comparable regulatory bodies in Australia that have some of the powers granted to the TGA under the Bill, no one body appears to hold the full range of powers to the same level of sanctions as the TGA under the Bill.28

Issues arising from the Bill

Amongst the issues arising from the Bill are the following:

  • extension of liability to executives: the broad approach to ‘executive officers’ (whilst not unlike the Environmental Protection Authority’s regulatory regime) means that potentially all those involved in day-to-day management may be personally liable for the breaches committed by their corporation. Where an executive is in a ‘position to influence the conduct of the corporation’, liability may only be avoided if he or she is shown to have taken ‘reasonable steps’ to prevent the offence or contravention, having regard to the actions taken to ensure the corporation’s ‘employees, agents and contractors have a reasonable knowledge and understanding of the requirements to comply with this Act and regulations’ (new section 51C(1)(a)). This means corporations must take care to ensure that all its employees, agents and contractors are properly trained in relation to their specific obligations under the Act. Merely drafting requirements to comply with the Act in contracts with employees, agents and contractors is unlikely to be sufficient to satisfy the new requirements,
  • compliance costs: given that no regulatory impact statement has been made, corporations will have to take into account the currently uncertain compliance costs associated with the Bill. The Bill applies without distinction, to all business (including small businesses), and to all medicines (including the complementary healthcare industry). The compliance costs for all those regulated by the Act will clearly increase, and are likely to at least comprise the following: higher training costs (see above), insurance costs to cover the increased cost of non-compliance, and the cost of greater attention to compliance in general given the substantially increased penalties involved,
  • criminal offences/ civil penalties for same conduct: unlike most other Australian enforcement regimes (except possibly under the Corporations Act), the Bill allows the TGA full discretion to institute either criminal or civil proceedings against a non-complying party for exactly the same conduct. This means that the TGA may choose to institute civil penalty proceedings for the same conduct which holds significantly higher fines, but with a lower burden of proof and without having to show aggravating elements,
  • strict liability offences: given the new range of strict liability offences, corporations will have to take extreme care when providing statements or information to the TGA under the Act eg. when giving product certifications to the TGA in connection with the listing of medicines, or giving statements in relation to registration,
  • double jeopardy issues: while the Bill provides that a person cannot be prosecuted for an offence if he or she has already been imposed with a civil penalty order (and vice versa)29, those who have successfully avoided a criminal conviction may still be faced with civil proceedings being brought against them for a civil penalty contravention (and vice versa),30
  • infringement notices: it is currently uncertain as to how or in what circumstances infringement notices will be imposed by the TGA. The detail has been left to the regulations, which are yet to be drafted. Accordingly, such notices are not currently restricted to minor offences, or even only to strict liability criminal offences, nor to a particular monetary limit.31 Unlike under the Civil Aviation Act 1988 (Cth) or the Corporations Act 2001 (Cth), the TGA is not required to have a ‘reasonable belief’ that an offence or contravention has occurred (instead an ‘allegation’ is sufficient), and unlike under the Corporations Act 2001 (Cth), the TGA is not required to set out particular matters in such notice. Whilst the TGA’s own draft Guidelines (TGA Guidelines)32 address some of these issues, this has not been expressly provided for in the legislation. Further, unlike the FDA’s policy, and the Corporations Act 2001 (Cth), smaller companies are also not assured that their size will be taken into account by the TGA in determining the quantum of penalty to impose under a notice,33
  • enforceable undertakings: those regulated by the Act are also left with uncertainty as to the way undertakings will operate under the Bill. Like infringement notices, there are currently no limitations as to the range of undertakings which the TGA may accept eg the Bill also does not prescribe factors to be taken into account by the TGA in determining to accept or allow a variation of an undertaking.34 However, such a broad approach to undertakings is similar to the approach taken by other Australian enforcement bodies eg. ACCC and ASIC,
  • no merits/judicial review: given that the Bill does not expressly prescribe for merits or judicial review, those faced with a harsh infringement notice, or aggrieved by the secretary’s refusal to withdraw or vary an undertaking at a later stage, will have to face the uncertainty and cost of relying on the Administrative Appeals Tribunal Act 1975 (Cth) and Administrative Decisions (Judicial Review) Act 1977 (Cth) to determine whether the decision can be reviewed. (By contrast, the Act provides expressly for administrative review of certain other decisions of the secretary under section 60). The position under the Bill is however not unlike the situation in other Australian regulatory regimes,
  • information to public: the new power to ‘release information relating to any decision or action taken under the Act or regulations’ is very broad, and unlike for the FDA, is not limited to purposes of protecting health or preventing deception of consumers. The current Act already allows the secretary to release ‘therapeutic goods information necessary to ensure safe use, or relating to reasons of withdrawal’.35 It is therefore unclear how the new powers will be used by the TGA, and
  • pre disclosure notice: this requirement is without precedent in the context of criminal proceedings and it is not clear why a defendant should be placed at such a disadvantage, especially in the criminal law context.

Conclusion

The Bill raises many significant issues. Whilst it is not unusual for new legislation to do so, this Bill marks a paradigm shift in the TGA’s enforcement and sanctions regime. That paradigm shift will not only result in increasing compliance costs and the greater potential for personal liability - a phenomenon which is already part of the Australian business landscape elsewhere - but it also raises the question of whether the right balance has been struck between protecting public health and safety on the one hand, and protecting the legitimate concerns of those that are the principal focus of the Bill.

Footnotes

1. This includes a reference to Therapeutic Goods Amendment Bill No 1 2005 (Cth) and Therapeutic Goods Amendment Bill No 2 2005 (Cth) (which includes minor further amendments by government to unify the TGA’s warrants and search powers into one process to investigate and secure evidence for both criminal and civil proceedings).

The No 1 Bill was introduced to the House of Representatives on 17 August 2005, and passed on 9 November 2005. At the time of writing, the No 1 Bill has been reviewed by Australian Senate Community Affairs Legislative Committee, which put out its report on 7 November 2005, and was formally introduced to the Senate on 28 November 2005 but has not been passed.

2. There are 12 major offences under the current Act relating to matters including breaches of standards, conditions, registration, failures to comply with recovery, withdrawal or recall requirements, providing false or misleading certifications/ statements/ information for registration, manufacture or supply without being included on the Australian Register of Therapeutic Goods or conformity assessment procedures: see table list in the Revised Explanatory Memorandum for the Therapeutic Goods Amendment Bill 2005 at page 6 (EM).

3. Juries will however be entitled to convict for a lesser offence if they acquits the person of the greater offence charged: see Item 141 of Bill, new s53A.

4. These relate to criminal intent or recklessness within the meaning of the Criminal Code Act 1995 (Cth).

5. See items 14 to 129 of the Bill for all changes encompassing the new criminal/civil regime.

6. See item 129 of Bill: new Part 5A-1, s42Y.

7. See item 145 of the Bill, new s54B and 54C.

8. See new s42YJ.

9. See item 129 of Bill: new Part 5A-2.

10. See item 129 of Bill: new Part 5A-3, including the new s42YL.

11. See item 129 of Bill: new Part 5A-3, including the new s42YL.

12. See item 14, new s19C, and item 103, new s41MIA of the Bill. This is designed to provide the prosecution with a more adequate method of assessing the evidence or defence relied upon by the defendant: see EM at Item 14.

13. See Item 157 of the Bill: new s61(5A), as opposed to the current limitation which only allows release of information necessary to ensure the safe use of goods or reasons relating to a withdrawal: see EM at item 157.

14. See item 6, new s5A of the Bill- which applies s15.2 Criminal Code to certain offences under the Bill including offences relating to providing false and misleading statements in an application, manufacturing, supplying, exporting or importing counterfeit goods, and manufacturing. supplying or failing to notify of tampered goods.

15. Eg adulteration and misbranding of drugs or devices, introduction of a new drugs not FDA approved, giving false information, failing to give, refusing access to certain information, or failing to maintain requisite records etc see sec 301 of FD&C Act.

16. See sec 303(b)(2)(A) and (B), of FD&C Act (21 U.S.C. 333) and 303(b)(3) for failing to make a report of convictions under sec 303(b)(2)- with maximum fine of $100,000.

17. See sec 303(f)(1)(A) of FD&C Act (21 U.S.C. 333).

18. See sec 307(a) of FD&C Act (21 U.S.C. 335b).

19. See sec 539(b)(1) of FD&C Act (21 U.S.C. 360pp, see also Part 6-6 of the FDA’s Regulatory Procedures Manual March 2004. Besides the 4 abovementioned civil penalties under FD&C Act, there are only 3 other civil penalties enforced by the FDA under the Public Health Service Act, which relates to such specific matters as biologic recall orders, mammography quality standards, and intentionally destroying, altering or falsifying records for vaccine manufacturers.

20. See page 27, 437 and 4381 of Federal US Sentencing Commission Guidelines Manual effective 1 November 2005.

21. We note that it is FDA policy to consider reduction of penalties for small entities- see Part 5-8 of the FDA’s Regulatory Procedures Manual March 2004, and Guidance document: ‘Reduction of Civil Money Penalties for Small Entities’ which requires the FDA to consider a reduction or waivers of penalties against a small entity.

22. All of the civil penalties can be imposed administratively by the Secretary, with the penalty relating to devices expressly stated as ‘assessed by the Secretary’ after giving notice of the proposal, and providing an opportunity for a hearing and subject to judicial review (see sec 303(3)(A) of FD&C Act (21 U.S.C. 333)). The civil penalty relating to misleading/defrauding the FDA expressly provides for the option of either the Secretary imposing the penalty himself or herself (after an administrative hearing on disputed issues, and subject to judicial review), or to request the Attorney General to institute a civil action in court (see sec 307(a) of FD&C Act (21 U.S.C. 335b)).

23. See sec 305 of FD&C Act (21 U.S.C. 335), Part 7 of Subchapter of Title 21 Food and Drugs Chapter 1 FDA Regulations ‘Enforcement Policy’ which sets out the process by which the FDA must give appropriate notice and opportunity for an accused to show cause why criminal prosecution should not be recommended, and Part 5-2, and 6-5 of the FDA’s Regulatory Procedures Manual March 2004 relating to sec 305 meetings and prosecutions.

24. See endnote 23 above. See also Part 17 Subchapter A of Title 21 Food and Drugs Chapter 1 FDA Regulations entitled ‘Civil Money Penalties Hearings’- which sets out the process by which such administrative hearings are carried out. It provides for an initial decision by a ‘presiding officer’, open to administrative appeal to the Departments Appeal Board, and for judicial review. Administrative hearings generally are also governed by Part 10 and Part 1316, Subchapter of Title 21 Food and Drugs Chapter 1 FDA Regulations both entitled ‘Administrative Practices and Procedures’- which for Part 10 sets out administrative proceedings are initiated, reconsidered and stayed, and the process for court review and citizen petitions, and for Part 1316, sets out some of further processes of such hearings.

25. While this is not express in the FD&C Act, the courts have held that the criminal offences under sec 301 may be prosecuted against both corporations and the ‘persons occupying positions of authority who execute the corporate mission’: see US v Park 421 U.S. 658 (1975)

26. See Chapter 4 of the FDA’s Regulatory Procedures Manual March 2004 which sets out the procedure for issuing warning letters, including that the FDA should consider whether the violations are of regulatory significance, whether prompt correction is likely to occur, etc. So called ‘untitled letters’ may also be issued for violations not meeting the threshold of regulatory significance of a warning letter.

27. See sec 705(a) of FD&C Act (21 U.S.C. 375).

28. We have undertaken a comparison to the regulation of competition law (by the Australian Competition and Consumer Commission), corporation law (by the Australian Securities and Investments Commission), civil aviation law (by the Office of Transport Security and by the Civil Aviation and Safety Authority and environmental law (by the Department of Environment and Heritage).

29. See item 129, new sections 42 YF to YI of Bill.

30. Interesting however, the Corporations Act 2001 (Cth) goes further, allowing criminal proceedings to be commenced even after a person has been sanctioned in civil proceedings- see section 1317M, N, P and Q of Corporations Act 2001 (Cth).

31. This appears to be inconsistent with other Australian enforcement regimes, and is contrary to the recommendations of Part 6 of the ‘Guide to Framing Commonwealth Offences Civil Penalties and Enforcement Powers February 2004’issued by authority of the Minister for Justice and Customs.

32. Submission to the Australian Senate Community Affairs Legislative Committee on the Bill dated October 2005, issued by the Department of Health and Ageing at Part 2, which states that the TGA will only issue infringement notices following a decision to take judicial action, and only in relation to strict liability offences and civil penalty provisions.

33. Section 1317DAE of Corporations Act allows for different penalty amounts to be imposed depending on the entity’s market capitalisation for the relevant day.

34. This is instead set out in Part 3 of the TGA Guidelines, rather than having legislative force.

35. Section 61(7) of Act. Further, the TGA Guidelines states that this power will ‘only being used if there is a public health safety risk’ but this is not set out in the legislation- see Part 4 of TGA Guidelines.

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