Contents

Appendix A
Guidelines for the legislative design of pecuniary penalties

The Guidelines in this Appendix are intended as a guide and starting point to the matters policymakers need to take into account when considering the inclusion of pecuniary penalties in a statute. The Guidelines are based on the discussion and conclusions in this Report. The main text of the Report expands on the points made in the Guidelines. We recommend that, if you are considering a matter raised in this Appendix, you also refer to the text in the associated chapter.

Chapter 4: Nature of pecuniary penalties

G1 The term “pecuniary penalty” should be used consistently to describe non-criminal monetary penalties that are imposed by a court in civil proceedings

Consistent terminology should be used in statutes for novel forms of penalty or order. Use of consistent terminology makes the statute book clearer and more accessible. It helps the public understand the nature of their liabilities and removes the need for enforcement bodies and the court to assess how to employ novel tools and impose them fairly.  


G2 Pecuniary penalty regimes must be designed with their punitive nature in mind

Although their primary purpose may be deterrence, pecuniary penalties are punitive in nature. They can have a potentially severe impact on a person or entity’s solvency, property interests, reputation and opportunities. Pecuniary penalty regimes must be designed with this in mind.

Chapter 5: Role of pecuniary penalties

G3 There should be robust reasons for employing pecuniary penalties in any regime

Pecuniary penalties are one of a range of penalties that policymakers can include in legislative regimes, along with criminal offences and infringement offences. Any decision to employ one or more of those penalties in a statute should be based on a robust and transparent assessment of its appropriateness in responding to the particular contravention.

The assessment should take into account the following:

(i) effectiveness and efficiency;
(ii) practical considerations; and
(iii) the nature of the harm caused or the conduct involved.

Chapter 7: Standard of proof

G4 Pecuniary penalties should be imposed on the civil standard of proof

Pecuniary penalties should continue to be imposed on the civil standard of proof, or in other words, on the balance of probabilities, rather than the criminal standard of proof.

Chapter 8: Burden of proof

G5 The burden of proving all the elements of a contravention that results in a pecuniary penalty should usually be on the enforcement agency bringing proceedings

A pecuniary penalty provision should only place the burden of proving a matter in issue on a defendant where doing so is reasonable and can be demonstrably justified. This might include where:

  • the person bringing proceedings would face serious difficulty in proving the matter, and the defendant has peculiar knowledge of the relevant facts; or
  • it would be extremely difficult or expensive to require the person bringing proceedings to provide proof, and that proof could be provided readily by the defendant; or
  • a policy decision has been made that it is appropriate, in the particular circumstances, for the regulated community to be encouraged to comply with certain standards or take certain precautions, having regard to wider considerations of justice and fairness.

Where it is justifiable to impose a burden of proof on a defendant, this should generally be an evidential rather than legal burden. A legal burden should only be imposed on a defendant if it is clear that the desired regulatory outcome cannot be achieved by imposing only an evidential burden.

Pecuniary penalty provisions should be drafted to minimise any ambiguity as to:

  • who has the burden of proving all matters in issue, including the elements of the breach, defences, and matters relating to penalty quantum; and
  • whether a burden is an evidential or legal one.

Chapter 9: Penalty privilege

G6 People investigated or proceeded against for a pecuniary penalty should have the benefit of a privilege against compelled self-exposure to a pecuniary penalty

A statute may limit or remove the privilege against self-exposure to a pecuniary penalty if the limit is reasonable and can be demonstrably justified. Individual rights will be best protected by the adoption of the approach in section 5 of the New Zealand Bill of Rights Act 1990.

Where a case can be made to limit the privilege, the form of the limitation should be context specific. It should balance appropriately the particular needs of the regime at hand with fairness to the individual.

Chapter 10: Double jeopardy

G7 Policymakers must consider how the pecuniary penalty statute will deal with “double jeopardy”

Given their punitive nature, pecuniary penalties can raise double jeopardy concerns.

Pecuniary penalty statutes should usually:

(i) prohibit a person being punished by the imposition of both a pecuniary penalty and criminal penalty, or by more than one pecuniary penalty, for the “same conduct”; and
(ii) provide that once criminal proceedings have been determined (whether successfully or otherwise) there should be no pecuniary penalty proceedings based on the same conduct, and vice versa.

Consideration will need to be given to how a statute deals with double jeopardy where:

(i) The regime will allow for a range of orders to follow from a finding of civil liability or “declaration of contravention”. In such regimes it may be appropriate for questions of double jeopardy to be left to the court to determine.
(ii) A case can be made that the statute may allow for the imposition of both a pecuniary penalty and a sentence of imprisonment for the same conduct. The potential for such double punishment should be possible only in relation to specific breaches under the statute that can genuinely capture a broad range of conduct, from inadvertent conduct that results in minimal harm, to intentional conduct carried out in the knowledge that substantial harm might result. The statute should provide expressly for this.

Where possible, drafters should employ consistent terminology in dealing with the question of the “same conduct”.

Chapter 11: Intention and strict liability

G8 Pecuniary penalty provisions should state clearly:

(i) whether mens rea is an element of the penalty provision; or
(ii) whether the penalty is to be imposed on the basis of strict liability
 

Consideration should be given to whether intention or fault should be an element of the contravention for which a pecuniary penalty may be imposed.

In assessing whether to include intention or fault as an element of the contravention, it is necessary to weigh up the features of the penalty and regime, such as the nature of the conduct, potential defendants and size of the penalty involved, to ensure that the particular provision achieves the right balance between fairness and regulatory effectiveness.

Strict liability pecuniary penalties may be appropriate where a case can be made that:

  • Strict liability provides persons with an incentive to adopt compliance processes and procedures to protect against contraventions, and these precautions may not otherwise be taken; and
  • The standards imposed are clear and well-known to the regulated persons, who participate voluntarily in the activity; and
  • The defendant is in the best position to establish a defence. This might include where:
  • the person bringing proceedings would face serious difficulty in proving the matter, and the defendant has peculiar knowledge of the relevant facts; or
  • it would be extremely difficult or expensive to require the person bringing proceedings to provide proof, and that proof could be provided readily by the defendant.

It is not clear that the presumptions that exist about strict liability criminal offences apply equally to pecuniary penalties. Strict liability pecuniary penalty provisions should therefore clearly set out any defences, even if it is anticipated that only the defence of absence of fault should be available.

Absolute liability pecuniary penalties should be used very rarely.

Chapter 12: Rules of procedure

G9 Civil rules of court procedure and evidence should apply to pecuniary penalty proceedings

Pecuniary penalty proceedings take place in the civil courts, where the civil rules of procedure and evidence apply.

Nevertheless, policymakers should always consider potential problems with applying standard civil rules to proposed new punitive or coercive orders. Consideration should be given to whether tailored rules are required to balance principles of fairness, regulatory efficiency and certainty.

Chapter 13: Imposition

G10 Pecuniary penalties should be imposed by a court

Pecuniary penalties should not be imposed directly by an enforcement agent. This approach should only be departed from in rare cases:

  • Where decisions on fact and liability genuinely require assessment by industry experts. In those circumstances there may be a case for imposition of a pecuniary penalty by an industry tribunal or “panel”. There should be a statutory requirement that the chair of the body has legal expertise.
  • Where a case can be made that the statute should allow the enforcement agency and defendant to settle the penalty out of court. This should only be provided for in exceptional circumstances, where, within the field regulated, there is no chance of oppression or abuse of the procedure. This may be because all the actors in the field are well-resourced, such that there is no significant imbalance of power.

If such a provision is to be included in a regime, the statute should require that the details of the settlement be publicised, including (a) the circumstances and nature of the breach and (b) the quantum of the agreed penalty. ‚Äč

G11 Pecuniary penalty proceedings should only be commenced by an enforcement body or agent acting under a statutory power

There should be no scope for private persons to seek and obtain pecuniary penalties.


G12 “Declaration of contravention” provisions should be considered where other civil orders can be sought by third parties or where several orders can be sought by an enforcement agency

Provision for a declaration of contravention should be considered where other civil orders can be sought by third parties or where several orders can be sought by an enforcement agency, and where such an approach might result in cost savings.

However, the wording of a declaration of contravention provision should clarify that it is only conclusive evidence of the matters stated in it for the purpose of later proceedings against the same entity or individual against whom the declaration was made. There should be no risk of such declarations being used as a means of attributing liability to others.

Chapter 14: Individual and corporate liability

G13 Careful consideration should be given to the attribution of individual and corporate liability for pecuniary penalties

Statutes should be clear as to who is liable and how they are liable. Relevant questions include:

  • What type of conduct (corporate or personal) is the pecuniary penalty seeking to moderate?
  • Is the conduct usually carried out by individuals or corporations?
  • Is the activity one in which the costs of paying the pecuniary penalty could easily be passed onto others (for example, consumers or shareholders)?

If corporations are liable, the following should also be considered:

  • Are the normal rules of agency sufficient to attribute the actions of individuals to the corporation or should there be a specific attribution provision?
  • Should individuals also be liable for the corporate misconduct? Relevant considerations include: whether corporate liability alone is sufficient to promote compliance; and whether an individual would be subject to other disciplinary proceedings in the event of corporate non-compliance.


G14 If there is to be individual liability, generally “concurrent principal liability” or “accessory liability” provisions should be used

There are a number of forms of individual liability. Whichever form is chosen, legislative drafting should be clear as to who is liable, what they are liable for, and what they can do to avoid liability.

Concurrent principal liability and accessory liability both attach to individuals only where they have participated, in some way, in the relevant contravention. Deemed liability, and to an extent, the imposition of duties, do not require such participation and can therefore give rise to fairness issues.

What type of individual liability is appropriate will depend on the regime. Questions to consider include:

  • Does the activity being regulated present a high risk to public safety? Put another way, how serious is the harm that the provision is seeking to avoid?
  • What level of involvement in the physical acts should give rise to personal liability?
  • What degree of knowledge should give rise to personal liability?
  • Might the option expose people to an overly high risk of litigation?
  • Might the option deter quality candidates from taking on roles?
  • Might the provision have an undesirable impact on decision-making and foster overly cautious behaviour?
  • Should liability attach to particular positions within the organisation, or those who perform a particular function?

An alternative to deemed liability is to impose a positive duty on specified corporate officers, with failure to comply exposing those officers to a pecuniary penalty. This approach requires careful drafting to ensure effectiveness.


G15 Pecuniary penalty statutes should state clearly how ancillary liability will arise

Ancillary liability provisions should be no wider than necessary to achieve the purposes of the regime.

Policymakers need to consider:

  • who, other than the primary contravener, should be liable for their role in the contravention;
  • how their liability is to be established, with regard to their state of mind or the extent of their knowledge of the contravention;
  • which defences should be available.

Usually, (that is, unless it is unworkable or inappropriate) the traditional criminal law approach should be adopted, which requires knowledge of the essential facts that constitute the contravention, and an intention to participate in the contravention.

Chapter 15: Insurance and indemnity

G16 Pecuniary penalty statutes should deal expressly with the question of insurance or indemnification in relation to pecuniary penalty liability

Policy makers should consider whether there should be no bar on insurance or indemnification in respect to pecuniary penalty liability under the proposed regime, or whether policy reasons justify a particular prohibition or limitation. In either case, an express statutory statement confirming or restricting the legality of contracts to indemnify or insure is desirable.

Factors to be considered include:

The nature and gravity of the illegal conduct. Are there public policy reasons why indemnification or insurance in respect of the conduct / breach should be barred? For example, was the conduct so morally reprehensible that punishment should be borne personally?

The deterrent effect of the penalty. Would the availability of indemnification significantly dilute the deterrent effect of a pecuniary penalty provision? Or does the disciplinary effect of indemnification and insurance contribute to the deterrence objectives of the pecuniary penalty regime? Similarly, would those insured prefer to allow the breach and recover under their insurance policies rather than to avoid the breach altogether?

Interests of innocent third parties. Will the penalty be diverted for reparative purposes or to fund education to prevent future breaches? If so, will the contravener be able to pay the penalty if the indemnity is not allowed?

Other relevant considerations are the potential impact of insurance and indemnification on penalty imposition by the courts, the potential impact on prosecution strategies, and the impact on the personal liability of directors and managers.

Where it is necessary to impose statutory restrictions on insurance and indemnification in a pecuniary penalty regime, policymakers should consider penalising the provision of insurance or indemnification in breach of those restrictions.

Chapter 16: Fixing penalties

G17 Maximum pecuniary penalties should be set with the specific contravention, conduct and actor in mind

Pecuniary penalties should not be chosen as an enforcement mechanism merely because of a view that they allow higher maximum penalties than criminal offences. Also, the maximum penalties in existing pecuniary penalty statutes should not merely be transplanted to new regimes. In any statute, they should be set with the specific contravention, conduct and actor in mind.

Penalties that rely on a multiple of commercial gain or percentage of turnover might be considered where deterrence of breach for financial benefit is sought. However, since turnover penalties discriminate between defendants according to their capacity to pay, and lack connection to the actual contravening conduct, they should be used sparingly.

The following principles should be applied:

  • Maximum pecuniary penalties should:
(i) reflect the worst class of case in each particular category;
(ii) be designed to encourage compliance with the regulatory system at hand and so be set at a level to deter the classes and sizes of participants in that regulatory field; and
(iii) balance the promotion of compliant behaviour with ensuring that people remain willing to enter the market and/or take sensible commercial risks.
  • Like conduct should be treated alike.


G18 Pecuniary penalty statutes should provide guidance to courts about the circumstances when a penalty should be imposed and the amount of the penalty

Pecuniary penalties are a relatively novel form of penalty and there is a limited amount of case law to guide courts when determining penalties. Policymakers should consider what factors should be considered by the court under the particular regime. As a minimum, pecuniary penalty statutes should usually include the following guidance:

  • the nature and extent of the breach;
  • any loss or damage caused by the breach;
  • any financial gain made, or loss avoided, from the breach;
  • whether the breach was intentional, inadvertent or negligent;
  • the level of penalties imposed in previous similar situations; and
  • the circumstances in which the breach took place.

Chapter 17: Appeals

G19 Standard appeal routes should be used for pecuniary penalties

As they are a subset of civil proceedings, the standard appeals routes under the Judicature Act 1908 and the District Courts Act 1947 are the most appropriate for pecuniary penalties.

Chapter 18: Limitation Periods

G20 Pecuniary penalty statutes should generally provide for a primary limitation period of three years after reasonable discoverability of the contravention, with a 10-year longstop (subject to a fraud exception)

Pecuniary penalty statutes should deal expressly with periods of limitation.

A model approach to limitation periods in pecuniary penalty statutes is a primary limitation period of three years after reasonable discoverability of the contravention, with a 10-year longstop (subject to a fraud exception).

The Limitation Act 2010 defence to money claims (a six-year primary limitation period plus a three-year late notice period and a 15-year longstop) is an alternative limitation period for pecuniary penalties, in circumstances where there is a specific policy justification for applying that model.

Chapter 19: Crown and State sector defendants

G21 Policymakers should consider whether the Crown and the State sector or parts of the State sector should be subject to a pecuniary penalty regime

To the extent that they participate in the activity regulated by the pecuniary penalty statute, the Crown, State sector or parts of the State sector should generally be subject to the statute; however this aspect of pecuniary penalty design should be considered on a case-by-case basis. Policymakers should consider the appropriateness of this form of penalty as an enforcement tool in the particular context and whether its application to the Crown and the State sector would be in the public interest.

The statute should state clearly whether it binds the Crown. It should also address the following matters:

  • What is meant by the Crown for the purposes of the statute?
  • Should the whole State sector or only parts of the State sector be subject to the regime?
  • How will liability be attributed?
  • Should public sector indemnities and immunities apply?
  • What procedures should apply?
  • What forms of penalty should be available?

A pecuniary penalty may not be the most appropriate form of penalty for public sector contraventions. In particular, a declaratory order will often be appropriate, without further penalty, given the consequences of an adverse finding of liability, such as public censure. Whether or not a pecuniary penalty should be able to be imposed must be considered on a case-by-case basis.

A range of further penalty options is available for the Crown and State sector bodies, including adverse publicity orders; external investigation and report; enforceable undertakings; and injunctive orders such as compliance orders, improvement or training orders, or stop notices.

Where a pecuniary penalty is to apply, policymakers should consider whether the maximum penalty should differ for Crown and State sector defendants. The “percentage of turnover” maximum penalty formulation is not appropriate for non-trading public defendants.