Contents

Chapter 1
Introduction

1.1The purpose of this review has been to assess pecuniary penalties1 as a comparatively new legislative tool for enforcing legal rules and standards. Pecuniary penalties are monetary penalties that are imposed by a court after a trial conducted under the rules of civil procedure and evidence where:
1.2This review has not been concerned with other non-criminal forms of penalty. Those include penalties imposed by a body other than a court (for example by “rulings panels” under the Gas Act 1992 and Electricity Industry Act 2010); administrative penalties (those being fixed, usually low-value, non-discretionary penalties imposed directly by a regulator); tax penalties; infringement notices; criminal gain disgorgement penalties; or non-monetary civil remedies such as management bans and licence revocations.4
1.3Three factors prompted the review. First, pecuniary penalties are imposed without the protections that we normally take for granted as part of the criminal law. Yet they can result in a very substantial penalty. Often the penalty can be greater in monetary terms than a criminal fine. As a result, concerns have been raised that they illegitimately challenge the traditional distinction between the criminal and civil law.5 Pecuniary penalties are not alone in straddling the “criminal–civil divide”. The civil remedy of exemplary damages, for instance, is punitive rather than compensatory and the sentence of reparation, handed down by criminal courts, is designed to compensate the victim. So there are instances where the line has been compromised.

1.4However, the question for this review has been whether pecuniary penalties are used in circumstances that justify this compromise, and whether the appropriate balance has been struck in terms of how they are imposed. The review has also highlighted some of the difficulties that can arise when hybrid forms of remedies and penalties are created.

1.5Secondly, pecuniary penalties are relatively novel. Although New Zealand’s first pecuniary penalty provisions appeared nearly 30 years ago, the majority have been introduced since 2000. Increasingly they are being adopted as a central feature of statutory regimes. Their adoption in legislation has appeared to be relatively ad hoc, and it is not clear that it has been consistently guided by principle. There is little guidance in place for government agencies considering whether to include pecuniary penalties in legislation, and very little debate has occurred about their benefits, drawbacks and design.

1.6As a result of the lack of guidance, the third factor that prompted the review is the inconsistencies among existing pecuniary penalty provisions. Although there are some common approaches, current statutes deal in a variety of ways with matters such as procedural rules, guidance about penalty levels and when a penalty should be imposed, privilege and double punishment. There is also a lack of consistency in when pecuniary penalties have or have not been included in a legislative scheme. For example, while they feature heavily in some environmental protection legislation, they are entirely absent from other areas of environmental law. The differences in legislative approach may reflect the novel nature of pecuniary penalties. Again, however, the inconsistencies suggest the absence of clear principles to guide their adoption.

1.7Pecuniary penalties have resulted in a number of difficult legal disputes in other jurisdictions. Most notably, Australian courts have struggled with some of their features.6 Controversy has arisen over their design and over how the courts have interpreted pecuniary penalty provisions.7 To date, little substantial judicial analysis of the nature of pecuniary penalties has occurred in New Zealand. Indeed, many of the penalties have never been used. Over time, it is likely that there will be more litigation involving pecuniary penalties, and it may be that our courts will be required to tackle the sorts of issues that have vexed courts in other countries. Consistency and principle in the design and use of pecuniary penalties should help reduce the risk of future litigation here.
1In this Report, we have adopted the term “pecuniary penalties” in place of “civil pecuniary penalties”, which we used in our Issues Paper (see Law Commission Civil Pecuniary Penalties (NZLC IP33, 2012) [Issues Paper]). We explain the reason for this at [4.14] of this Report, and propose that that term should be adopted uniformly in future legislation.
2The highest available maximum pecuniary penalties on the statute book are: (a) in the case of an individual, $500,000; and (b) in the case of a body corporate, the greater of (i) $10,000,000; or (ii) if it can be readily ascertained and if the court is satisfied that the contravention occurred in the course of producing a commercial gain, three times the value of any commercial gain resulting from the contravention; or (iii) if the commercial gain cannot be readily ascertained, 10 per cent of the turnover of the body corporate and all of its interconnected bodies corporate.
3There are some limited examples of pecuniary penalties directed at repairing harm, but this is incidental to the penalty and the amount of reparation required does not determine the quantum of the penalty.
4For a broader description of the scope of the review see the Issues Paper, above n 1, at [2.14]–[2.26] and Appendix 3.
5Forms of civil penalty in the United Kingdom have been described as “stealth sanctions” that are effectively criminal penalties being treated as civil debts. See R M White “It’s not a criminal offence–or is it? Thornton’s analysis of ‘penal provisions’ and the drafting of ‘civil penalties’” (2011) 32 Statutes LR 17 and R M White “‘Civil Penalties’: Oxymoron, Chimera and Stealth Sanction” (2010) 126 LQR 593 at 593, 597.
6See the Issues Paper, above n 1, at Appendix 2.
7See for example P Spender “Negotiating the Third way: Developing Effective Process in Civil Penalty Litigation” (2008) 26 C&SLJ 249; T Middleton “The Difficulties of Applying Civil Evidence and Procedure Rules in ASIC’s Civil Penalty Proceedings under the Corporations Act” (2003) 21 C&SLJ 507; V Comino “Effective Regulation by the Australian Securities and Investment Commission: The Civil Penalty Problem” (2009) 33 MULR 802; and T Middleton “The Privilege against Self-Incrimination, the Penalty Privilege and Legal Professional Privilege under the Laws Governing ASIC, APRA, the ACCC and ATO – Suggested Reforms” (2008) 30 Aust Bar Review 282.