Contents

Chapter 1
Introduction

Our task

1.8The Law Commission’s task has been to consider the benefits of pecuniary penalties, to consider their role as a tool of enforcement, and to assess whether they are imposed in a way that is fair and proportional.

1.9The task has been challenging. Pecuniary penalties provide many benefits. They tend to feature in areas of “regulatory law”,8 and enable enforcement agencies effectively and efficiently to obtain compliance with the regimes they oversee. They avoid the need for the agency to establish criminal guilt, and the defendant is not subject to the risk of conviction or imprisonment. Admissions of liability can be obtained without the need for a defendant to admit to criminal activity. More often, then, trial can be avoided on that question, resulting in substantial savings for the agency, the defendant and the court system. Pecuniary penalties also give regulatory agencies flexibility in how they address non-compliant behaviour. Those agencies can effectively encourage compliance and penalise breaches, while reserving the criminal law for the most egregious contraventions. Since successive Parliaments have been willing to set very high maximum penalties for pecuniary penalties, such penalties can be particularly effective where offending is carried out with financial gain in mind. They can operate as a powerful deterrent by targeting the pockets of those who contemplate a breach, by ensuring not only that any gain from the breach will be stripped away, but also that the breach will be punished. Often, they are targeted at breaches by corporate bodies, which can be difficult to prove to the criminal standard. Very high maximum penalties can compensate for any degree of deterrence that is lost as a result of the lower risk of misconduct being discovered.

1.10However, many of these benefits exist because pecuniary penalties are imposed through the civil courts, on the civil standard of proof, and without the protections we normally take for granted in the criminal law.

1.11We have reached the view that imposing penalties in this manner can be justifiable and may be desirable in some circumstances. However, it will not always be appropriate. Our impression, for instance, is that often pecuniary penalties are viewed as acceptable because they are imposed on deep-pocketed corporate bodies or commercial actors, who have chosen to operate in tightly regulated industries, and who offend against industry standards for financial gain. This view is true for many pecuniary penalty provisions. However, it is not an accurate description of the entire current field in which pecuniary penalties operate: in fact, they can be imposed on a wide range of actors, including individuals and one-person and small- to medium-sized enterprises.

1.12The main questions we have had to tackle, then, are: (a) whether there are circumstances where the use of pecuniary penalties is particularly appropriate and circumstances where it is not; and (b) in any event, given the potentially wide field of application of pecuniary penalties, whether the wholesale application of civil rules of evidence and procedure is appropriate, or whether greater protection should be afforded to the defendant.

First principles review

1.13The Commission has approached this as a first principles review. We have not regarded current ideas of what pecuniary penalties are as determinative, but rather have considered what they should be. In assessing the nature, role and design of pecuniary penalties, we have been guided by three principles: fairness, effective and efficient regulation, and certainty.

Fairness

1.14As a matter of policy and good legislative practice, fairness must be central to the design of pecuniary penalties. Exactly what this means for how they should be drafted is not necessarily fixed, as our concept of fairness (also referred to as natural justice) varies, rightly, according to context. As Tucker LJ put it in Russell v Duke of Norfolk:9

The requirements of natural justice must depend on the circumstances of the case, the nature of the inquiry, the rules under which the tribunal is acting, the subject-matter that is being dealt with, and so forth.

1.15Therefore, what is fair in terms of when and how pecuniary penalties are imposed may vary according to the context. For example, the wider public interest that a statutory regime is designed to serve may mean that some ideas of what is fair can justifiably be relaxed. On the other hand, an accurate account of the nature of pecuniary penalties and their impact on defendants is also absolutely key to identifying what safeguards might be needed to ensure fairness. We provide this account in Chapter 4. Also, the standards set by the New Zealand Bill of Rights Act 1990 are relevant. We discuss that Act’s application to pecuniary penalties in Chapter 6.

Effective and efficient regulation

1.16Each existing pecuniary penalty statute has been designed with particular public objectives and the effectiveness of the respective regulatory scheme in mind. For example, the objective of securities law is “to facilitate capital market activity, in order to help businesses grow and to provide individuals with opportunities to develop their personal wealth”.10 Key to these outcomes is the need for investors to have confidence that obligations on advisers and issuers will be enforced. The Anti-Money Laundering and Countering Financing of Terrorism Act 2009 targets the method by which criminals disguise the illegal origins of their wealth, and protect and enjoy their assets. Its objectives include deterring and detecting money laundering and financing of terrorism, contributing to public confidence in the financial system, and maintaining and enhancing New Zealand’s international reputation.11

1.17Procedural safeguards that protect individual rights may have a commensurate limiting effect on an enforcement body’s ability to enforce its statute effectively and meet these public interest objectives. There is nothing new in the proposition that achieving wider public interest objectives may sometimes justify the relaxation or adjustment of procedural safeguards. With this in mind, we have remained cognisant of the challenges faced by regulatory agencies and their need to oversee and police their regimes effectively. However, fairness must be compromised no more than is justifiable to achieve those wider objectives.

Certainty

1.18The rule of law demands that those who are governed by the law can reliably be guided by it. That is, they need to be able to find out what the law is and to be sure enough of its meaning to make informed choices about their actions. To do this, there must be certainty in the law, or “fair warning” about the scope of a person’s potential duties and liabilities.12 Certainty can also bring with it efficiency, lower costs and confidence for the regulated community. Uncertainty about the procedural protections that accompany pecuniary penalties can encourage further litigation as defendants seek to protect or clarify the nature of their rights under pecuniary penalty regimes.
1.19Given that pecuniary penalties are a comparatively novel, hybrid sanction, we consider the need is heightened for greater consideration and specification of their procedural rules. At the same time there is an interest in leaving some discretion to enforcement bodies and the courts, and to maintaining a degree of flexibility, so that new or different classes of misconduct can be addressed. In summary, while the need for certainty is not absolute,13 this Report places a high value on clearly drafted pecuniary penalties and, where possible, consistency of design across different regimes.
8Note, however, the sometimes indiscriminate use of this term, discussed at [1.24].
9Russell v Duke of Norfolk [1949] 1 All ER 109 (CA) at 118.
10Cabinet Paper “Securities Law Reform” (February 2011) at [19] and [20] <www.med.govt.nz>.
11The Act was introduced to increase New Zealand’s compliance with the international standards set out in the Financial Action Task Force (FATF) Recommendations: see Financial Markets Authority, Reserve Bank and Department of Internal Affairs Anti-Money Laundering and Countering Financing of Terrorism: Supervisory Framework <www.dia.govt.nz> at 2.
12A Ashworth Principles of Criminal Law (6th ed, Oxford University Press, Oxford, 2009) at 63. See also Bruce Dyer “Determining the Content of Procedural Fairness” (1993) 19 Mon LR 165.
13See generally Ashworth, above n 12, at 57–68.