13.43The Issues Paper noted that the declaration of contravention model creates cost and time efficiencies. Once a declaration has been obtained, the enforcement agency can rely on it to obtain other orders related to the breach (such as management bans and injunctions), without having to re-establish the matters that have already been before the court in the pecuniary penalty proceeding. Private parties can also do so when seeking compensatory or other orders that may be available to them for the breach. Therefore, this model can save significant court time, and public and private expense.
13.47There was support among submitters for the declaration of contravention model being used in those regimes where it is possible for separate civil orders to be sought by individuals. The Parliamentary Counsel Office (Commercial Team) noted that the usefulness of the declaration lies in enabling compensation proceedings to be brought more easily. Meredith Connell noted another potential advantage of these declarations, namely that they reduce the risk of a court being asked to rule on the same matter twice and arriving at potentially different results. The Law Society and Ministry for Primary Industries both considered that the issue is probably best considered on a case-by-case basis.
13.48We support the declaration of contravention model being used in pecuniary penalty legislation where other civil orders can be sought by private third parties and/or where several orders can be sought by an enforcement agency, and using a declaration of contravention model would avoid a possible double-up of time and expense by requiring plaintiffs to re-establish the evidence related to the contravention each time. In that context, policymakers may consider that a declaration of contravention, which can be treated as conclusive evidence of the matters stated within it, is a desirable option.
13.50In the case mentioned, the Australian Securities and Investments Commission (ASIC) sought a declaration of contravention against a company for a breach caused by the conduct of several of its corporate officers. The entity and its officers were both defendants to the proceedings, but the declaration was only sought against the entity. The fifth defendant, Mr White, was concerned that any declaration of contravention made against the company could be used as conclusive evidence in later proceedings brought against him personally. The substantive issue was whether the Court should exercise its discretion to grant summary judgment in favour of ASIC, for the breach by the corporate entity. The Court had to consider whether the possible later use of the declaration of contravention against Mr White should affect the exercise of its discretion.
13.51The declaration of contravention provision in question in that case was section 1317F of the Corporations Act 2001 (Cth), which provided that “[a] declaration of contravention is conclusive evidence of the matters referred to in subsection 1317E(2)”. The subsection set out the matters to be included in the contravention and, relevantly, they included the conduct that constituted the contravention. Therefore, the declaration would arguably be conclusive evidence of the conduct of Mr White that led the company to be in breach.
[T]here are proceedings which might be brought by other parties against persons other than the defendant who is the subject of the declaration, to which, on the face of the legislation, the presumption of conclusive evidence might well apply and in respect of which one could imagine a policy reason for it to apply.
13.54In the New Zealand context, we would be concerned at the prospect of a declaration of contravention provision being used in the manner described by Fryberg J. We have noted at [13.43] the reasons why declarations of contravention are considered useful; reasons that were restated and supported by submitters. These reasons do not extend to using those declarations as conclusive evidence of the conduct of persons who were not the original subject of the declaration. Doing so could, as Fryberg J noted, create a risk of procedural unfairness for the persons concerned. They would also not be in a position to appeal the making of that declaration, since they would not be the subject of it. The question of directors’ liability for corporate breach is one that should be examined and designed separately from the matters addressed by a declaration of contravention provision.
13.55If our own courts were faced with a similar issue as arose in ASIC v Managed Investments Ltd, it would be open to them to take a similar view of the provision as Fryberg J did. That would concern us for the reasons noted above. Given this, we suggest that PCO ought to consider whether an alternative form of drafting could eliminate any ambiguity on this point.
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:
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.
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.