Contents

Chapter 13
Imposition

Declarations of contravention

13.41Some pecuniary penalty statutes provide for courts to make a “declaration of contravention”, either before or at the same time as making an order for a pecuniary penalty.285 For example, the Financial Markets Conduct Act 2013 provides as follows:
486 When court may make declarations of contravention
(1) The court may, on the application of the FMA or any other person, make a declaration of contravention if it is satisfied that a person has—
(a) contravened a civil liability provision; or
(b) been involved in a contravention of a civil liability provision.
(2)
487 Purpose and effect of declarations of contravention
(1) The purpose of a declaration of contravention is to enable an applicant for a compensatory order or other civil liability order under section 497 to rely on the declaration of contravention in the proceedings for that order, and not be required to prove the contravention or involvement in the contravention.
(2) Accordingly, a declaration of contravention is conclusive evidence of the matters that must be stated in it under section 488.
488 What declarations of contravention must state
A declaration of contravention must state the following:
(a) the civil liability provision to which the contravention or involvement in the contravention relates; and
(b) the person who engaged in the contravention or was involved in the contravention; and
(c) the conduct that constituted the contravention or the involvement in the contravention and, if a transaction constituted the contravention, the transaction; and
(d) the issuer, offeror, or service provider to which the conduct relates (if relevant).
13.42The declaration, then, states the provision that was contravened, the conduct that constituted the contravention, and the person or persons who contravened the provision or were involved in the contravention.286 The purpose of a declaration of contravention is to provide conclusive evidence of the matters within it, so that if other orders are later applied for, the applicant can rely on the declaration instead of being required to prove the contravention again.

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.

13.44Some existing regimes do not expressly provide for the making of declarations of contravention, even though there is provision for compensation or other orders. For instance, under section 87A of the Commerce Act, a person can apply for compensation for breach of a price-quality requirement within one year of the date of a pecuniary penalty order being made. However, the Act does not require the court to make a declaration of contravention when ordering a pecuniary penalty.287
13.45Despite the lack of specific statutory provision, the High Court has made declarations of contravention under its inherent jurisdiction in previous Commerce Act pecuniary penalty cases.288 There is some indication, then, that courts would find it useful to have clear statutory provision for a declaration of contravention where it would serve the purpose of the legislation.289
13.46Given this, and that declarations of contravention can provide efficiency and cost benefits, we asked in the Issues Paper whether some or all pecuniary penalty regimes should expressly provide for them. Doing so would also save time and debate in court over a whether or not a court has jurisdiction to make a declaration.290

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.

Evidential function of declarations of contravention

13.49The recent Queensland case ASIC v Managed Investments Ltd291 demonstrates the potential for statutory ambiguity about the use to which declarations of contravention may later be put. While the issue has not arisen here, the wording of the relevant provisions in New Zealand statutes is similar, and could give rise to similar ambiguities. Drafters should be aware of that possibility, and may need to address it in the drafting of future provisions.

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.

13.52Fryberg J considered two possible interpretations of section 1317F. He concluded that it would be too wide an interpretation to suggest that the declaration could be used in later proceedings of any kind. Such a broad reading of the provision would be “plainly wrong”.292 However, he thought that the wording of the provision did not limit declarations to operating only in relation to the person or persons against whom they were originally made (in this case, the corporate entity). He concluded that it would be open to ASIC, and indeed to other parties, to use the declaration of contravention made in the proceedings against the company in later proceedings against the officers personally. He said:293

[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.

13.53The Judge concluded that the possible re-use of the declaration in this way was a relevant factor in his decision whether to grant summary judgment. The Judge also took into account the fact that deciding the substantive case against the corporate entity in advance of any possible later proceedings against the officers would require the officers to deal with the merits of the application and thereby waive their privilege, and that the decision would have an indirect impact on the corporate officers, particularly in relation to their insurers.294

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.

GUIDELINES

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. ​


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.

285Securities Markets Act 1988, ss 42T–42V; Takeovers Act 1993, ss 33M–33O; and Financial Markets Conduct Act 2013, ss 486–489.
286Each regime may also require additional information in the declaration. For instance, declarations under the Financial Markets Conduct Act must state, if relevant, the issuer, offeror or service provider to which the conduct relates.
287See also s 124G of the Hazardous Substances and New Organisms Act 1996, under which actions for damages can be brought for pecuniary penalty breaches relating to new organisms.
288Commerce Commission v Fletcher Challenge Ltd [1989] 2 NZLR 554 (HC) at 611 and Commerce Commission v Telecom Corporation of New Zealand Limited HC Auckland CIV 2004-404-1333 (9 October 2009) at [176].
289See for example Commerce Commission v Fletcher Challenge Ltd, above n 288, at 611, in which McGechan J notes the omission of a declaration of contravention provision from the Commerce Act. Rather than being a situation in which the court’s jurisdiction is excluded, he sees it as “more one of a ‘gap’ in the legislation which should be filled to make the Act work in accordance with legislative intention”.
290See for example Commerce Commission v Telecom Corporation of New Zealand Limited, above n 288, at [166]–[187].
291Australian Securities and Investments Commission v Managed Investments Ltd (No 4) [2013] QSC 15.
292At [27].
293At [33].
294At [38].