Individual and corporate liability
14.74Ancillary or secondary liability refers to the liability of those who assist or encourage a contravention (accessories); those who organise the contravention of a provision by others (conspiracy); and those who try to contravene a provision but fail (attempts).
14.75As identified by the Ministry of Business, Innovation and Employment, accessory liability extends liability to individuals, but only to those who knowingly and intentionally assist in the corporate misconduct; innocent or even negligent participation is not enough to establish accessory or liability. It may be wider than principal liability as it does not require an individual to have committed all the relevant elements of the contravention, but is narrower than a deeming provision as it requires a deliberate act.
14.76We highlighted drafting and interpretation issues in the Issues Paper about how pecuniary penalty regimes impose ancillary liability.
Extent of coverage
14.77In the criminal law context, the Crimes Act 1961 addresses how and when ancillary liability arises for attempts, accessories and conspiracy. In particular, section 66 provides that:
66 Parties to offences
(1) Every one is a party to and guilty of an offence who:
(a) actually commits the offence; or
(b) does or omits an act for the purpose of aiding any person to commit the offence; or
(c) abets any person in the commission of the offence; or
(d) incites, counsels, or procures any person to commit the offence.
(2) Where 2 or more persons form a common intention to prosecute any unlawful purpose, and to assist each other therein, each of them is a party to every offence committed by any one of them in the prosecution of the common purpose if the commission of that offence was known to be a probable consequence of the prosecution of the common purpose.
This provision applies to all offences (as defined in section 2 of the Crimes Act) unless clearly excluded.
14.78However, a broader formulation is used in pecuniary penalty statutes. The provisions vary in whether they cover ancillary liability such as attempts and conspiracy, although they all have in common the concepts of aiding, abetting, counselling and procuring. Each also extends accessorial liability to a person who is “in any way, directly or indirectly, knowingly concerned in, or party to,” the contravention.
14.79In the context of the Fair Trading Act 1986 (which uses the same formulation for a criminal offence) Tipping J commented on the breadth of this provision:
I think it would be wrong in principle if a mere junior employee could be held strictly liable for helping to draft some publicity material which turned out to be misleading without any knowledge that this was so. Another case might be an advertising agent who in good faith assists in the production of material which contains a false representation.
14.80We wondered in the Issues Paper whether the broader formulation is necessarily appropriate in the pecuniary penalty context. However, the Ministry of Business, Innovation and Employment thought that the framing of the provision is correctly pitched at those who “intentionally and knowingly facilitate misconduct”:
We believe that the [accessory liability] concept appropriately targets those who are engaged in wrongful misconduct – those who cross the line to intentionally and knowingly facilitate misconduct. We consider that this is the appropriate standard for accessory liability in all civil proceedings in the relevant statutes, including those that may result in pecuniary penalties.
14.81In the Ministry’s experience, such accessory provisions have never led to an adviser or employee, for instance, being found liable for innocent or even negligent participation in a primary contravention. In particular, the Ministry noted that accessory liability is not novel in a civil context, being used in the Fair Trading Act 1986, the Commerce Act 1986, the Securities Markets Act 1988 and in Australian statutes.
14.82The debate about the approach to ancillary liability proposed in the Financial Markets Conduct Bill 2011 is instructive. As introduced, the Bill defined “contravention” as including attempts, aiding, abetting, inducing, conspiring or procuring a contravention of a pecuniary penalty provision, or “being in any way, directly or indirectly, knowingly concerned in, or a party to, the contravention by any other person of the provision”. Submissions to the Select Committee pointed out that the traditional criminal law accessory concepts may be too broad for a commercial context, which seeks to regulate socially useful activities (where a breach may be established after the fact), as opposed to manifestly criminal activity.
14.83A number of submitters on that Bill argued that it would inappropriately extend potential liability to professional advisers, employees and others who may have incidental roles, and that it could provide a disincentive for corporate officers and external advisers to fully engage in the relevant processes, to the detriment of regulated activity, and could also conflict with professional responsibilities. The Select Committee recommended amendment of the provision. As enacted, the Financial Markets Conduct Act 2013 uses “contravene” only in connection with the primary contravention. It has introduced the concept of “involvement in the contravention” (that includes being knowingly concerned in or party to a contravention) for those who are liable as accessories.
14.84The PCO submitted to this review of pecuniary penalties that it is very difficult for statute users to know what is required by the element that a person is “knowingly concerned in” a contravention, and particularly whether that requires knowledge of the purpose of the actions of the primary offender or only knowledge of the risk of an offence. We agree.
14.85We think specific drafting is needed on the question of ancillary liability, in the interests of certainty and to ensure that people are not caught who are not necessarily intended to be. Where appropriate, the particular statute might include a provision stating that certain people or classes of people (such as employees or advisers) are expressly excluded, or the statute might include specific defences (such as a good faith exception). As noted by the New Zealand Law Society, this approach ensures people within coverage are made aware of their potential liability. Greater awareness of and certainty in relation to liability also supports the underlying deterrent function and purposes of pecuniary penalty regimes.
14.86In summary, pecuniary penalty statutes should be express as to the extent of coverage of ancillary liability, and as narrowly targeted as possible in the circumstances of the particular regime. Policymakers should carefully consider who, other than the primary contravener, should be liable for their role in the contravention and how their liability is established, with regard to their state of mind or their extent of knowledge of the contravention.
Level of intent or knowledgeTop
14.87In the Issues Paper, we asked whether pecuniary penalty statutes should be more explicit about the degree and nature of knowledge required to establish ancillary liability.
14.88The courts have dealt with concerns about wide accessorial liability under the criminal law by restricting liability to intentional and knowing conduct. Under the criminal law (including strict liability offences), the accessory must know of the essential facts that make up the contravention and knowingly participate in it.
14.89However, the level of accessorial knowledge required is not always clear in a pecuniary penalty context. In the Commerce Act case New Zealand Bus Ltd v Commerce Commission, the wide-ranging nature of the evidence presented difficulties in determining exactly what constituted the “essential facts” for the purpose of accessory liability. The contravention in issue was the acquisition of shares in a company which had “the effect of substantially lessening competition in a market” in breach of section 47. The High Court followed relevant Australian authorities and held that an accessory is liable under section 83 of the Commerce Act only if its participation was intentionally aimed at the commission of the acts that form the principal’s contravention, and only if it had actual knowledge of the essential facts that amounted to the contravention.
14.90On appeal, the Court of Appeal recognised that while the orthodox criminal law approach is taken to accessory liability for restrictive trade practices under the Commerce Act, the traditional approach might not be appropriate in other areas such as business acquisitions. This is because the “essential facts” were difficult to assess. Arnold J noted that whether there had been a substantial lessening of competition in breach of the Act required an “evaluative assessment on the part of the court”. The Court heard evidence from market participants, experts and other industry participants to assist this analysis.
14.91Recognising the limits of the traditional approach, members of the Court of Appeal proposed alternative options for assessing the element of intent necessary to establish accessory liability under the Commerce Act. The options proposed were:
- dishonest participation in the contravention; or
- knowledge of a real risk of contravention:
If a person understands that there is a real risk that a merger or acquisition will be found to breach s 47 but, with that knowledge, facilitates the merger or acquisition, the imposition of accessory liability seems an appropriate response. It may provide an incentive for such persons to refuse to facilitate a merger or acquisition in the absence of a clearance or authorisation.
14.92Ultimately, the Court of Appeal determined that the defendants should not have been found liable as accessories, whichever of the tests was used. But the case illustrates that the criminal law test may not always be appropriate for pecuniary penalties, depending on the nature of the contravention and the particular regime.
14.93Meredith Connell submitted that it would be useful to clarify the knowledge requirement for accessory liability in light of the conflicting judicial dicta. Other submitters also agreed that greater certainty is needed in this area. The Bar Association inclined towards the “knowledge of a real risk of contravention” test, submitting that some clarity in the correct test for accessorial liability for penalties is needed.
14.94In our view, the criminal law approach to accessorial liability (namely, intentional participation in the contravention with knowledge of the essential elements) will be appropriate where the essential elements of the contravention are relatively straightforward. That approach can be applied to pecuniary penalties by virtue of the current precedent provision with the use of terms such as aid, abet, counsel and procure, subject to our conclusion above that there is a case for specific drafting as to the coverage of the provision.
14.95Where a different approach to accessorial intent is appropriate for the particular regulatory regime, or where the essential facts are unclear, the accessory liability provision should specify the degree of knowledge required for liability to accrue. Any prescribed mental element should be as specific as possible about what is captured.
14.96We are attracted to “knowledge of a real risk of contravention,” as proposed in the New Zealand Bus case, as an appropriate objective test in such cases. An explicit statement about the mental element for accessory liability will provide clarity to individuals about the scope of accessory liability. If a provision departs from the traditional criminal law mens rea approach, it should be clear that this does not alter the accessory mens rea element for any parallel criminal offences: section 66 of the Crimes Act 1961 would continue to apply.
14.97Detailed thought should be given to what, if any, defences should be available to accessories. It should not be assumed that the defences available to the primary contravener (which in many cases may be a body corporate) will be equally appropriate for accessories. Specific defences may need to be tailored for each.
14.98In line with our recommendation that the Ministry of Justice should be consulted on the policy development of pecuniary penalty regimes, we suggest that accessorial liability provisions should be one the elements specifically reviewed by the Ministry of Justice as part of that consultation process.
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.