Contents

Chapter 14
Individual and corporate liability

Guidance for policymakers

14.15As a general rule, New Zealand statutes expose both corporations and individuals to pecuniary penalties as principals, by attaching liability to a “person”. This term is defined inclusively in the Interpretation Act 1999 to include a corporation sole, a body corporate, and an unincorporated body.308 In such instances, whether actions are taken against corporations or individuals will depend on the context, and the discretion of the enforcement agency.
14.16In the Issues Paper, we asked whether guidance should be provided for policymakers about the methods of attributing liability between a body corporate and its officers in a pecuniary penalty regime.309 The New Zealand Law Society, New Zealand Bar Association, Ministry for Primary Industries, PCO, Federated Farmers and Air New Zealand all agreed that guidance would be desirable in the interests of consistency and certainty.

14.17PCO noted that different methods of attributing liability involve significant trade-offs, including for the economy. Given the range of contexts in which pecuniary penalties are used, it was of the view that any guidance should set out the advantages and disadvantages of the different approaches, without mandating any particular position.

14.18Pecuniary penalties are used in a range of contexts. We agree with PCO’s submission that there is no “one size fits all” approach to individual and corporate liability. What is appropriate will depend on the legislative scheme, what it is trying to achieve and the incentives it seeks to put in place to best achieve that purpose. But it is possible to set out generally applicable principles and direct policymakers towards the full range of considerations that should be taken into account. These principles and considerations will also be of assistance to those designing regimes based on criminal liability.

14.19Pecuniary penalty provisions should be clear about whether corporations and/or individuals are to be liable. Relevant questions include:

14.20If corporations are to be liable, the following should also be considered:

14.21If there is to be individual liability, a number of forms are available. We discuss these in detail below. They are:

Corporate liability

14.22A corporation is a legal entity in its own right separate from its shareholders,310 and is able to sue and be sued.311 However, as a corporation can only act and think through its employees, it can only be liable if the actions and/or knowledge of its employees are attributed to the corporation. Primary rules of attribution such as those located in the Companies Act 1993 and a company’s constitution set out a formal method of attribution.312 General rules of agency and vicarious liability, that apply to all legal persons, provide another means of attribution.
14.23Outside of these primary and general rules, courts have used the identification principle to determine corporate liability. This principle involves identifying an individual or individuals who form part of the “directing mind and will” of the company and attributing their actions and/or state of mind to that company.313 The identification principle is contained in the oft-referred to House of Lords judgment, Tesco v Nattrass,314 but is perhaps best summed up by Lord Denning in HL Bolton (Engineering) Co Ltd v T J Graham & Sons Ltd:315

A company may in many ways be likened to a human body. It has a brain and nerve centre which controls what it does. It also has hands which hold the tools and act in accordance with directions from the centre. Some of the people in the company are mere servants and agents who are nothing more than the hands to do the work and cannot be said to represent the mind or will. Others are directors or managers who represent the directing mind and will of the company, and control what it does. The state of mind of these managers is the state of mind of the company and is treated by the law as such.

14.24As stated in Tesco v Nattrass, under this approach an individual who represents the directing mind of the company is “acting as the company and his mind which directs his acts is the mind of the company… [h]e is an embodiment of the company”.316
14.25The Privy Council (sitting on appeal from the New Zealand Court of Appeal) applied a more nuanced approach in Meridian Global Funds Management Asia v Securities Commission.317 Lord Hoffman stated that the principal and general rules of attribution are usually sufficient to determine a company’s rights and obligations. However, some situations will remain where the court comes to the conclusion that the law was intended to apply to companies notwithstanding the fact that it excludes ordinary vicarious liability:318

[T]he Court must fashion a special rule of attribution for the particular substantive rule. This is always a matter of interpretation: given that it was intended to apply to a company, how was it intended to apply? Whose act (or knowledge, or state of mind) was for this purpose intended to count as an act etc. of the company? One finds the answer to this question by applying the usual canons of interpretation, taking into account the language of the rule (if it is a statute) and its content and policy.

14.26The substantive rule at issue in Meridian was a requirement to provide notice when a person knows, or ought to know, that they have become a “substantial security holder” in a relevant company. The question was whether the knowledge of the investment managers who acquired the shares could be imputed to the company they worked for. The Privy Council found that it could, as the policy of the Securities Amendment Act 1988 was to compel immediate disclosure. To give effect to this policy, the knowledge of the people who acquired the interest, rather than the Board or senior management, needed to be imputed to the company.

14.27The Meridian approach therefore provides a context-specific approach of attribution, rather than one focused on the position of an individual within a company. Whose acts and/or knowledge are to be imputed to a corporation will depend on the construction and policy of the statutory provision.319 For this reason, it has been described as a “mechanism of statutory interpretation” rather than a general principle of company law.320

14.28Legislation may also contain a specific provision of attribution. This has the benefit of clarity as to whose conduct or state of mind can be attributed to a corporation. An example is contained in section 90(1)–(2) of the Commerce Act:

90 Conduct by servants or agents
(1) Where, in proceedings under this Part in respect of any conduct engaged in by a body corporate, being conduct in relation to which any of the provisions of this Act applies, it is necessary to establish the state of mind of the body corporate, it is sufficient to show that a director, servant or agent of the body corporate, acting within the scope of his actual or apparent authority, had that state of mind.
(2) Any conduct engaged in on behalf of a body corporate—
(a) by a director, servant, or agent of the body corporate, acting within the scope of his actual or apparent authority; or
(b) by any other person at the direction or with the consent or agreement (whether express or implied) of a director, servant, or agent of the body corporate, given within the scope of the actual or apparent authority of the director, servant or agent—
shall be deemed, for the purposes of this Act, to have been engaged in also by the body corporate.

Individual liabilityTop

14.29The purpose of a regulatory regime may make it appropriate to limit liability to individuals, and exclude the liability of corporations. As noted in the Financial Markets Authority submission to the Law Commission’s Issues Paper:

In some cases our securities law gives primary (or even sole) liability to individuals rather than corporates, recognising that some actions against a company by aggrieved shareholders, for example, simply reduce any value that those shareholders have in the company.

14.30This reflects the fact that a corporate pecuniary penalty can sometimes unfairly punish innocent parties (such as shareholders) who, in fact, may be amongst the people the regulated regime is seeking to protect. In such instances, it may be appropriate to restrict liability to individuals, provided that the expected standards for compliance are both clear and well understood.

14.31A separate issue is whether an individual should be liable in addition to a corporation. A number of arguments have been advanced against this approach. First, exposure to a substantial corporate penalty is a significant deterrent that is not limited to the financial penalty imposed, but also includes the reputational damage occasioned by such a penalty.321 This deterrent effect flows through to individuals who are responsible for the organisation’s compliance, making personal liability of individuals unnecessary and excessive.
14.32Secondly, a corporation itself may be in the best position to investigate and moderate the behaviour of individuals that have exposed it to a pecuniary penalty:322

Rather than having the state monitor the activities of each person within the organization, which is costly and raises practical enforcement difficulties, it may be more efficient to force the corporation to do this, especially if sanctions imposed on the corporation can be translated into effective action at the individual level.

14.33Individual actions that contribute to a statutory contravention could damage the employment and advancement prospects of such individuals, as well as put them at risk of disciplinary proceedings. It is also possible that a director’s actions that place a corporation in default could breach his or her duties or obligations to the company, which could result in steps for removal or civil action. It can be argued that the possibility of these measures act as an adequate deterrent on individuals.323 Nevertheless, there is no guarantee (or even obligation) for a corporation to investigate and moderate the behaviour of its officers and employees.
14.34Arguments in favour of individual liability reflect, at their core, the concern that corporate liability on its own is not enough to ensure compliance. Intuitively it seems correct that a specific deterrent on an individual provides an additional incentive for such individuals to take more responsibility for ensuring corporate compliance.324
14.35At times, an individual’s personal interests may not be aligned with the corporate interest in compliance. This risk was targeted by amendments to the Commerce Act, directing that a court “must order an individual who has engaged in any [anti-competitive conduct] to pay a pecuniary penalty, unless the Court considers that there is good reason for not making the order”.325 The Select Committee considering the amendment described the presumption as a “key measure deterring anti-competitive offending” and set out its reasoning thus:326

The purpose of the change is to acknowledge that general deterrence is promoted if the individuals within firms that perpetrate offences face a personal pecuniary risk. Even though companies tend to gain the most from breaching the Act, remuneration structures and wider career aspirations can create incentives for individuals to breach the Act in order to directly benefit themselves.

14.36Further, it has been argued that the general deterrent effect of a corporate penalty may be too diffuse to be effective. A corporation may choose to absorb a pecuniary penalty as a cost of doing business, as a form of “licence” fee. These problems can be exacerbated where a corporation is able to pass on the cost of a penalty to others (such as to consumers, insurers or shareholders) thus reducing or even negating their punitive effect.327

14.37Individual liability, therefore, is expected to promote compliance by providing a personal incentive for individuals to act in a manner that ensures corporate compliance.

Conclusion

14.38Whether a provision should impose liability on individuals, corporations or both will depend on the regime and what it is trying to achieve. If the behaviour being regulated is that of both individual and corporate actors, it will be appropriate for both to be liable.328 However, in some instances it will be appropriate to limit liability to corporations only, for instance where the legislation solely seeks to regulate corporate behaviour; or to individuals only, for instance where a corporate penalty would punish innocent parties or parties whom the regime is trying to protect, such as under securities legislation.
14.39If a pecuniary penalty is being used as a means to regulate corporate behaviour, corporations should be liable in the first instance.329 While using the term “person” will automatically expose corporations to liability by virtue of the Interpretation Act, how the actions and/or state of mind of individuals should be attributed to the corporation, or whether general principles of agency apply need to be carefully considered. An attribution provision such as section 90 of the Commerce Act 1986 may be desirable to provide clarity.

14.40If the provision imposes individual liability, consideration of what form this liability should take will be needed. Different forms of individual liability are discussed in the next section.

Forms of individual liabilityTop

14.41This section considers three types of individual liability: concurrent principal liability, deemed liability and imposition of duties, followed by a discussion of ancillary liability. Given the wide range of behaviour that pecuniary penalties apply to, which approach is most appropriate will depend on the circumstances, the legislative context and the purpose of the pecuniary penalty provision. With that in mind, the following discussion explains the different forms of liability, makes some general statements as to when that form of liability may be appropriate, and notes matters requiring consideration in the formulation of the liability provision.

14.42Whichever approach is adopted, the legislative drafting should make it clear who is liable and what they can do to avoid liability. In all cases, it is important that individuals and corporations are clear about their responsibilities, obligations and liability.

Concurrent principal liability

14.43This involves individuals concurrently liable as a principal. It will mean that conduct by an individual could expose both a corporation and that individual to a penalty. Under this form of liability, an individual will only be liable if they have “done everything necessary to commit the offence”.330

14.44If it is intended that individuals are concurrently liable as principals, the legislative drafting should be clear. As with attribution for corporate liability under Meridian, whether a statute allows for concurrent individual liability as a principal is a matter of statutory construction. The policy of the provision will also be relevant in ascertaining parliamentary intention.

14.45If principal liability attaches to both corporates and individuals, it may be possible for both to be concurrently liable as principals for the same course of conduct. As McGechan J stated in Commerce Commission v Wrightson NMA Ltd, this is possible because “[t]echnically, of course, each is a separate legal person and separately liable”.331 The matter is discussed in more detail by the Court of Appeal in Giltrap City Ltd v Commerce Commission:332

The question to be considered is, in short, whether the director, servant or agent is acting for the company or as the company … When a person is acting for the company it is easier to view his conduct as both his own and vicariously that of the company. When a person is acting as the company, it is … more difficult, at least in general terms, to regard the conduct as that of both the person so acting and the company.

14.46Whether corporations and individuals can be concurrently liable will turn on the construction of the statute. Section 27 of the Commerce Act (the general provision relating to substantial lessening of competition) provides an example of a pecuniary penalty that allows concurrent liability. The Court of Appeal considered the construction of section 90(2) to conclude that concurrent liability was available:333

Section 90(2) speaks of conduct engaged in on behalf of a body corporate. That mode of expression suggests the company is liable vicariously rather than by attribution. The same can be said of the use of the word “also” in the statutory direction that the conduct of the director, servant or agent “shall be deemed … to have been engaged in also by the body corporate” (emphasis added). Not only linguistically but also in policy terms the section should be construed as making the proscribed conduct both that of the director, servant or agent and that of the company. That construction is consistent with the statement in s 27 that “no person” shall enter into a proscribed arrangement.

… our conclusion, in short, is that both the language of the enactment and the statutory policy that “no person” shall enter into a contravening arrangement results in both principal and agent having principal liability.

Conclusion

14.47Concurrent individual liability as a principal may be appropriate in some circumstances. A factor that may favour such an approach is where the contravening conduct is likely to be engaged in by one person in a corporation (such as sending electronic spam) rather than multiple individuals within an organisation (such as a corporate merger, in which many people would be involved). If concurrent individual liability as a principal is envisaged, the legislative drafting should be clear that this is the intent (for example, in any attribution provision). If this is not intended, the provision should likewise be clear.

Deemed liabilityTop

14.48Deemed liability makes an individual, by virtue of their position or function in an organisation, liable as a consequence of corporate breach. The most common instance is for directors or senior managers to be deemed liable in cases of corporate contravention.

14.49Deemed liability differs from primary or accessorial liability as it does not attach as a consequence of a corporate officer’s involvement in the breach, but because of their position or function within the corporation.

14.50A deeming provision effectively places responsibility for corporate non-compliance on a specified individual or individuals. The advantage of such liability is that it allows an enforcement agency to seek a penalty against a corporate officer simply because they occupy a particular position or perform a certain function within a corporation. Such provisions also provide a strong incentive on corporate officers to put systems and procedures in place to ensure corporate compliance. They also have the benefit of providing certainty as to which corporate officers within a corporation have responsibility for ensuring compliance with the relevant standards.

14.51The general objection to such provisions, however, is that they can expose an individual to a personal penalty merely because of their position in a corporation, regardless of their role in the contravention or whether they had any power to prevent it.334 A corporate officer’s power to influence corporate conduct will also vary between corporations. Framed broadly and without any substantive defences, a deeming provision could expose a corporate officer to liability even if he or she has no involvement in the corporate breach.
14.52At a broader level, there are concerns that corporate officer liability (generally that of directors) will make it harder to attract quality candidates into these positions.335 A survey conducted by the Australian Treasury in conjunction with the Australian Institute of Company Directors provides support for the view that the risk of personal liability can have a negative impact on recruitment and retention.336 The spectre of personal penalty may also cause corporate officers to be unduly risk-averse when making decisions.337 The proliferation of such provisions could therefore have unintended and adverse effects on the economy or the activity being regulated.
14.53The concerns that deeming provisions give rise to are aptly described in the Australian Government Corporations and Markets Advisory Committee Report.338 Although that Report is limited to considerations of criminal liability, the same concerns are relevant in the pecuniary penalty context. These include, but are not limited to the following issues:339
(a) They attach personal liability to corporate officers even where there is no element of personal fault. Personal liability should require a direct relationship between the actions or omissions of individuals and the corporate contravention.
(b) Deeming provisions can be unfair. They can impose liability on individuals who could not reasonably have influenced or prevented the relevant conduct.
(c) Exposure to liability can act as a significant disincentive to people taking on directorships or other senior management roles.
14.54The Report concludes:340

… as a general principle, individuals should not be made criminally liable for misconduct by a company except where it can be shown that they have personally helped in or been privy to that misconduct, that is, where they were accessories.

14.55The Australian Law Reform Commission (ALRC) Principled Regulation Report also recognised the risk of unfairness of deeming provisions. Although recognising that such provisions provide an efficient mechanism for attributing liability to individuals for corporate contraventions, the ALRC Report recommended that deeming provisions “should include a fault element that the individual knew that, or was reckless or negligent as to whether, the contravening conduct would occur”.341
14.56Following these reviews, the Council of Australian Governments (COAG) developed a set of principles for imposing liability on individual corporate officers for instances of corporate fault.342 Although the COAG principles only apply to criminal offences and not to pecuniary penalty provisions, the Guidelines for applying the COAG principles state that:343

[W]here civil penalty provisions take the same form as offence provisions, and the same conduct may lead to both the contravention of an offence and a civil penalty provision, jurisdictions may wish to consider adopting a consistent approach.

14.57The COAG principles apply to individual personal liability that attaches as a consequence of corporate offending or “deemed liability”. They should therefore be considered if deemed liability is to be used in a pecuniary penalty regime. The principles are:344

1. Where a corporation contravenes a statutory requirement, the corporation should be held liable in the first instance.
2. Directors should not be liable for corporate fault as a matter of course or by blanket imposition of liability across an entire Act.
3. A “designated officer” approach to liability is not suitable for general application.
4. The imposition of personal criminal liability on a director for the misconduct of a corporation should be confined to situations where:
(a) there are compelling public policy reasons for doing so (for example, in terms of the potential for significant public harm that might be caused by the particular corporate offending);
(b) liability of the corporation is not likely on its own to sufficiently promote compliance; and
(c) it is reasonable in all the circumstances for the director to be liable having regard to factors including:
(i) the obligation on the corporation, and in turn the director, is clear;
(ii) the director has the capacity to influence the conduct of the corporation in relation to the offending; and
(iii) there are steps that a reasonable director might take to ensure a corporation’s compliance with the legislative obligation.
5. Where principle 4 is satisfied and directors’ liability is appropriate, directors could be liable where they:
(a) have encouraged or assisted in the commission of the offence; or
(b) have been negligent or reckless in relation to the corporation’s offending.
6. In addition, in some instances, it may be appropriate to put directors to the proof that they have taken reasonable steps to prevent the corporation’s offending if they are not to be personally liable.

Examples

14.58An example of this type of provision is contained in s 154I(4) of the Biosecurity Act 1993 (emphasis added):

(4) A court that makes an order under section 154H against a body corporate may also make an order against every director or person concerned in the management of the body corporate if it is proved
(a) that the act or omission that constituted the non-compliance took place with the director or person’s authority, permission, or consent; or
(b) that the director or person knew that the non-compliance was occurring or was to occur and failed to take all reasonable steps to prevent or stop it.
14.59The framing of this subsection (“if it is proved”) suggests that the enforcement agency has the burden of proving the relevant elements of authority, knowledge and reasonable steps, although it is by no means clear.345 This wording can be contrasted with s 57A(1)(b) of the Securities Act,346 which sets out an affirmative defence that a director has the burden of establishing (emphasis added):

57A Which persons are liable for breaches of contributory mortgage regulations
(1) A person is liable for a pecuniary penalty order (section 55C) and for compensation (section 55G) for a breach of regulations made under this Act relating to the offer, sale, or management of interests in contributory mortgages if,—
(a) in the case of a contributory mortgage broker who is an individual, the person acts, or is charged with acting, as the contributory mortgage broker for the contributory mortgage at the time that the breach occurred:
(b) in the case of a contributory mortgage broker that is a body corporate or other body, the person is—
(i) the contributory mortgage broker; or
(ii) a director of the contributory mortgage broker that is acting, or is charged with acting, as the contributory mortgage broker for the contributory mortgage at the time that the breach occurred.
(2) No person who is a director of a contributory mortgage broker shall be liable under subsection (1)(b) if he or she proves that
(a) the breach occurred without his or her knowledge or consent; and
(b) he or she had reasonable grounds to believe and did, up to the time that he or she learned of the breach, believe that the contributory mortgage broker had complied with the regulations made under this Act; and
(c) upon becoming aware of the breach he or she forthwith gave reasonable notice of the breach to the Registrar and any person to whom such notice is required to be given pursuant to regulations made under this Act.
14.60Section 534 of the Financial Markets Conduct Act 2013 provides that every director of a contravening entity, at the time of the contravention, must be treated as also having contravened the relevant disclosure provision. A director has an affirmative defence if he or she proves that they “took all reasonable and proper steps to ensure that [the relevant entity] complied with [the relevant provision]”.347

Conclusion

14.61Deeming provisions can be appropriate in limited contexts, subject to diligent policy analysis. A careful balance is needed of the public interest in providing corporate officers with a personal incentive to ensure corporate compliance on the one hand, and having high-quality personnel in relevant roles on the other.

14.62Consideration should be given to the personal liability risk that the individual is already subject to. While a deeming provision on (for instance) directors in a single statute may not seem overly onerous, a proliferation of deeming provisions across a range of statutes may significantly deter candidates from taking on such roles. The balance struck must take into account the litigation risk imposed on such personnel in other legislation to ensure it is an appropriate reflection of the overall risk faced by those occupying such positions.

14.63Another factor that must be borne in mind is the risk that such provisions could result in overly cautious decision making. In some contexts, this may be a desirable outcome, such as where decisions relate to public safety. However, in other contexts an overly cautious approach may have adverse effects on, for instance, the economy. Of course, the purpose of individual liability is to influence individual decision making. However, it should aim to do so in a manner that still promotes good decision making that is not unduly influenced by personal litigation risk.

14.64With all this in mind, deeming provisions are appropriate in some contexts. One such context may be where there is a very high public interest in corporate compliance because of the risk non-compliance poses to public safety. A deeming provision could be justified to provide corporate officers with a strong personal incentive to take individual responsibility to make sure corporate actions do not endanger the public.

14.65Such provisions may also be appropriate where corporations are voluntarily participating in a highly regulated field. In that context, there is likely to be high awareness of the standards and rules that make up the regulatory regime. The combination of high awareness and voluntary participation may mean it is reasonable to expect corporate officers to bear responsibility for ensuring corporate compliance.

14.66However, it will generally be unreasonable to impose liability on an individual who has acted in a reasonable and diligent manner to ensure corporate compliance. Therefore, such provisions should generally ensure that individuals who have taken reasonable steps to ensure compliance are not liable.

14.67Careful consideration should be given to the framing of the deeming provision. The risks set out above can be reduced if the provision is clear as to when an individual will be exposed to individual liability and what they can do to avoid it. Factors excluding liability may either form part of the “ingredients” of the contravention or an affirmative defence. Such policy decisions will impact on the party that bears the burden of demonstrating the relevant circumstances exist.

14.68As with the framing of defences generally, they should be carefully considered to ensure perverse incentives are not created, such as causing corporate officers to disengage in processes in order to avoid liability.

Imposition of dutiesTop

14.69An alternative to a deeming provision is for legislation to impose a duty on specified corporate officers, with failure to comply with that duty exposing them to a pecuniary penalty or criminal offence.348 A duty could be to put policies and procedures in place to ensure corporate compliance with a regulatory regime. As with deeming provisions, specified individuals are tasked with the responsibility for, and provided with an incentive to ensure, corporate compliance. However, those individuals are not made liable merely as a consequence of corporate default. Instead, the approach places a positive obligation on a corporate officer, with liability attaching only if they breach that obligation. Such an approach arguably more clearly links a corporate officer’s liability with their responsibilities.
14.70An example of this approach is contained in the Anti-Money Laundering and Countering Financing of Terrorism Act 2009. Section 56 of the Act sets out an obligation on a “reporting entity” to implement and monitor a compliance programme. Failure to establish such a programme is a “civil liability act” that gives rise to a pecuniary penalty.349 Although this example applies to a reporting entity, there is no reason why such an approach could not be applied to specific corporate officers such as directors, particularly as directors are already subject to a number of duties under Part 8 of the Companies Act 1993.350

14.71The advantages of this approach are similar to those for deeming provisions. They are an efficient method of providing for corporate officer liability, and they provide certainty as to who is responsible for certain actions. Additionally, they provide certainty to corporate officers as to what they need to do to avoid liability. There is a clear link between the corporate officer’s responsibility and the acts/omissions that make them liable.

14.72The shortfall of this approach may relate to its effectiveness. Such a provision could allow a corporate officer to put in place a process and then absolve themselves from any further responsibility for ensuring it is being followed or is effective. However, careful drafting could ameliorate this risk.

Conclusion

14.73The imposition of duties on corporate officers provides a more nuanced alternative to the deemed liability approach. This could be appropriate where it is necessary for corporations to have appropriate processes and procedures in place in order to comply with a regulatory regime. The provision will need to be carefully crafted to ensure it is effective, with consideration of an ongoing monitoring obligation on the corporate officer.

GUIDELINES

G13 Careful consideration should be given to the attribution of individual and corporate liability for pecuniary penalties

Statutes should be clear as to who is liable and how they are liable. Relevant questions include:

  • What type of conduct (corporate or personal) is the pecuniary penalty seeking to moderate?
  • Is the conduct usually carried out by individuals or corporations?
  • Is the activity one in which the costs of paying the pecuniary penalty could easily be passed onto others (for example, consumers or shareholders)?

If corporations are liable, the following should also be considered:

  • Are the normal rules of agency sufficient to attribute the actions of individuals to the corporation or should there be a specific attribution provision?
  • Should individuals also be liable for the corporate misconduct? Relevant considerations include: whether corporate liability alone is sufficient to promote compliance; and whether an individual would be subject to other disciplinary proceedings in the event of corporate non-compliance.

G14 If there is to be individual liability, generally “concurrent principal liability” or “accessory liability” provisions should be used

There are a number of forms of individual liability. Whichever form is chosen, legislative drafting should be clear as to who is liable, what they are liable for, and what they can do to avoid liability.

Concurrent principal liability and accessory liability both attach to individuals only where they have participated, in some way, in the relevant contravention. Deemed liability, and to an extent, the imposition of duties, do not require such participation and can therefore give rise to fairness issues.

What type of individual liability is appropriate will depend on the regime. Questions to consider include:

  • Does the activity being regulated present a high risk to public safety? Put another way, how serious is the harm that the provision is seeking to avoid?
  • What level of involvement in the physical acts should give rise to personal liability?
  • What degree of knowledge should give rise to personal liability?
  • Might the option expose people to an overly high risk of litigation?
  • Might the option deter quality candidates from taking on roles?
  • Might the provision have an undesirable impact on decision-making and foster overly cautious behaviour?
  • Should liability attach to particular positions within the organisation, or those who perform a particular function?

An alternative to deemed liability is to impose a positive duty on specified corporate officers, with failure to comply exposing those officers to a pecuniary penalty. This approach requires careful drafting to ensure effectiveness.

308Interpretation Act 1999, ss 29, 30. Specific pecuniary penalty statutes may also contain a definition of “person”, which will override the Interpretation Act definition. See, for example, s 6 of the Financial Markets Conduct Act 2013 (“person includes any entity”); s 4 of the Unsolicited Electronic Messages Act 2007 (“person means: (a) an individual; and (b) an organisation”); and s 2 of the Commerce Act 1986 (“Person, includes a local authority, and any association of persons whether incorporated or not”).
309Issues Paper, above n 295, at Q25.
310Companies Act 1993, s 15.
311Susan Glazebrook (ed) Commercial Law in New Zealand (online looseleaf ed, LexisNexis) at [CA15.02].
312See Neil Campbell “Corporate Personality” in Peter Watts, Neil Campbell and Christopher Hare (eds) Company Law in New Zealand (LexisNexis, Wellington, 2011) 27 at [2.3]).
313See Lennard’s Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705 (HL) at 713 where Viscount Haldane LC states:
… a corporation is an abstraction. It has no mind of its own any more than it has a body of its own; its active and directing will must consequently be sought in the person of somebody who for some purposes may be called an agent, but who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation.
314Tesco Supermarkets Ltd v Nattrass [1972] AC 153 (HL).​
315HL Bolton (Engineering) Co Ltd v TJ Graham & Sons Ltd [1957] 1 QB 159 (CA) at 172.
316Tesco Supermarkets Ltd v Nattrass, above n 314 at 170.
317Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 3 NZLR 7 (PC). For discussion of the case, see Peter Watts “Company Law” (1995) NZ Law Rev 237; LS Sealy “The Corporate Ego and Agency Intertwined” (1995) 54 CLJ 507; and Eilís Ferran “Corporate Attribution and the Directing Mind and Will” (2011) 127 LQR 239.
318Meridian Global Funds Management Asia Ltd v Securities Commission, above n 317, at 12 (emphasis in the original). Other examples where insistence on primary and general rules of attribution may be insufficient may include competition laws and health and safety legislation: see John Farrar and Susan Watson (eds) Company & Securities Law in New Zealand (online looseleaf ed, Brookers) at [9.1.5].
319There is some debate over the effect of the different approaches on a corporate officer’s personal liability to a third party when they are acting on behalf of a company: see generally Peter Watts, Neil Campbell and Christopher Hare (eds) Company Law in New Zealand (LexisNexis, Wellington, 2011) at 40–41 and 96–109; and Farrar and Watson, above n 318, at [9.3.1] and [9.3.4].
320Farrar and Watson, above n 318, at [9.1.5]. See also Lord Cooke “Corporate Identity” (1998) 16 C&SLJ 160 at 163 where he states, “Meridian is a useful reminder that questions of corporate criminality arising under statute must ultimately be governed by the terms and purposes of the offence-creating provision.”
321See Brent Fisse and John Braithwaite “The Allocation of Responsibility for Corporate Crime: Individualism, Collectivism and Accountability” (1988) 11 Syd LR 468 at 490 for discussion about the importance of corporate image. See also Brent Fisse “Reconstructing Corporate Criminal Law: Deterrence, Retribution, Fault, and Sanctions” (1983) 56 S Cal L Rev 1141.
322Law Reform Commission of Canada Criminal Responsibility for Group Action (Working Paper 16, 1976) at 31.
323Corporation and Markets Advisory Committee Personal Liability for Corporate Fault: Discussion Paper (May 2005) at 15.
324See also Michelle Welsh and Helen Anderson “Directors’ Personal Liability for Corporate Fault” (2005) 26 Adel L Rev 299 at 301.
325Commerce Act 1986, s 80(2).
326Commerce Amendment Bill 1999 (296-2) (select committee report) at 26. See also Jill Mallon and Jenny Stevens “Commerce Act Penalties for Individuals” (2001) NZLJ 339 at 339, where the amendments were described as aiming “to deter by increasing the likelihood that individuals will be penalised”.
327Australian Law Reform Commission Principled Regulation: Federal Civil & Administrative Penalties in Australia (ALRC R95, 2002) at 310–312; Corporations and Markets Advisory Committee Personal Liability for Corporate Fault (September 2006) at 26–27; and Fisse and Braithwaite, above n 321.
328See for example, the Unsolicited Electronic Messages Act 2007, which targets both individuals and corporations.
329See Council of Australian Governments principles listed in this Report at [14.59].
330Megavitamin Laboratories (NZ) Ltd v Commerce Commission and Commerce Commission v Stewart, (1995) 6 TCLR 231 (HC), at 236.
331Commerce Commission v Wrightson NMA Ltd, above n 303, at 11.
332Giltrap City Ltd v Commerce Commission, above n 307, at [52] (emphasis in the original).
333Giltrap City Ltd v Commerce Commission, above n 307, at [53] and [56] (emphasis in the original). See also Megavitamin Laboratories (NZ)
Ltd v Commerce Commission 
and Commerce Commission v Stewart, above n 330, at 244–245.
334See the submissions of the New Zealand Bar Association and the Institute of Directors.
335Corporations and Markets Advisory Committee, above n 327, at 32.
336Australian Institute of Company Directors “AICD welcomes findings on director liability” Company Director (Australia, 1 February 2009). See also Parliamentary Joint Committee on Corporations and Financial Services Inquiry into the Personal Liability for Corporate Fault Reform Bill 2012 (October 2012) at 12; and Australian Institute of Company Directors Impact of Legislation on Directors (November 2010) at 4.
337See generally Ronald J Daniels “Must Boards go Overboard? An Economic Analysis of the Effects of Burgeoning Statutory Liability on the Role of Directors in Corporate Governance” (1994) 24 CBLJ 229; and Welsh and Anderson, above n 324.
338Corporations and Markets Advisory Committee, above n 327.
339At 30.
340At 33.
341Australian Law Reform Commission, above n 327, at 328–329.
342Council of Australian Governments Personal Liability for Corporate Fault – Guidelines for applying the COAG Principles (July 2012); Personal Liability for Corporate Fault Reform Bill 2012 (Cth).
343At [2.2], note 1.
344At [3.1].
345See the Issues Paper, above n 295, at [6.45]–[6.48]; above, ch 8.
346This provision has been repealed by the Financial Markets (Repeals and Amendments) Act 2013, but remains in force in relation to existing contributory mortgages: Financial Markets Conduct Act 2013, s 53.
347Financial Markets Conduct Act 2013, s 501(2).
348See also Welsh and Anderson, above n 324, at 316–317.
349Anti-Money Laundering and Countering Financing of Terrorism Act 2009, s 78(f).
350See also Corporations Act 2001 (Cth), s 1317E (table includes duty provisions as civil penalty provisions); Commonwealth Authorities and Companies Act 1997 (Cth), sch 2.