Contents

Chapter 16
Fixing penalties

Court imposition of penalties

16.43In individual cases, it is for the court to determine where the conduct falls within the range stipulated by Parliament and what size penalty is appropriate. Some existing pecuniary penalty statutes provide guidance for the courts as to:

16.44In the Issues Paper, we asked whether statutes should continue to adopt an approach of providing guidance to courts, and whether there was a core list of factors that might be relevant to a judge’s assessment of the appropriate penalty. We also noted that some have argued that in addition to a statutory list of factors, courts should draw on criminal sentencing practice.445
16.45The High Court has already implicitly and explicitly adopted aspects of criminal sentencing in its penalty judgments under the Commerce Act,446 and use of a framework broadly based on the criminal law sentencing approach has been praised as being more transparent and predictable than that of previous cases, where the Court tended to list the factors relevant to the exercise of its discretion and then arrive at a global penalty figure.447 However, in Commerce Commission v EGL Inc, the Court warned against taking the analogy too far, as the objectives of criminal sentencing may differ markedly from those served by pecuniary penalties.448 Several submitters supported the courts being able to draw on sentencing practice in the criminal law, but also emphasised that analogies should be made critically. We agree with the need for a transparent and predictable approach to imposing pecuniary penalties, and support the direction taken by the courts.
16.46Submitters generally supported legislation providing guidance to courts on when to impose pecuniary penalties, as it could lead to more consistent and transparent outcomes. In terms of what the court should consider, the New Zealand Law Society suggested factors such as “the nature and extent of the contravention” and “the nature and the extent of any loss or damage”. Bell Gully, the New Zealand Bar Association and Donald Mathieson QC expressly stated that a single set of factors should be used. This is, perhaps, unsurprising, as courts’ discretion as to the level of penalty also encompasses the decision to impose a penalty of $0 (that is, no penalty) or a nominal penalty.449 We agree that a single list of factors should be relevant to both issues (that is, whether a penalty should be imposed and what level that penalty should be).

16.47We identified the following “core” factors that were contained in a number of pecuniary penalty provisions to guide courts as to the level of penalty:

16.48We asked submitters whether these were appropriate factors to be set out in legislation to provide guidance to courts in determining quantum. We also asked whether any other factors were relevant. Submitters identified the following:

16.49The Parliamentary Counsel Office (Commercial Team), Bell Gully and Meredith Connell emphasised that what factors will be relevant is highly context dependent. Accordingly, any list should be non-mandatory and non-exhaustive. We agree, particularly given our expectation that the use of pecuniary penalties will continue to grow. The lack of consensus among submitters as to which factors are relevant also confirms our view.

16.50However, we think that the relative novelty of pecuniary penalties means some guidance to courts will often be desirable. It would be useful for policymakers to consider whether a pecuniary penalty provision should include the core factors listed at [16.47] when designing a pecuniary penalty provision. These factors are contained in several pecuniary penalty regimes and were also identified by the New Zealand Law Society, the Parliamentary Counsel Office (Commercial Team) and the New Zealand Bar Association as likely to be relevant in most cases. In addition, the factors listed at [16.48] above, and at [7.56] and [7.58] of the Issues Paper, may also be relevant to specific regimes. Which factors will be relevant will depend on the features of the specific legislative regime and what it is seeking to achieve.

16.51Finally, we have also considered whether, in regimes where more than one civil order can be imposed on a person for the same conduct, the court should take into account whether any other such orders have been imposed and their effect.456 Section 48 of the Unsolicited Electronic Messages Act 2008 defines orders for pecuniary penalties, compensation and damages as “civil liability remedies”. When imposing a civil liability remedy, the court must have regard to whether any other civil liability remedy has been imposed for the same civil liability event and, if so, the amount and effect of the first civil liability remedy.457
16.52This led us to consider, in the Issues Paper, whether the possibility of multiple orders of a different nature, being imposed for the same conduct, raises double punishment concerns. We recognised that different orders serve different functions; for example, management bans also serve a protective function and compensation orders obviously are intended to compensate victims of the conduct.458 But we asked (at question 16 of the Issues Paper) whether the potentially punitive effect of those other orders should be taken into account by a court imposing a pecuniary penalty. Management bans, for example, can have serious financial consequences for individuals, and it may be that the court should take that into account when determining the quantum of a pecuniary penalty for the same conduct.459
16.53Several submitters agreed.460 The Law Society noted that the totality approach should apply, so that where a regime provides for the making of multiple orders, the overall cumulative effect of those orders must remain proportionate to the alleged breach. Submitters noted that the financial consequences of a management ban combined with further financially punitive penalties could be disproportionately harsh, so mechanisms are required to enable the courts to take this into account.

16.54However, some disagreed. Meredith Connell noted that, in their experience, courts are already conscious of other sanctions imposed on a particular defendant in relation to contravening conduct. Including this as a specific factor might therefore be unnecessary. They emphasised that each order serves a different purpose. This point was also emphasised by the Parliamentary Counsel Office (Commercial Team) (PCO). Since the purpose of the civil remedy or management ban is likely to be quite different, the court should not necessarily give any weight to the fact that one has been imposed. Its only relevance, if at all, should be whether it negates the person’s ability to pay the penalty. However, nor did PCO think the court should be prevented from having regard to other civil remedy orders (including forfeiture orders) that had been imposed.

16.55We recommend, in Chapter 10 of this Report, that there be a statutory bar against a pecuniary penalty and a criminal penalty being imposed for the same conduct, and against several pecuniary penalties being imposed for the same conduct. We do not propose a bar against the possibility of a pecuniary penalty and a form of civil order such as a management ban, or a pecuniary penalty and a forfeiture order, or a pecuniary penalty and an order for compensation.

16.56However, we agree with the view that the totality principle should be applied by courts when imposing pecuniary penalties and other orders. We do not consider there is a need for statutory direction about this matter.

Takeovers Act 1993, section 33M(c)

16.57In the Issues Paper, we asked whether providing a “threshold” of seriousness, such as that contained in section 33M(c) of the Takeovers Act, creates any difficulties. That provision states that a court:

(c) may order the person to pay a pecuniary penalty that the court considers appropriate to the Crown … if satisfied that the person has contravened the takeovers code, that the person knew or ought to have known of the conduct that constituted the contravention, and that the contravention—
(i) materially prejudices the interests of offerees, the code company, the offeror or acquirer, competing offerors, or any other person involved in or affected by a transaction or event that is or will be regulated by the takeovers code, or that is incidental or preliminary to a transaction or event of that kind; or
(ii) is likely to materially damage the integrity or reputation of any of New Zealand’s securities markets; or
(iii) is otherwise serious.

16.58The Takeovers Panel considered that restricting the court’s discretion to impose a penalty only for serious breaches of the Takeovers Code would be appropriate. However, it noted that the threshold remains untested, so it is unclear if its application to a particular case will cause problems.

16.59It is not clear to us what a threshold of “seriousness” for imposing penalties achieves. It means that an enforcement agency has to jump over two hurdles to successfully obtain a pecuniary penalty: proving that the contravention occurred, and then proving that it is serious enough to merit a penalty. The term is also somewhat vague and uncertain. It is not clear whether “serious” relates to the consequences of the contravention, the intention of the person behind the contravention (for example, was it deliberate), or both. These uncertainties could act as a disincentive to pursue a pecuniary penalty. The Parliamentary Counsel Office (Commercial Team), in its submission, also noted that a seriousness threshold seems inconsistent with the hierarchy of enforcement options as between civil and criminal options.

16.60If there is a legitimate reason for only serious contraventions to be punished, then it seems best for this to be incorporated into the elements of the breach, rather than the question of whether a penalty should be imposed at all. Alternatively, regulators’ enforcement guidelines could set out relevant factors to consider when exercising their prosecutorial discretion, in much the same way that the Solicitor-General’s Prosecution Guidelines provide that the predominant public interest consideration relevant to the decision whether to prosecute is the “seriousness of the offence”.461

16.61Our view is that it will often be most relevant and appropriate for any “seriousness” to be considered at the time a court is determining the level of penalty. This accords with submissions by the Financial Markets Authority, New Zealand Law Society and New Zealand Bar Association.

GUIDELINE

G18 Pecuniary penalty statutes should provide guidance to courts about the circumstances when a penalty should be imposed and the amount of the penalty

Pecuniary penalties are a relatively novel form of penalty and there is a limited amount of case law to guide courts when determining penalties. Policymakers should consider what factors should be considered by the court under the particular regime. As a minimum, pecuniary penalty statutes should usually include the following guidance:

  • the nature and extent of the breach;
  • any loss or damage caused by the breach;
  • any financial gain made, or loss avoided, from the breach;
  • whether the breach was intentional, inadvertent or negligent;
  • the level of penalties imposed in previous similar situations; and
  • the circumstances in which the breach took place.
445B Hamlin and M Sumpter “Fixing the price of Commerce Act breaches” [2011] NZLJ 230 at 233–234.
446Commerce Commission v Alstom Holdings SA [2009] NZCCLR 22 (HC) at [14].
447Hamlin and Sumpter, above n 445, at 231.
448Commerce Commission v EGL Inc HC Auckland CIV 404-2010-5474, 16 December 2010 at [13]–[14].
449Such as in Commerce Commission v Otago and Southland Vegetable and Produce Growers’ Association (Inc) (1990) 4 TCLR 14 (HC), in which Holland J imposed nominal penalties of $5 on the defendants.
450Ministry for Primary Industries, the New Zealand Bar Association and Donald Mathieson QC.
451Ministry for Primary Industries and the New Zealand Bar Association.
452Air New Zealand and the New Zealand Bar Association.
453Air New Zealand and the New Zealand Bar Association.
454New Zealand Bar Association.
455Air New Zealand and the New Zealand Bar Association.
456We originally discussed this in the double jeopardy section of our Issues Paper, above n 432, at Q16 and associated paragraphs.
457Section 48. See also Commerce Act 1986, s 82A: the court must take into account whether a pecuniary penalty has been imposed when deciding whether to make an order for exemplary damages for a breach of Part 2 of the Act. Other relevant provisions include the Securities Markets Act 1988, s 43J: only one management ban may be imposed for the same conduct, including where the provisions are in separate statutes; and the Securities Trustees and Statutory Supervisors Act 2011, where contravention of a licensee obligation could occur under that Act as well as a number of other Acts containing these obligations (s 4, definition of “licensee obligation”).
458See for example Securities Act 1978, s 57B; Securities Markets Act 1988, s 42ZG; and Takeovers Act 1993, s 43. See also Australian Law Reform Commission Principled Regulation: Federal Civil and Administrative Penalties in Australia (ALRC R95, 2003) at [27.50] and [27.53].
459Issues Paper, above n 432, at [30.62].
460New Zealand Law Society, Ministry for Primary Industries, New Zealand Bar Association and Air New Zealand.
461Crown Law Office Solicitor-General’s Prosecution Guidelines (2013) at [5.8.1].