Nature of pecuniary penalties
Fundamental features of the nature of pecuniary penalties
4.7In the Issues Paper, we described pecuniary penalties as a grave form of State punishment that can have serious financial and reputational implications for a defendant. We noted, however, that pecuniary penalties are not as severe as criminal offences because they do not carry the stigma of criminal conviction. Clearly the penalty is less severe than one of imprisonment.
4.8No one has disagreed with this view. Submitters considered pecuniary penalties to be a “middleground” or “quasi-criminal” sanction, whose severity should be acknowledged.
4.9The Commission identifies, then, the following features as being fundamental to the nature of pecuniary penalties:
- Pecuniary penalties are investigated, sought and imposed by the State for breaches of statutory prohibitions.
- They aim to deter such breaches by the threat of punishment.
- They can result in the imposition of a severe penalty.
4.10We expand on these features below. It is notable that they are shared to some extent with both criminal offences and infringement offences.
Pecuniary penalties are investigated, sought and imposed by the State for breaches of statutory prohibitions
4.11Pecuniary penalties are sought by the State against its citizens, acting in and on behalf of the public interest (rather than as a litigant in its own interests). In investigating conduct that can result in a pecuniary penalty, State enforcement bodies are armed with intrusive investigative powers to identify and establish breach. For the enforcement bodies in question, those powers are the same as, or may in some ways be more profound than, the powers they use in criminal investigations.
4.12This has a number of implications for how pecuniary penalties ought to be imposed. In particular, their design needs to give appropriate recognition to the potential imbalance between the parties concerned. In some circumstances, that imbalance will be less acute than others – for example because of the resources that well-funded defendants may have at their disposal. However, while many pecuniary penalty provisions have been designed with large corporate offenders in mind, they can also be imposed on individuals, sole traders, and small- and medium-sized enterprises.
4.13It is the Commission’s view that procedural protections should not be designed with the best-armed and most capable defendant in mind. Rather, they should protect the potentially vulnerable. As we emphasise repeatedly in this Report, however, this does not mean that the relaxation of procedural protections would never be warranted depending on the particular needs of some regimes.
4.14For immediate purposes, this feature of pecuniary penalties means that describing them as “civil” is inapt. Adoption of that term has been driven by the fact that the New Zealand court system exhibits a fundamental dichotomy between civil and criminal proceedings. Any matter that is not pursued in criminal proceedings is liable to be branded, by process of elimination, as “civil” within that dichotomy. In reality, the term “civil” relates to matters concerning citizens, and “civil law” is the branch of law that deals with the resolution of legal issues between private parties. Pecuniary penalties do not arise in this context: like criminal offences, they arise within the field of public law, which concerns the relationship between the State and its citizens. Therefore, application of the term “civil” is liable to mislead. In its submission, Bell Gully expressed concern that the use of that label risks encouraging the unthinking application of civil rules, and a perception that pecuniary penalties are an easy way to punish and deter, while neatly sidestepping the rules and protections of the criminal law. We agree that is a risk.
4.15Throughout this Report, we have adopted, instead, the term “pecuniary penalty”. We acknowledge that the term “pecuniary” may strike some as obscure. However, it is important that statutes adopt a consistent term that differentiates these penalties from others on the statute book. The term “pecuniary penalty” is already used in a number of the existing statutes. It should be used uniformly in the future. The goals of consistency between statutes and accessibility of the law favour the amendment of existing pecuniary penalty statutes where they employ a different term.
G1 The term “pecuniary penalty” should be used consistently to describe non-criminal monetary penalties that are imposed by a court in civil proceedings
Consistent terminology should be used in statutes for novel forms of penalty or order. Use of consistent terminology makes the statute book clearer and more accessible. It helps the public understand the nature of their liabilities and removes the need for enforcement bodies and the court to assess how to employ novel tools and impose them fairly.
Pecuniary penalties aim to deter breach of the law by the threat of punishmentTop
4.16Pecuniary penalties are one of a number of orders on the statute book designed to tackle illegal conduct. Others include: criminal penalties; infringement offences; administrative penalties; compensation orders; management bans; injunctions or cease and desist orders; orders for the disposal of property; the seizure of forfeited goods; and other orders that can follow criminal charges, such as diversion, reparation, and orders that seek to remove the proceeds of criminal offending or strip any financial gain. Those orders serve different purposes and place varying emphasis on the interests of denunciation, deterrence, protection of the public, rehabilitation, reparation of harm, stripping of profit and encouragement of compliance with the law. They have a varying impact on a person’s freedom, solvency, business and property interests, reputation, and employment opportunities. Any policy decision to introduce one or more of these orders into legislation must be taken in light of the purpose they serve, and their design must take account of their varying impacts.
4.17Pecuniary penalties are primarily concerned with deterring illegal conduct. In general, it can be said that they differ from many criminal offences in this respect because, while the criminal law aims to deter, its greatest emphasis is generally on denunciation. However, this does not mean that pecuniary penalties have no denunciatory impact or purpose. Pecuniary penalties deter by the threat of punishment. They single out a person or entity as having breached the law and inflict a negative consequence. Their purpose is also therefore both deterrent and denunciatory.
4.18Although they may be used in concert with other measures – for example, compensation orders and management bans – their impact is punitive. The vast majority of penalties play no role in providing compensation for victims or repairing harm. While many have the impact of stripping financial gain, that is not the measure of the penalty. It is clear from policy documentation, legislation and case law that the actual penalty imposed should exceed mere profit-stripping. Pecuniary penalties must also be distinguished from compensatory and profit-stripping measures because they can be imposed whether or not harm has been caused, and whether or not profit has been made as a result of the law-breaking activity. Mere breach is enough.
4.19Pecuniary penalties are sometimes described as having the predominant aim of promoting compliance with the law. Certainly, they are often used within regimes where a regulator’s prime task is to promote compliance, and where it has an escalating hierarchy (or pyramid) of tools at its disposal to fulfil this task. The range of tools usually includes more benign interventions such as education and warning notices. However, the fact that pecuniary penalties are included in regimes with this overall aim does not diminish their position near the apex of the hierarchy, as the “stick” that is used to punish non-compliance. It is possible that the aim of promoting compliance influences some aspects of the design of pecuniary penalties (such as the maximum penalty quantum that is set by the statute). However, we do not consider it should be determinative of which core procedural protections should apply.
Pecuniary penalties can result in the imposition of a severe penaltyTop
4.20Pecuniary penalties carry potentially very significant maximum penalties. Those penalties must be viewed in the light of the actors they target and the sums actually imposed. To date, pecuniary penalties are most frequently found in statutes relating to corporate contraventions undertaken for financial gain: the maximum penalties are set with this context in mind, at a level that aims to effectively deter the most deep-pocketed corporate actors. From one point of view, it follows that they are not excessively severe, since the penalty imposed may not be that substantial in terms of the actual impact on the defendant. However, as noted above, most pecuniary penalties can be imposed on a range of potential defendants of varying size and financial capacity.
4.21We have considered how pecuniary penalties compare to other punitive measures. The two most analogous are criminal penalties and infringement offences. When Parliament is considering how to deter conduct by way of the threat of a penalty, these three options are open. At the extremes, criminal penalties are clearly more punitive, and infringement penalties considerably less punitive, than pecuniary penalties. A finding of criminal guilt results in a conviction and sometimes the deprivation of liberty. However, at the margins there may be overlap in the severity of criminal and pecuniary penalties. First, some maximum pecuniary penalties are higher than the monetary criminal penalties that target similar behaviour. For example, the Securities Act 1978 has both pecuniary penalties and criminal offences for misstatement in an advertisement or registered prospectus. The maximum pecuniary penalties are $500,000 (individual) or $5 million (body corporate). The maximum criminal penalties are five years’ imprisonment or $300,000. There may be some valid reasons for why criminal offences tend usually to carry lower maximum financial penalties. We discuss these in Chapter 14. However, for our purposes here, the point is that pecuniary penalties pose the risk of a very high monetary penalty.
4.22Secondly, where only corporate offenders are concerned, it is arguable that criminal and pecuniary penalties are indistinguishable in their impact on an offender as corporate bodies cannot be incarcerated. Differences might arise because of any additional stigma that attaches because of the label of criminality. However, views differ on the extent to which such stigma attaches to corporate bodies. The question of stigma is complex and we discuss it further at [4.24] below.
4.23For an individual, a criminal offence is likely to be considered substantially graver, because pecuniary penalties do not involve imprisonment, nor do they have the “arguably unique sanctioning characteristic of criminal liability”, namely, the stigma of criminal conviction. As we stated in the Issues Paper, the significance of these two distinctions should not be understated. Pecuniary penalty proceedings involve no chance of arrest, remand in custody or on bail, or imprisonment. At least for the individual, one would expect that the stigma of criminality is worse than the reputational impact that may be caused by a pecuniary penalty. The business community’s current resistance to the prospect of the criminalisation of cartel conduct indicates that the threat of a criminal conviction is considered to be far more serious than pecuniary penalties in that area.
4.24Consideration needs to be given to the weight that should be accorded to a criminal conviction as a unique penalty in its own right. It is true that practical consequences flow from a criminal conviction. It can impede an individual’s ability to travel and find work. In some cases this is as a result of legislation. For example, a person may not be registered as a health practitioner if he or she has been convicted of an offence punishable by imprisonment for a term of three months or longer, unless the responsible authority is satisfied that the offence does not reflect adversely on the person’s fitness to practise. However, in other cases the practical consequences are matters of convention only. If pecuniary penalties are more widely adopted to deal with law-breaking conduct, employers and immigration agencies may start to ask individuals whether they have ever been found liable to pay one. The extent of the negative impact that pecuniary penalties might have on a person’s prospects may therefore increase.
4.25The second relevant feature of a criminal conviction is what is generally referred to as its stigmatising effect – that is, the disgrace or discredit it attaches to a person and the consequent negative impact on that person’s reputation. It is not the case that a quantifiable or uniform degree of stigma attaches to each criminal conviction; rather, it varies according to factors such as the type of offending, how many people know about the conviction, the background of the offender, and the views and experience of the people who know about it. The same is true of the stigma attaching to criminal offences and pecuniary penalties. Some people may view more seriously a finding of liability for a pecuniary penalty for making untrue statements in a registered prospectus that led to financial loss for investors, than a conviction for careless driving. Individual and general public perceptions of the particular conduct that led to the penalty will have an influence. Therefore, the stigmatising effect of a pecuniary penalty may sometimes be less than or sometimes more akin to that of a criminal conviction. In some instances, a penalty’s impact on reputation will be very significant. Media coverage of pecuniary penalties reinforces this point, since it rarely makes it clear to the reader that the breach is civil rather than criminal, and frequently adopts language, including the words “fine” and “offending”, that is associated with the criminal law.
4.26Our point in this discussion is to illustrate that it is simplistic to state that pecuniary penalties should be dealt with entirely differently from criminal offences simply because a conviction does not result. There are differences between the punitive impacts of criminal and pecuniary penalties. Conviction and imprisonment remain the gravest forms of penalty and condemnation in our law. But the potential severity of pecuniary penalties is such that it should not be ignored or minimised when decisions are made about how they ought to be imposed.
G2 Pecuniary penalty regimes must be designed with their punitive nature in mind
Although their primary purpose may be deterrence, pecuniary penalties are punitive in nature. They can have a potentially severe impact on a person or entity’s solvency, property interests, reputation and opportunities. Pecuniary penalty regimes must be designed with this in mind.