# Chapter 6 The critical issues

## Standard of proof

6.15Most civil pecuniary penalty statutes specify that the usual standard of proof in civil proceedings applies.

6.16Two Acts are silent as to the standard of proof.251  The Overseas Investment Act 2005 provides a different formulation:252

For the purposes of this section, the Court must determine whether a person’s conduct falls within subsection (1) (contravention of Act, etc) on a balance of probabilities.

Determining what is the “usual standard of proof” employed in civil proceedings is open to some debate. It is true that New Zealand common law recognises a single civil standard of proof. But the courts’ “flexible” application of the standard to meet the demands of justice in a particular case has created some confusion as to its exact nature, and in some civil proceedings, a criminal standard of proof applies.

6.17It is possible that the standard of proof will arise for debate in proceedings for civil pecuniary penalties in the future. It has been considered briefly in cases under the Commerce Act 1986, and in more depth in Australian case law.

6.18In the Law Commission’s view, there should be a consistent provision on the standard of proof in civil pecuniary penalty statutes. Below, we consider what it should say.

### Legal standards of proof

6.19New Zealand common law recognises only two standards of proof:253  the civil standard; and the criminal standard, requiring proof beyond reasonable doubt. Other standards might also be imposed by statute in respect of particular offences or causes of action, although there are no examples of this in New Zealand.254

#### The civil standard of proof

6.20The civil standard of proof is widely understood to require facts to be proved on the balance of probabilities, or shown as more probable than not. In crude mathematical terms, this might be described as meaning that the party whose case reaches a probability threshold of at least 51 per cent will meet the required standard of proof.255  However, this standard may be “flexibly applied”.256  This means that the court will take into account the seriousness of the alleged act or conduct and the potential consequences to the defendant if it is proved, when determining whether or not the standard has been reached.257  So, where civil proceedings involve particularly grave matters, the court may require stronger evidence before it is satisfied the civil standard has been reached: examples include cases concerning fraudulent misrepresentations;258  professional misconduct;259  establishing paternity;260  the question of whether someone is an undischarged bankrupt;261  access orders in family law;262  administratively imposed penalties under the Social Security Act 1968;263  and tax penalties.264
6.21The Supreme Court has said this approach is long-established and sound in principle and that “in general, it should continue to apply to civil proceedings in New Zealand.”265
6.22This approach to the civil standard of proof reflects courts’ ability to tailor their procedures to give effect to the demands of justice. It is the seriousness of the act or conduct and its potential consequences if proved that is relevant, rather than the procedural or legal setting.266  In Z v Dental Complaints Assessment Committee a majority of the Supreme Court confirmed that this approach does not amount to a third, modified standard of proof under common law:267

In New Zealand it has been emphasised that no intermediate standard of proof exists, between the criminal and civil standards, for application in certain types of civil case. Balance of probabilities still simply means more probable than not. Allowing the civil standard to be applied flexibly has not meant that the degree of probability required to meet this standard changes in serious cases. Rather, the civil standard is flexibly applied because it accommodates serious allegations through the natural tendency to require stronger evidence before being satisfied to the balance of probabilities standard.

6.23This approach is also generally accepted in the United Kingdom268  and in Australia, where it has been enshrined in statute by s 140 of the Evidence Act 1995 (Cth):269
140 Civil proceedings: standard of proof
(1) In a civil proceeding, the court must find the case of a party proved if it is satisfied that the case has been proved on the balance of probabilities.
(2) Without limiting the matters that the court may take into account in deciding whether it is so satisfied, it is to take into account:
(a) the nature of the cause of action or defence; and
(b) the nature of the subject matter of the proceeding; and
(c) the gravity of the matters alleged.
6.24There has been much debate about the courts’ application of this standard in Australia, stemming largely from conflicting interpretations of their foundational case in that jurisdiction, Briginshaw v Briginshaw,270 and Sir Owen Dixon’s assertion in that case of the need for an “actual persuasion” or “belief” in the matters to be proved on the civil standard. However it now seems clear that the Briginshaw approach does not represent a third standard of proof, as is reinforced by s 140.271

#### The criminal standard of proof

6.25In contrast to the civil standard, the criminal standard of proof – beyond reasonable doubt – is more rigid and is generally strictly adhered to throughout common law jurisdictions. Neither the standard itself nor the evidence required to meet it is said to fluctuate. This is because of the inherent seriousness of criminal matters and the need to protect the accused, and in particular the need to protect innocent persons from conviction.272  While it is referred to as the criminal standard, proof beyond reasonable doubt is also required in proceedings for civil contempt, because there is a risk of imprisonment273  and for orders under the Children, Young Persons, and Their Families Act 1989 declaring that a child or young person is in need of care or protection on the grounds that he or she has committed an offence.274
6.26Proof beyond reasonable doubt is also the standard on which pecuniary penalties are imposed for contractual and statutory breaches under the Employment Relations Act 2000. The use of that standard gained an established history in the Labour Court, on the grounds that the penalties are imposed on the basis of absolute liability.275  Contrastingly, proceedings to recover arrears of wages or for compliance orders under that Act are imposed on the civil standard. The Act’s penalties are clearly viewed in a serious light which warrants the use of a higher standard, even though enforcement proceedings are civil in character.276  The Employment Court continues to impose penalties on the criminal standard of proof, although judges have expressed reservations about the appropriateness of that standard.277

#### A third standard of proof?

6.27As noted, New Zealand does not recognise a third standard of proof, however the position in the United States is different. There, the common law provides for a third standard of proof, which falls between the criminal and civil standards. The standard has been variously described as requiring “clear and convincing”, “clear, convincing and satisfactory” or “clear, cogent and convincing" evidence.278  It is generally applied in high-stakes proceedings involving deprivations of individual rights not rising to the level of criminal prosecution (for example in cases about termination of parental rights279 and deportation280); and in cases where stronger evidence is required because there is thought to be “special danger of deception” (for example, suits to establish the terms of a lost will281 and suits for the specific performance of an oral contract282). It has not been applied to actions for civil pecuniary penalties.

### Standard of proof in civil pecuniary penalty proceedings

6.28In Commerce Commission v Siemens AG, Woodhouse J applied the civil standard of proof to s 27 of the Commerce Act 1986, noting that “[t]he standard of proof is the balance of probabilities, but it is to be applied ‘flexibly’; with due regard to the gravity of what is alleged, taking into account the seriousness of the matters to be proved”283  A similar approach was taken to penalties sought under the business acquisitions provisions of the Commerce Act (what was then s 50) in Commerce Commission v Fletcher Challenge.284
6.29There may still be some room, however, for debate about whether this approach to the civil standard is correct for all civil pecuniary penalties. It has advantages and disadvantages. Its flexibility enables a court to tailor its procedures according to the demands of justice. In civil pecuniary penalty proceedings the size of the penalty; the nature of the conduct targeted; and broader public policy may feed into that assessment. This could be useful where a single civil pecuniary penalty provision targets a range of conduct that varies in seriousness and potential consequences for the defendant if proven.285  However, the corollary to this flexibility is inconsistency and uncertainty. Different courts and judges are likely to take different views on a penalty, so the flexible application of the standard is more likely to lead to inconsistent results than if a fixed standard were settled on.286  This may make it hard for regulators and defendants to know how much evidence is required to establish a contravention.
6.30The standard itself has also been criticised as conceptually confused and lacking transparency. There is conflict as to its underlying rationale287  and in some cases it has led to suggestions that it is employed as an intermediate standard,288  although as noted this has since been firmly rejected by our Supreme Court in Z v Dental Complaints Assessment Committee. Yet, even in that case the Supreme Court was divided as to the value of this approach to the civil standard: McGrath J on behalf of the majority approved it as “a straightforward test with conceptual integrity”,289  but Elias CJ thought that it risked inconsistency and inequality in the treatment of like cases.290  In Australia, despite statutory codification of the test, courts are still said to apply a heightened standard which more closely approximates the criminal standard of proof, an approach that has been criticised for fettering the regulatory effectiveness of civil pecuniary penalties.291  Similar debates have arisen in the United Kingdom.292

#### What should statutes using civil pecuniary penalties provide?

6.31One option is that civil pecuniary penalties should be imposed on the criminal standard of proof. This option might be favoured if it is considered that the nature of civil pecuniary penalties is so grave as to approximate to criminal punishment. It might also be favoured if it is accepted that only two standards of proof are recognised in New Zealand, and that the civil standard does not adequately acknowledge their punitive nature. Imposition of the criminal standard, however, would remove what must, admittedly, be considered to be the attraction of civil pecuniary penalties for enforcement bodies: that is that they are easier to impose.

6.32A second option would be to legislate for an intermediate standard of proof applicable to actions for civil pecuniary penalties – requiring, for example, “clear and convincing” evidence or some similar formulation such as in the United States. It might be thought that such a standard would appropriately balance the punitive nature of civil pecuniary penalties against the need for regulatory effectiveness. There are, however, no New Zealand precedents for such a standard.

6.33One of these two options might be thought particularly appropriate if it is envisaged that civil pecuniary penalties should expand outside a narrower “regulatory” field, into the broader range of human conduct.

6.34A third option would be to dictate that civil pecuniary penalties should be subject to a strict and inflexible application of the civil standard of proof. If this option were taken, it might be seen to prioritise the interest in regulatory effectiveness over fairness. This approach has been contended for in Australia, on the grounds that the civil standard as it is currently applied has been used by the courts to effectively require a standard of proof that too closely resembles “beyond reasonable doubt”, and thereby inhibits the adequate enforcement of regulatory regimes.293  It could also be argued for on the basis that, in civil pecuniary penalty proceedings, the seriousness of the conduct should be taken into account at the penalty setting stage, not at the stage of determining liability.
6.35We note that this approach might currently be more likely under the Overseas Investment Act 2005 given that Act’s explicit reference to the balance of probabilities, although this may simply reflect a change in drafting approach.294

6.36A fourth option is to retain the status quo. That is to include a provision that the “usual” civil standard of proof applies. If it were thought that there was a lack of clarity in this formulation, however, consideration could be given to giving courts greater guidance in how they determine whether the standard has been reached by following the precedent set by s 140 of the Evidence Act 1995 (Cth). Would this add desirable clarity and consistency to the application of the civil standard of proof in civil pecuniary penalty proceedings?

Q5Should civil pecuniary penalty statutes contain a uniform standard of proof provision and, if so, what should it contain?

251The Financial Advisers Act 2008, s 137K and Financial Service Providers (Registration and Dispute Resolution) Act 2008, s 79A state that the Court must be “satisfied” of a contravention before ordering a pecuniary penalty. The courts have held that use of the term “satisfied” does not connote any notion of the correct standard of proof to apply: see Z v Dental Complaints Assessment Committee [2008] NZSC 55, [2009] 1 NZLR 1 at [96].
252Overseas Investment Act 2005, s 48(4) (emphasis added).
253Z v Dental Complaints Assessment Committee, above n 251 at [26].
254Some statutes use a threshold of “reasonable grounds to suspect” for preliminary matters, such as for the exercise of police powers under the Search and Surveillance Act 2012. Previously, orders under the Securities Markets Act 1988 could be made where a court had “reasonable grounds to suspect” non-compliance, but courts expressed discomfort with the combination of a low standard of proof and the range of serious penalties available: see Meridian Global Funds Management Asia Ltd v Securities Commission [1994] 2 NZLR 291 (CA) at 296 and Ithaca (Custodians) Ltd v Perry Corp [2004] 1 NZLR 731 (CA) at 743. The Act now specifies that “the usual civil standard of proof applies”: Securities Markets Act 1988, s 42ZI.
255See D Hamer “The Civil Standard of Proof Uncertainty: Probability, Belief and Justice” (1994) 16 Syd LR 506 at 509.
256Z v Dental Complaints Assessment Committee, above n 251; Honda New Zealand Ltd v New Zealand Boilermakers’ etc Union [1991] 1 NZLR 392 (CA).
257Z v Dental Complaints Assessment Committee, above n 251; Honda New Zealand Ltd v New Zealand Boilermakers’ etc Union, above.
258Real Estate Institute of NZ Inc v Private Sale Co (Auckland Central) Ltd [1996] 2 NZLR 371 (HC), BMW NZ Ltd v Pepi Holdings Ltd (1996) 7 TCLR 357 (HC) and Newark Engineering (NZ) Ltd v Jenkin [1980] 1 NZLR 504 (CA).
259Z v Dental Complaints Assessment Committee, above n 251; Guy v Medical Council of New Zealand [1995] NZAR 67 (HC).
260Cook v Gibbons (1986) 3 FRNZ 257 (HC).
261Harlow Finance & Leasing Ltd v Sterling Nominees Ltd (2001) 15 PRNZ 633 (HC) per Rodney Hansen J.
262M v Y [1994] 1 NZLR 527 (CA).
263Director-General of Social Welfare v Ilyes [1997] NZAR 292 (HC).
264Gregoriadis v Commissioner of Inland Revenue Department [1986] 1 NZLR 110 (CA).
265Z v Dental Complaints Assessment Committee, above n 253 at [112] (citation omitted).
266Managh v Wallington [1998] 3 NZLR 546 (CA) at 549 per Tipping J.
267Above n 251 at [102] (citations omitted). See also T v M (1984) 2 NZFLR 462 (CA) at 463–464 per Woodhouse P and TruTone Ltd v Festival Records Retail Marketing Ltd [1988] 2 NZLR 352 at 358 (CA).
268See for example Hornal v Neuberger Products Ltd [1957] 1 QB 247 (CA), Re H (Minors) (Sexual Abuse: Standard of Proof) [1996] AC 563 (UKHL) at 586–587 per Lord Nicholls and R(N) v Mental Health Review Tribunal (Northern Region) [2006] QB 468 (CA). It has been suggested that in the United Kingdom the possibility of a third standard of proof was laid to rest by the House of Lords in Re B (children)(sexual abuse: standard of proof) [2008] 4 All ER 1 (UKHL); although Peter Mirfield has suggested later case law may have reopened the issue: P Mirfield “How Many Standards of Proof Are There?” (2009) 125 LQR 31.
269Section 140 was enacted after a recommendation of the Australian Law Reform Commission in Evidence (ALRC R38, Sydney, 1987) at [72] (Summary of recommendations) and [236] (Commentary).
270Briginshaw v Briginshaw (1938) 60 CLR 336, [1938] ALR 334.
271See Witham v Holloway (1995) 183 CLR 525 at 547.
272AAS Zuckerman The Principles of Criminal Evidence (Clarendon Press, Oxford, 1989) at 125–128.
273Duff v Communicado Ltd [1996] 2 NZLR 89 (HC); Solicitor-General v Miss Alice [2007] 2 NZLR 783 (HC) at [30].
274Section 198.
275Inspector of Awards v Hartley [1986] ACJ 344. See for example the Labour Court’s use of the criminal standard in Otago Clerical Workers IUOW v McLeod Bros (Ltd) [1988] NZILR 1308.
276Osborne v Robertson [1985] 2 NZLR 680 (HC).
277Service Workers Union of Aotearoa Inc v Southern Pacific Hotel Corporation (NZ) Ltd [1993] 2 ERNZ 513 (EmpC) at 533; Jury v Fonseca [1998] 2 ERNZ 548 (AEC 36/98) (EmpC).
278JW Strong (ed) McCormick on Evidence (4th ed, West Publishing, St Paul (MN), 1992) at §340.
279Santosky v Kramer 455 US 745 (1982).
280Woodby v INS385 US 276 (1966).
281In re Ainscow’s Will 42 Del 3, 27 A.2d 363, 365 (1942).
282Hyder v Newcomb 236 Ark 231, 365 S.W.2d 271, 274 (1963).
283(2010) 13 TCLR 40 (HC) at [33].
284[1989] 2 NZLR 554 (HC) at 573 per McGechan J. Also, in TruTone Ltd v Festival Records Retail Marketing Ltd, the Court of Appeal confirmed this was the correct approach in proceedings for injunctive relief and damages, for which the Commerce Act is silent as to standard of proof: above n 267, at 358.
285Z v Dental Complaints Assessment Committee above n 251 at [113].
286Australian Law Reform Commission, above n 242 at [3.52].
287See for example M Redmayne “Standards of Proof in Civil Litigation” (1999) 62 MLR 167 at 184–185 and Hamer, above n 255 at 512–513. See also Re B (children)(sexual abuse: standard of proof) [2008] UKHL 35, [2008] 4 All ER 1 at [5].
288For example in AMI Insurance Ltd v Devcich [2011] NZCA 266, the Court of Appeal corrected the statement of the trial judge that the applicable standard was “not far removed from” the criminal standard: at [13]–[15]. Similarly, an intermediate standard of proof requiring a “high degree of probability” was disapproved, and the ordinary civil standard adopted, by the Court of Appeal in Tru Tone Ltd v Festival Records Retail Marketing Ltd, above n 267 at 358.
289Z v Dental Complaints Assessment Committee, above n 251 at [114].
290Z v Dental Complaints Assessment Committee, above n 251 at [49]. Elias CJ favoured the use of the criminal standard of proof, regarding it as more straightforward and more consistent.
291A Rees “Civil Penalties: Emphasising the Adjective or the Noun” (2006) 34 ABLR 139.
292Mirfield, above n 268 at 35.
293See for example V Comino “Effective Regulation by the Australian Securities and Investment Commission: The Civil Penalty Problem” (2009) 33 MULR 802, Middleton, above n 242, Rees, above 291, and P Spender “Negotiating the Third Way: Developing Effective Process in Civil Penalty Litigation” (2008) 26 C&SLJ 249.
294This might suggest a purely probabilistic application of the civil standard requiring the contravention to be established only to a threshold of 51 per cent: see Hamer, above n 235 at 509.