Contents

Chapter 1
Introduction

Why is the review needed?

Novelty

1.7Forms of civilly-imposed penalty have existed for many years in New Zealand. For example ss 134 and 135 of the Employment Relations Act 2000 provide for a penalty of up to $10,000 (in the case of an individual) or $20,000 (in the case of a company or other corporation) to be imposed by the Employment Relations Authority for breach of an employment agreement or a breach of the Act. Equivalent provisions have featured in our employment law since 1908.2  Statutes regulating certain professions have provided for civil “fines” for breaches of licensing conditions since at least the 1940s.3

1.8However, the penalties that concern us have a number of unique features which suggest they warrant particular examination. They are relatively novel. The majority of them have been introduced since 2000. Increasingly they are being adopted as a central feature of regulatory regimes. All indications are that they will become a key tool in the way that we regulate and punish breaches of the law.

1.9They can give rise to considerable liability. Currently, New Zealand’s highest maximum penalty amounts to $1m for an individual4  and, for a body corporate, the greater of $10m or either three times the value of any commercial gain resulting from the contravention or 10 per cent of the turnover of the body corporate.5

1.10The fact that such growth in the use of a potentially severe form of penalty has occurred in the absence of any general consideration of their design is undesirable. Examination of civil pecuniary penalties is both warranted and overdue.

Inconsistency in existing legislation

1.11The lack of analysis may carry some blame for the inconsistencies that exist across the field of civil pecuniary penalty provisions. While there are some common approaches, current statutes deal with matters such as procedural rules, guidance about penalty levels and when a penalty should be imposed, privilege and double punishment in a variety of ways. This range of approaches can create confusion. It does not assist in promoting the integrity of the law and suggests that insufficient consideration has been given to taking an approach that reflects good legal principle.

1.12There is also a lack of consistency in when civil pecuniary penalties have or have not been included in a legislative scheme. For example, while they feature heavily in some aspects of environmental legislation they are entirely absent in other areas of environmental law. Another example arises in the regulation of certain financial services. Civil pecuniary penalties are a feature of the Securities Trustees and Statutory Supervisors Act 2011, which has as its purpose to protect the interests of security holders and of residents of retirement villages, and to enhance investor confidence in financial markets and retirement villages. In part, it does this by setting standards for trustees and statutory supervisors and providing for them to be held accountable for failures to perform their functions effectively. In contrast, the obligations under the, also recent, Insurance (Prudential Supervision) Act 2010 are all enforced by way of criminal offences. Yet the aims of the two pieces of legislation appear to be similar: the purpose of the 2010 Act is to promote the maintenance of a sound and efficient insurance sector and to promote public confidence. Again, the Act sets standards for insurers and provides for them to be held accountable for failing to comply.

1.13The differences in legislative approach may be a reflection more of the novel nature of civil pecuniary penalties than anything else. But, they indicate that a first principles review is needed.

Stealth sanctions”

1.14Opponents of civil pecuniary penalties argue that they wrongly prioritise the need for efficiency in regulation over legal principle. Forms of civil penalty in the United Kingdom have been described as “stealth sanctions” which “seek to avoid the safeguards of criminal procedure by … the pretence that they are civil debts”.6  It is thought that by avoiding those safeguards they are easier to investigate and impose than criminal penalties. Yet they retain a punitive function and impact.

1.15Civil pecuniary penalties, then, are a relatively new form of enforcement tool which challenges the traditional distinction between the criminal and civil law. Historically, the criminal-civil divide has been central to how we think about the law. The criminal law is concerned with how the State punishes people who act in a way that Parliament has decided is worthy of condemnation as a criminal offence. Criminal offences are prosecuted through the criminal courts using the rules of criminal procedure. Prosecution can result in imprisonment and a criminal conviction – an enduring form of sanction which can have life-long implications for employment prospects, freedom to travel and other opportunities. Because criminal conviction results in our legal system’s gravest implications for the defendant, criminal procedural rules provide the greatest protections available.

1.16In contrast, the civil law is concerned with disputes between, or the vindication of rights of, private individuals or bodies. Civil litigation is pursued according to civil procedural rules which allow the defendant fewer protections.

1.17Civil pecuniary penalties blur the line between the criminal and civil law.7  They are punitive rather than compensatory. Liability is established on the civil standard of proof – on the balance of probabilities – rather than the criminal standard of proof beyond reasonable doubt. And they are imposed through a civil trial, without the protections given to those defending a criminal charge. Yet the outcome can be very grave. In some cases it can be more severe in monetary terms than a criminal prosecution for the same conduct.

1.18Civil pecuniary penalties are not alone in straddling the criminal-civil divide. For example, the civil remedy of exemplary damages is punitive rather than compensatory and the sentence of reparation, handed down by criminal courts, is designed to compensate the victim. So, there are instances where the line has been breached. However, in this Issues Paper we suggest that where such a breach is to occur, it should be done with a robust rationale and in a manner which is fair.

Experience abroad

1.19Forms of civil penalty exist in most other jurisdictions (see appendix 2). In particular, Australian and United States legislation contains numerous civil pecuniary penalty provisions that are similar or identical to ours. Those provisions have given rise to a considerable amount of case law and there has been some discussion about their use and design.8
1.20The debate in Australia has resulted from apparent judicial discomfort about the imposition of State sanctions through normal civil processes and because of the novelty of civil pecuniary penalties. Commentators suggest that this discomfort has led courts to introduce criminal or quasi-criminal protections and procedures in civil pecuniary penalty cases in such a way that reduces the benefits that civil pecuniary penalties were designed to deliver. Vicky Comino sums up the problem as follows:9

[N]egotiating an effective civil penalty procedure on a case-by-case basis is problematic and carries the danger of “lead[ing] to indeterminacy or default to criminal procedure”.

1.21Their novelty has meant that courts have been required to engage in close analysis of the legislative provisions which, as in New Zealand, are not uniform across the Acts. The result is that procedure may vary depending on the terms of each Act and that lengthy and costly litigation has eventuated.10  This is undesirable.
1.22Courts in Europe and the United States have also struggled with the nature of a variety of non-criminal penalties and have, at times, imposed constitutional or human rights protections on their imposition.11

1.23It must be acknowledged that, thus far, these concerns have not arisen in civil pecuniary penalty cases in New Zealand. Civil pecuniary penalties have been imposed in around 60 cases. Most have arisen under the Commerce Act 1986. In the majority of those cases, the Commerce Commission and defendant have reached an agreed penalty which has been approved by the Court. There has therefore been little substantial judicial analysis of the nature of civil pecuniary penalties. It is possible that defendants will continue to accept their imposition and that our courts will continue to approach them in this manner. However, as the numbers of civil pecuniary penalty provisions grow, in a wider range of statutory settings, it is likely that there will be more litigation. As they are imposed on a wider range of persons they may be more robustly defended. It is notable that, to date, very few cases have been taken against individuals as opposed to bodies corporate. It may be that our courts will be required to tackle the sorts of issues that have vexed courts in other jurisdictions. Moving forward, consistency and principle in the design and use of civil pecuniary penalties may assist in reducing the risk of litigation.

Other work

1.24As noted, the LAC has taken an interest in civil pecuniary penalties and the possibility of a new chapter in the LAC Guidelines, devoted to civil pecuniary penalties, has been raised.12  Also, in 2007, the Ministry of Justice produced a draft consultation paper on civil penalty guidelines.13  It noted the lack of available guidance. The aim of the paper was to consult on guidelines primarily for use within the Ministry of Justice, but which might also be helpful to other government agencies considering the introduction or revision of civil pecuniary penalties. Other priorities have prevented further LAC or Ministry of Justice work from progressing.
2Industrial Conciliation and Arbitration Amendment Act 1908, s 13. See also Industrial Conciliation and Arbitration Act 1925, s 129, Industrial Conciliation and Arbitration Act 1954, s 199, Industrial Relations Act 1973, s 148, Labour Relations Act 1987, s 202, Employment Contracts Act 1991, s 53.
3For example the Physiotherapy Act 1949, s 24. Similar provisions appear today in, among others, the Health Practitioners Competence Assurance Act 2003, s 101, Lawyers and Conveyancers Act 2006, s 242 and Veterinarians Act 2005, s 51.
4Securities Markets Act 1988, s 42W.
5Biosecurity Act 1993, s 154J, Commerce Act 1986, s 80, Dairy Industry Restructuring Act 2001, s 141 and Hazardous Substances and New Organisms Act 1996, s 124C. The maximum penalty for a body corporate under the Telecommunications Act 2001, s 156L is also $10m. For a brief period even higher civil pecuniary penalties were possible under Part 3A of the Energy (Fuels, Levies, and References) Act 1989. Part 3A was enacted just before the November 2008 election by the Energy (Fuels, Levies, and References) Amendment Act 2008 and repealed in December 2008 by the Energy (Fuels, Levies, and References) Biofuel Obligation Repeal Act 2008. Sections 34X and 34Y contained equations for the calculation of civil penalties under the Act that involved multiples of between $20m and $30m.
6See R M White “It’s Not a Criminal Offence–Or Is It? Thornton’s Analysis of ‘Penal Provisions’ and the Drafting of ‘Civil Penalties’” (2011) 32(1) Statutes LR 17.
7The points made here are expanded upon in chapter 3.
8See for example V Comino “Effective Regulation by the Australian Securities and Investment Commission: The Civil Penalty Problem” (2009) 33 MULR 802; M Gillooly and NL Wallace-Bruce “Civil Penalties in Australian Legislation” (1994) 13 Univ Tas LR 269; K Mann “Punitive Civil Sanctions: The Middleground Between Criminal and Civil Law” (1992) 101(5) Yale LJ 1795; T Middleton “The Difficulties of Applying Civil Evidence and Procedure Rules in ASIC’s Civil Penalty Proceedings under the Corporations Act” (2003) 21 C&SLJ 507; A Rees “Civil penalties: Emphasising the Adjective or the Noun” (2006) 34 ABLR 139; P Spender “Negotiating the Third Way: Developing Effective Process in Civil Penalty Litigation” (2008) 26 C&SLJ 249.
9Comino, above at 829 quoting Spender, above.
10Rees, above n 8 at 143.
11We discuss these issues further in chapters 6 and 8. See also appendix 2.
12Legislation Advisory Committee Guidelines on Process and Content of Legislation (Wellington, 2001). See <www2.justice.govt.nz/index.html>.
13Ministry of Justice Draft Civil Penalties Guidelines Consultation Paper (Wellington, 2007).