Chapter 2
Civil pecuniary penalties in New Zealand and the scope of our review

Penalties outside the scope of our review

2.14As set out in chapter 1, the civil pecuniary penalties which concern us share a number of characteristics. Notably, they are imposed by the High Court in civil proceedings and the Court has discretion as to the quantum of the penalty. However, there are a number of other non-criminal sanctions on the statute book which share some of the features of civil pecuniary penalties. Each has distinguishing characteristics that led us to place them outside the scope of our review. We describe these briefly below and explain our scoping decisions. These penalties are described in greater detail in appendix 3.

Variable civil penalties

2.15Five statutes provide for the imposition of variable civil penalties by a body other than a court. Most notably, “Rulings Panels” can impose civil penalties of up to $20,000 under the Gas Act 199240  and $200,000 under the Electricity Industry Act 2010.41  These penalties are almost identical in design to civil pecuniary penalties. But for the most part we have excluded them from our review because they are imposed by a quasi-judicial body and therefore raise distinct issues. We consider the desirability of such a model, however, in chapter 7.
2.16The third statute is the Overseas Investment Act 2005, which contains civil pecuniary penalties of the type that fall within our review, but also provides for other variable “administrative penalties” to be imposed by the Overseas Investment Office. Those penalties are for retrospective filing of a consent (required under the Act for overseas investment in sensitive New Zealand assets) and have a maximum of $20,000. Here, the regulator has discretion as to imposition and the size of the penalty.42  Administrative penalties for retrospective consent are used more frequently than civil pecuniary penalties, with 15 imposed in 2010/2011 ranging from $3,000 to $15,000.43
2.17The fourth statute is the Tax Administration Act 1994, under which the Commissioner of Inland Revenue can impose “shortfall penalties”, which can be sizeable and require the exercise of discretion by the Commissioner as to the errant taxpayer’s level of intent. So, a taxpayer is liable for a penalty of 20 per cent of the shortfall where they did not take reasonable care; 40 per cent where there is gross carelessness; 100 per cent where they take an “abusive tax position”; and 150 per cent where there is tax evasion.44

2.18We have excluded these two forms of penalty from our review. Again, however, we touch on the desirability of such models in chapter 7.

2.19The fifth statute is the Employment Relations Act 2000, which provides for the Employment Relations Authority to impose penalties of up to $10,000 (individuals) and $20,000 (bodies corporates) for breaches of the Act or an employment agreement.45  In addition, 13 occupational licensing statutes include a standard provision for a “fine” to be imposed by a disciplinary body or tribunal established under the Acts, for various breaches of the relevant Act or licensing conditions.46  The maximum fines range from $2,000 (private security guards and private investigators) to $30,000 (health practitioners, lawyers and conveyancers and veterinarians).
2.20We have also excluded these from our review. Both types of fine have a long history. Equivalent provisions have featured in employment law since 190847  and occupational schemes have contained such fines since at least 1949.48  While these penalties meet most of the criteria for “civil pecuniary penalties”, they are not among the civil penalties that have raised concern and prompted our review. They have been imposed by occupational bodies and tribunals for years without a great deal of concern or debate. They do not feature the same drafting techniques that accompany Court-imposed penalties. However, they have given rise to some case law which is relevant to the issues at hand, and where relevant, we have drawn on that.

Administrative penalties

2.21We have also excluded what are commonly referred to as “administrative penalties”. Generally the term “administrative penalty” is used to mean fixed, non-discretionary penalties which are imposed by a regulator.49 Their fundamental distinguishing characteristic is that they are imposed in administrative, not judicial, processes. They are usually lower in quantum and involve the exercise of less discretion.

Infringement notices

2.22This review does not deal with infringement offences. Over the last 30 years, infringement offence regimes have become established as an integral part of the justice system. Infringement fees are set by legislation – the prosecuting authority has no power to vary the penalty. On payment of an infringement fee, no conviction results. Infringement offences raise numerous questions of consistency and design themselves and have previously been the subject of a joint Law Commission and Ministry of Justice review.50  Indeed, there have been recent calls for further review of infringement offences.51
2.23We have also excluded the expedited penalty “notices” – referred to as “civil infringement notices” – found in two civil pecuniary penalty statutes.52 These enable the relevant enforcement body to require direct payment of a fixed penalty. They are closer in nature to administrative penalties than civil pecuniary penalties.

Other civil remedies

2.24We have limited our scope to pecuniary penalties, thus excluding orders such as management bans53  and licence revocations.54  These are sometimes used in combination with civil pecuniary penalties. While they can have a punitive effect, they also have a protective element that is absent from a purely pecuniary penalty.55  We have also excluded compensation orders given their compensatory, non-penal nature.56

Criminal gain disgorgement penalties

2.25Criminal gain disgorgement penalties can be imposed where there has been criminal offending, in addition to any criminal sanction, and are designed to strip away the gains made from criminal conduct. The Criminal Proceeds (Recovery) Act 2009 contains penalties that target offending generally. A range of other Acts also provide for the disgorgement of criminal gains by way of an additional penalty, supplementary to any criminal sanction.57  Determining the quantum of the penalty is a discretionary exercise undertaken by the courts, so criminal gain disgorgement penalties bear some resemblance to civil pecuniary penalties. Critically, they are imposed on the balance of probabilities, rather than on the criminal standard. We have not included these penalties in our review as they are linked to criminal conduct in a way that purely civil pecuniary penalties are not.

Statutory damages under the Credit Contracts and Consumer Finance Act 2003

2.26The Credit Contracts and Consumer Finance Act 2003 contains a mechanism whereby, if a creditor, lessor, transferee or buy-back promoter breaches various contractual disclosure obligations, the other party to the contract is entitled to “statutory damages” calculated as a function of the credit that accrued during the period of the breach.58  The statutory damages are non-compensatory, since they are unrelated to actual loss and the Act makes separate provision for compensatory orders.59  They may be penal in nature. But unlike civil pecuniary penalties, they are not paid to the Crown, so we do not consider them here.
40Gas Governance (Compliance) Regulations 2008, reg 52.
41Section 54.
42In determining the amount, the regulator must consider whether the penalty would be unduly harsh or oppressive given the value of consideration for the asset in the overseas investment transaction or the nature of or reasons for the retrospective consent: Overseas Investment Act 2005, s 32(2).
43Email from Annelies McClure (Manager, Overseas Investment Office) to Susan Hall (Law Commission) (18 November 2011).
44Note also that the Commissioner can increase any shortfall penalty by 25 per cent if the taxpayer obstructs the Commissioner in determining the correct tax position: Tax Administration Act 1994, s 141K.
45Employment Relations Act 2000, s 134.
46The statutes regulate architects, builders, engineers, health practitioners, immigration advisers, lawyers and conveyancers, plumbers, gasfitters and drainlayers, private security personnel and private investigators, real estate agents, social workers, valuers and vets. Other occupations are regulated in a similar way, but without provision for a monetary penalty (e.g. auditors).
47Industrial 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, 148, Labour Relations Act 1987, s 202 and Employment Contracts Act 1991, s 53.
48Physiotherapy Act 1949, s 24.
49See Australian Law Reform Commission Principled Regulation: Federal Civil and Administrative Penalties in Australia (ALRC R95, Sydney, 2002) at [2.64].
50Law Commission The Infringement System: A Framework for Reform (NZLC SP16, Wellington, 2005).
51In Down v R [2012] NZSC 21 at [36] William Young J expressed the view that criminal infringement regimes lack consistent legislative pattern and that a comprehensive legislative review is warranted.
52Unsolicited Electronic Messages Act 2007, s 24, Telecommunications Act 2001, s 156D. See also Therapeutic Products and Medicines Bill (103–1), cl 89.
53See for example Securities Act 1978, s 60A, under which a banning order may be made for up to 10 years if a pecuniary penalty order is made. The order bans or restricts the person (without leave of the Court) from being a director/promoter of or in any way (directly or indirectly) concerned in the management of an incorporated or unincorporated body.
54See for example Securities Trustees and Statutory Supervisors Act 2011, s 32, under which the Financial Markets Authority may revoke or vary a licence.
55They were not included in the review by the Australian Law Reform Commission for a similar reason. See Australian Law Reform Commission above n 49 at [3.17].
56See for example Securities Markets Act 1988, s 42ZA, under which the Court may order compensation where an aggrieved person has suffered or is likely to suffer loss or damage because of the contravention of a civil remedy provision.
57See for example the Civil Aviation Act 1990, s 47, Fair Trading Act 1986, s 40A, Health Act 1956, s 69ZZW, Immigration Advisers Licensing Act 2007, s 72, Resource Management Act 1991, s 339B, United Nations Convention on the Law of the Sea Act 1996, s 8 and Waste Minimisation Act 2008, s 67.
58Section 88.
59Section 94.