Contents

Chapter 3
The nature of civil pecuniary penalties

What is the nature of civil pecuniary penalties?

3.11Formally, the penalties that fall within this review are civil in nature. This follows from the statutory application of the rules of civil procedure and the civil standard of proof72  and from their classification as “civil penalties” or “civil remedies”.73  Civil pecuniary penalty proceedings, then, are commenced and progressed in the same way as standard civil proceedings.74  Subject to the protection of privilege and the discretion of the Court, a defendant is required to provide answers to accusations and, essentially, to state her/his own case. In contrast, criminal procedures apply only to those contraventions that Parliament has classed as “criminal offences”.75
3.12Commentators have made much of the misalignment between form and substance where civil penalties are concerned.76  The criticism is that by terming them “civil”, legislators are illegitimately promoting form (the legislative direction to employ civil rules of procedure) over substance (their public and punitive nature). By doing so, enforcement bodies have found a way of punishing people while avoiding the procedural protections that accompany criminal proceedings. On one view, then, civil pecuniary penalties are a calculated and cynical invention whose true attraction lies in the ease with which they can be imposed. They are “charges which are treated as civil in order to suit the administrative convenience of government departments”.77
3.13Courts in some jurisdictions have entered into a substantive examination of how to identify a “crime” and have not felt bound by terminology in their determination of what procedural protections should apply. For instance, the European Court of Human Rights (ECtHR) has found that sanctions which are expressed to be civil in nature may in substance be criminal and thus subject to European Convention protections if (a) the proceedings are brought by a public authority, and (b) there is a culpability requirement, or (c) there are potentially severe consequences (such as imprisonment or a significant financial penalty).78  Andrew Ashworth describes the ECtHR’s position as an “‘anti-subversion device’, created by the Strasbourg Court to prevent governments from manipulating the criminal/civil boundary and thereby avoiding those extra procedural rights.”79  Australian and United States courts have also, from time to time, imposed criminal or quasi-criminal protections in civil pecuniary penalty cases in instances where they have considered that the true nature of the penalty is so severe as to warrant them.80
3.14In substance, New Zealand civil pecuniary penalties reflect more traditional features of the criminal law than civil law. First, the aim of civil pecuniary penalties is the punishment of breaches of rules or standards with a view to securing specific and general deterrence. Much of the thinking behind civil pecuniary penalties focusses on their deterrent value. Most are designed with the integrity of the particular regulatory system in mind and so maximum civil pecuniary penalties are set at a level to deter contraventions. The deterrent effect is dependent on them being punitive.81  This is accepted by New Zealand courts. In Commerce Commission v Cargolux,82  for example, Potter J said:

The primary purpose of pecuniary penalties for anti-competitive conduct is deterrence, whereas deterrence is only one of the many competing considerations involved in criminal sentencing. The importance of deterrence in this area is well established. The aim of imposing pecuniary penalties for anti-competitive conduct is to send the message to persons in the commercial community contemplating engaging in such activity that they will be penalised.

3.15In Commerce Commission v Roche Products (New Zealand) Ltd83  Fisher J referred to the “penal nature” of the proceedings for pecuniary penalties under the Commerce Act 1986. Fisher J went on to refer to the “penalty proceedings” as being “quasi-criminal”.84
3.16The view is also reflected in governmental and Parliamentary observations of civil pecuniary penalties. For example, the Select Committee Report on the Commerce Amendment Bill 2001 which increased the available civil pecuniary penalties for anti-competitive conduct stated:85

The dominant reason for penalties under competition law is the forward looking aim of promoting general deterrence. To promote deterrence, illegal conduct must be profitless, which means that the expected penalty should be linked to the expected illegal gain. The courts should severely penalize today's offender to discourage others from committing similar acts.

3.17It was also the position taken by the Australian Law Reform Commission:86

[Civil penalty provisions] are clearly founded on the notion of preventing or punishing public harm. … Dr Kenneth Mann has called these penalties ‘punitive civil sanctions’. These penalties differ from traditional private civil remedies in that they do not necessarily bear any close relationship to the actual damage caused (that is, they are noncompensatory).

3.18The inclusion of provisions that bar subsequent proceedings and double punishment support a characterisation of civil pecuniary penalties as punitive.87  As do instances where the statute provides expressly for compensation orders (which are imposed when damage has occurred or is likely to occur) in addition to civil pecuniary penalties (which can be imposed irrespective of actual damage).88  There are civil pecuniary penalty provisions which enable a pecuniary penalty to be diverted to some other person for remedying harm caused by the breach or for cost recovery by the enforcement agency.89  However, these examples appear to be auxiliary to the main purpose of the penalty. Furthermore, the maximum penalty levels and statutory guidance given to New Zealand courts for the setting of civil pecuniary penalties show that, while neutralising any profit made from a breach is relevant to penalty level, it is not the sole or even main factor to be taken into account. In our view, it is clear that the primary objectives of civil pecuniary penalties are to punish and deter.
3.19Secondly, and critically, like criminal offences their imposition is pursued by the State, on behalf of society as a whole. They are public actions rather than, as is the case for standard civil proceedings, private actions. A consequence of this is that investigation is undertaken by a statutorily established enforcement body with resources dedicated to the punishment of breaches of the relevant statute and a raft of investigatory powers at its disposal. By virtue of the Search and Surveillance Act 2011, enforcement bodies have the same search and surveillance powers available to them for the investigation of civil pecuniary penalty proceedings as they do for criminal offending. Furthermore, generally, a breach of a civil pecuniary penalty is a breach of a duty owed to the public as a whole. As such, proceedings can be taken whether or not the breach has caused any harm and whether or not there is any identifiable victim.90  Their purpose, then, is not to repair harm to identifiable individuals91  – other means exist for this purpose – but to single out conduct deserving general condemnation and label it as such. Like crimes, they are “acts which have a particularly harmful effect on the public and do more than interfere with merely private rights”.92
3.20However, civil pecuniary penalty provisions differ from criminal offences in two fundamental ways. They do not result in a criminal conviction and there is no chance of a loss of liberty. The significance of these two distinctions should not be understated. Civil pecuniary penalty proceedings carry no chance of arrest, remand in custody or on bail and no threat of a sentence of imprisonment – the gravest form of criminal penalty. Furthermore, the branding of criminality carries with it a degree of stigma arguably beyond the reputational impact that is likely to result from the imposition of a civil pecuniary penalty. And the practical consequences that a conviction can have on travel, employment prospects and other appointments will not apply. The business community’s resistance to the prospect of the criminalisation of cartel conduct indicates that the threat of a criminal conviction is thought to be considerably more serious than civil pecuniary penalties in that area.93
3.21Civil pecuniary penalties also differ from criminal offences in that the moral responsibility and social blame that accrue with criminal offending are not generally a feature of their design. Circuitously, such blame does not accrue because they do not result in the branding of criminality. But also because intent – or moral blameworthiness – is not generally required.94
3.22In this regard, the concerns relating to civil pecuniary penalties are not so grave as those that have accompanied developments in proceeds of crime legislation. The change in approach introduced in the Criminal Proceeds (Recovery) Act 2009, which has been mirrored in other jurisdictions, saw a shift from a requirement of criminal conviction before forfeiture, to forfeiture when the High Court is satisfied on the balance of probabilities that relevant property was either acquired as a result of significant criminal activity; or directly or indirectly derived from significant criminal activity.95  Here, alleged criminal behaviour remains at the core of the matter: “although the court does not need to establish to the criminal standard of proof that the respondent is responsible for criminal behaviour or for a specific criminal offence … the blameworthiness of the respondent remains fundamental to the seizure of the assets”.96  Such regimes have been criticised.97  Some of the same issues arise with civil pecuniary penalty provisions, but to a lesser degree. While civil pecuniary penalty provisions involve punishment on the civil standard of proof, they do not imply “criminality”.
3.23However, each of these differences with the criminal law demands further analysis. For example, while there is no mens rea element accompanying most civil pecuniary penalty provisions, this is not exclusively the case. There are examples of civil pecuniary penalties on the New Zealand statute book that require some mental element in the form of knowledge or constructive knowledge and there is nothing to prevent further civil pecuniary penalty provisions being drafted so as to require establishment of some degree of moral culpability.98  Furthermore, a distinction on this basis is questionable given the very many strict liability criminal offences on the statute book.
3.24Also, while a civil pecuniary penalty does not carry the consequences of a criminal conviction, the question of “stigma” is not so straightforward. The publicity that goes with civil pecuniary penalty proceedings can have a significant impact on reputation and it is reasonable to question the extent to which the public might differentiate between the reporting of a criminal and civil “fine”. Any civil pecuniary penalty proceeding involves an allegation of law-breaking and illegitimate practice. Furthermore, some of the same consequences can result: the management ban provisions of the Securities Act 1978 apply in the same way to those who have had a civil pecuniary penalty imposed as those convicted of a criminal offence.99  Similarly, the Financial Markets Authority (which is responsible for enforcing that Act) has the same asset preservation orders available to it whether the action is civil or criminal. Excepting the stigma that attaches to conviction and imprisonment, the distinction between civil and criminal proceedings in terms of the impact on reputation may be fine.
3.25Finally, while imprisonment is not possible for civil pecuniary penalties, there are many criminal offences with maximum monetary penalties that are far inferior to civil pecuniary penalties. There are a number of non-imprisonable offences in the Summary Offences Act 1981 with fines that do not exceed $2,000. And the Financial Advisers Act 2008 contains non-imprisonable offences, with fines ranging from $5,000 to $300,000. Also, the criminal penalty that is available for some conduct under the Commerce Act 1986 is considerably lower than the equivalent civil pecuniary penalty for the same but non-intentional conduct.100  A similar disparity exists under other Acts with parallel civil pecuniary penalties and criminal offences.101  This gives the impression that there may have been some attempt to “price” the cost of a criminal conviction; and that its impact can be replicated in some way by a higher financial penalty. If that is the case, it could well be argued that the civil pecuniary penalty is just as punitive as the equivalent criminal offence. This question of disparity raises considerable issues. Why is it appropriate for criminal procedural protections to apply to the imposition of a fine of $500 for minor offending,102  but not to the imposition of a $1m civil pecuniary penalty?

Conclusion

3.26Civil pecuniary penalties are not the same as criminal penalties. Incarceration is not a possibility and they do not result in a criminal conviction. However, they are a grave form of State punishment that can have serious financial and reputational implications for an offender. They can involve the imposition of a financial penalty that is greater than many criminal penalties but without the same protections in place. By using the label “civil” the restraints that are otherwise considered an essential accompaniment to the imposition of a penalty are side-stepped.

3.27Civil pecuniary penalties, then, are a “hybrid” action.103  They mirror all but the two most grave features of serious criminal offending (conviction and imprisonment), and all but one of the features (conviction) of more minor criminal offending. For these reasons they have been referred to as “quasi-criminal” relief.104  In the next section we ask whether there is anything wrong with the existence of an action which imposes a State penalty outside of the normal criminal processes.
72See for example Securities Act 1978, s 57D: “The proceedings under sections 55A to 57A are civil proceedings and the usual rules of the court and rules of evidence and procedure for civil proceedings apply (including the standard of proof).”
73Most Acts either refer to them as “civil penalties” or class them as “civil remedies”.
74That is, by statement of claim. Civil penalty proceedings are not subject to the special or originating application rules under Parts 4 and 4A of the High Court Rules.
75Note that the Crimes Amendment Act (No 4) 2011, due to come into force on 17 October 2013, will repeal the definition of “crime” and “offence”. At present, “offence” is defined as “any act or omission for which any one can be punished under this Act or under any other enactment, whether on conviction on indictment or on summary conviction”. See Crimes Act 1961, s 2(1).
76See for example Mann, above n 63; S  Klein “Redrawing the Criminal–Civil Boundary” [1999] 2 Buff Crim LR 681; A Rees “Civil Penalties: Emphasising the Adjective or the Noun” (2006) 34 ABLR 139 at 141; RM White “‘Civil Penalties’: Oxymoron, Chimera and Stealth Sanction” (2010) 126 LQR 593. See also Rich v ASIC [2004] HCA 42, (2004) 209 ALR 271.
77M Pearson “Taxing Crimes” (2001) Solicitors J 939.
78Engel v Netherlands (1979–80) 1 EHRR 647 (ECHR), Ozturk v Germany (1984) 6 EHRR 409 (ECHR), Bendenoun v France (1994) 18 EHRR 54 (ECHR).
79Ashworth, above n 68 at 3.
80See further appendix 2 and see generally Klein, above n 76.
81Mann, above n 63 at 1839.
82Commerce Commission v Cargolux HC Auckland CIV-2004-404-8355, 5 April 2011 at [24]–[25]. See also New Zealand Bus Ltd v Commerce Commission [2008] 3 NZLR 433 (CA) at [199]: “… the overwhelming weight of authority in Australasia presently is that deterrence must be the prime objective”.
83Commerce Commission v Roche Products (New Zealand) Ltd [2003] 2 NZLR 519 (HC) at [57].
84See also Port Nelson Ltd v Commerce Commission [1994] 3 NZLR 435 (CA) at 437.
85See also Ministry of Economic Development, above n 62 at 39, 56 and 61.
86Australian Law Reform Commission Principled Regulation: Federal Civil and Administrative Penalties in Australia (ALRC R95, Sydney, 2002) at [2.47]–[2.48], quoting Mann, above n 63 at 1799.
87See for example Commerce Act 1986, s 79B, Securities Trustees and Statutory Supervisors Act 2011, s 43, Anti-Money Laundering and Countering Financing of Terrorism Act 2009, s 74(1). See further discussion of these types of provisions from para 6.95.
88See for example Commerce Act 1986, s 89, Securities Act 1978, s 55G, Securities Markets Act 1988, s 42ZA, Securities Trustees and Statutory Supervisors Act 2011, s 42, Takeovers Act 1993, s 33K, Unsolicited Electronic Messages Act 2007, s 46. In the context of the Corporations Act 2001 (Cth), Middleton has stated that such compensatory provisions make it “clear that the object of the pecuniary penalty in s 1317G is to punish the offender”: 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 at 516.
89See for example Anti-Money Laundering and Countering Financing of Terrorism Act 2009, s 90(1), Overseas Investment Act 2005, s 48, Unsolicited Electronic Messages Act 2007, s 45. See also Biosecurity Act 1993, s 160(9): the Court may order all or part of a pecuniary penalty be paid to the departmental bank account of the Ministry for the Environment, if it considers that the breach was a material cause of a need to undertake a response activity such as minimising the impact or controlling the spread of or eradicating an unwanted organism; and Hazardous Substances and New Organisms Act 1996, s 124D: the Court may, instead of or in addition to a pecuniary penalty, order the defendant to mitigate or remedy any adverse effects on people or the environment.
90Although under certain Acts a pre-requisite to seeking a civil pecuniary penalty includes where there has been material prejudice to individuals’ interests; likelihood of damage to the New Zealand market, or conduct that is otherwise serious: Securities Act 1989, s 55C, Securities Markets Act 1988, s 42T, Takeovers Act 1996, s 33M.
91Although, a handful of civil penalties may be directed towards mitigating adverse effects: see above n 89.
92J C Smith and B Hogan Criminal Law (7th ed, Butterworths, London, 1992) at 16. Smith and Hogan go on to quote C Allen Legal Duties (1931) at 233–234: “Crime is crime because it consists in wrongdoing which directly and in serious degree threatens the security or well-being of society, and because it is not safe to leave it redressable only by compensation of the party injured.”
93Under the Commerce (Cartels and Other Matters) Amendment Bill (341–1).
94Most civil penalty provisions carry strict liability. See further the discussion on intent in chapter 6.
95Criminal Proceeds (Recovery) Act 2009, s 5(1), definition of tainted property: “(a) means any property that has, wholly or in part, been—(i) acquired as a result of significant criminal activity; or (ii) directly or indirectly derived from significant criminal activity; and (b) includes any property that has been acquired as a result of, or directly or indirectly derived from, more than 1 activity if at least 1 of those activities is a significant criminal activity”. See also s 50.
96L Campbell “Theorising Asset Forfeiture in Ireland” (2007) JCL 71.
97See for example P Wright “Criminal Punishment without Civil Rights: the Criminal Proceeds and Instruments Bill’s Punitive Civil Sanctions” (2006) 37 VUWLR 623 and G Faramarzi “Criminal Proceeds Recovery” [2010] NZLJ 205.
98See for example Securities Markets Act 1988, s 8D, Takeovers Act 1993, s 33M(c). Also some provisions connote notions of intent or awareness of conduct, such as prohibitions on “advising” or “encouraging” trading: Securities Markets Act 1988, s 8E (see also Financial Markets Conduct Bill (342–2), cl 237). Also see Unsolicited Electronic Messages Act 2007, s 13(1) which prohibits the use of address-harvesting software or lists with the intention of sending unsolicited commercial electronic messages (although the burden of proving lack of intention is on the defendant: s 14).
99Securities Act 1978, s 60A.
100Civil pecuniary penalties for contraventions of Part 4 (Regulated goods or services) are set at $500,000 (individuals) and $5m (bodies corporate): Commerce Act 1986, ss 86 and 87. Committing the same conduct with intent is a criminal offence, for which the maximum criminal fine is a lesser amount: $200,000 (individual) and $1m (bodies corporate): Commerce Act 1986, ss 86B and 87B.
101For example under the Biosecurity Act 1993, the maximum civil pecuniary penalty for any breach is $500,000 for an individual and for a body corporate is the greater of $10,000,000 or 10 per cent of turnover or three times the commercial gain (s 154J). The parallel criminal penalty for a breach of s 16A, for example, is only $100,000 for a body corporate (and $50,000 and/or 3 months in prison for individuals) (s 157(3)). Under the Hazardous Substances and New Organisms Act 1996, the maximum civil pecuniary penalty for breach of s 124B, for a body corporate, is the greater of $10,000,000 or 10 per cent of turnover or three times the commercial gain (s 124C), but the maximum criminal fine for the parallel offence (s 109(1)(b)) is $500,000 or 3 months in prison (s 114(1)).
102See A Butler and P Butler The New Zealand Bill of Rights Act: A Commentary (LexisNexis, Wellington, 2005) at [21.5.4] for a discussion of the application of NZBORA to minor offending.
103Commerce Commission v New Zealand Milk Corporation Ltd [1994] 2 NZLR 730 (HC) at 732: “The form of proceeding prescribed by the Act for the recovery of penalties is something of a hybrid of criminal and civil procedure.” See also S Klein “Redrawing the Criminal–Civil Boundary” [1999] 2 Buff Crim LR 681 at 682; K Mann, above n 63 at 1799; White, above n 76.
104See for example Commerce Commission v Koppers Arch Wood Protection (NZ) Ltd [2007] 2 NZLR 805 (HC) at 828 and Commerce Commission v Roche Products (New Zealand) Ltd [2003] 2 NZLR 519 (HC) at [57].