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 proof and from their classification as “civil penalties” or “civil remedies”. Civil pecuniary penalty proceedings, then, are commenced and progressed in the same way as standard civil proceedings. 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”.
3.12Commentators have made much of the misalignment between form and substance where civil penalties are concerned. 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”.
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). 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.” 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.
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. This is accepted by New Zealand courts. In Commerce Commission v Cargolux, 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) Ltd 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”.
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:
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:
[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. 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). 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. 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. Their purpose, then, is not to repair harm to identifiable individuals – 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”.
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.
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.
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. 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”. Such regimes have been criticised. 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. 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. 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. A similar disparity exists under other Acts with parallel civil pecuniary penalties and criminal offences. 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, but not to the imposition of a $1m civil pecuniary penalty?
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. 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. 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.