Contents

Chapter 4
What circumstances might justify the use of civil pecuniary penalties?

Other justifications for civil pecuniary penalties

Civil pecuniary penalties are appropriate for “less serious” contraventions

4.37The discussion under this heading differs from the one above concerning the difference between “criminal” and “non-criminal” contraventions within a regulatory scheme. Here, the question is whether civil pecuniary penalties should be introduced for a wider range of human conduct. Is there general social behaviour currently dealt with by way of criminal offences that does not warrant criminalisation and that could instead be dealt with by civil pecuniary penalties? A 2004 Cabinet Paper discussing the merits of a civil pecuniary penalty regime for unsolicited electronic messages states:169

The merits of a criminal penalty regime are that for some people it reflects the seriousness with which they view professional spammers that send out millions of junk emails to market various goods or services. … A criminal penalty regime was not, however, favoured by the majority of respondents to the Government's discussion paper as a civil penalty regime was seen as a more appropriate way of dealing with the simple issue of electronic messages sent without consent. Where spam is used as a means to commit acts such as fraud or inflicting damage to another person's computer network there are already criminal sanctions in place to deal with this more serious level of conduct.

4.38There is some suggestion in this that civil pecuniary penalties are appropriate because the “simple issue” of electronic spam does not justify criminal sanction. Is there an argument, then, that civil pecuniary penalties are appropriate for a wider range of less serious contraventions? And if so, what do we mean by “less serious”? For example, is it less serious because less harm results? Where the Unsolicited Economic Messages Act 2007 is concerned, is the implication that the harm that results – perhaps mere irritation – justifies the use of civil rather than criminal sanctions? And what else is relevant to an assessment of what is “less serious” offending? Might most non-intentional breaches fall into this category?

4.39The Commission has concerns about whether it is appropriate or feasible to use gradations of “harm” to justify the introduction of civil pecuniary penalties. As noted at the outset of chapter 3, a wide range of behaviour which results in a similarly wide range of comparative harm is marked as criminal. An effort to single out conduct which is liable to criminal rather than civil condemnation purely on the basis of harm may appeal to a sense of order. But any such assessment necessarily involves a value judgment, which will differ between people and over time. An extensive degree of decriminalisation of minor offending has been achieved already by the infringement offence procedure. It is the minor (in terms of penalty) and high volume nature of such offences which assist in justifying this decriminalisation. The harm that could result from some infringement offences (for example speeding) is in fact considerable. In comparison, a low degree of harm does not accurately characterise many of our existing civil pecuniary penalties. The harm – for example, the loss of a person’s life savings – that can follow from inaccurate disclosure in investment documents can be very considerable. Equally, the harm that could result to New Zealand’s economy from an inability to export agricultural products because of a breach relating to genetically modified organisms or biosecurity could be extremely severe.

4.40There are circumstances where the degree of harm that results from an activity will clearly warrant criminalisation. An example is where the harm is such that protective measures such as arrest, remand in detention and incarceration are necessary. It follows that there may be an argument that any guidelines or statute should make it clear that civil pecuniary penalties are never justifiable when such protective measures might be necessary. However, the line between whether and when criminal or civil sanctions should be used for other types of contravention would be hard to draw.

4.41To what extent can and should delineating levels of seriousness assist in justifying the use of civil pecuniary penalties? And how relevant is it that any attempt to articulate a degree of seriousness which lends itself to civil rather than criminal punishment could lead to an argument for the use of civil pecuniary penalties for a substantial proportion of existing criminal offending? This would signal a substantial reordering of the way we categorise and punish illegal behaviour. It would also have practical consequences. For example, it would shift a considerable amount of criminal court work to the civil jurisdiction.

4.42Also, to what extent might the broader use of civil pecuniary penalties have an impact on their design? To what extent should their procedural provisions be influenced by (a) the type of defendant and (b) the type of behaviour they are targeting? If a form of sanction only targets well-resourced corporate offenders operating in industries which are closely regulated, then it may be justifiable to allow some inroads into orthodox criminal procedural protections. However, if the sanction were to target more traditional criminal conduct, which tends to be carried out by individuals who are likely to be less well-resourced and in a position of considerably less power than the State, then perhaps greater protections should apply.

Cost and efficiency

4.43Civil pecuniary penalties are promoted as cheaper to investigate, pursue and impose than criminal penalties.170  They are viewed as a “swift and inexpensive enforcement option”.171  It might be thought that the lower standard of proof results in savings at every stage of the enforcement process: the investigation and preparation of civil pecuniary penalty proceedings is less labour intensive than for a criminal prosecution; and civil proceedings demand less of the accusing party than a criminal trial. If this is true, it presents considerable advantages to enforcement bodies which operate against a background of limited resources. In turn, it might be thought that the comparative ease with which civil pecuniary penalties can be imposed and the fact that they might have a more immediate impact than criminal prosecution increases their deterrent effect.172
4.44Savings may also be made because “settlement” may be reached more readily in civil cases. Most reported cases under the Commerce Act 1986 have resulted in a penalty being agreed by the Commerce Commission and defendant. The penalty must then be approved by the Court. In none of the reported cases has the Court departed from the proposed penalty. This outcome – a negotiated penalty and abbreviated court process – can take place with civil pecuniary penalties in a way that it cannot with criminal prosecutions.173
4.45Notwithstanding these observations, we have two reservations about the justification of civil pecuniary penalties on the basis of cost and efficiency. First, the assertion that proceedings will be less costly than criminal proceedings requires evidence. Civil pecuniary penalty proceedings in Australia have been more aggressively defended than they have in New Zealand. There, cases have resulted in numerous interlocutory hearings on procedural matters, many because of the relatively novel nature of civil pecuniary penalties. In some of these cases Australian courts have required that “quasi-criminal” procedures be followed to afford protection to defendants. In an aggressively defended action the cost savings in civil pecuniary penalty proceedings may not be as great as thought.174

4.46Secondly, there is no reason why this argument could not be made for the abandonment of criminal proceedings for all offending. The cost and efficiency arguments can only be sound if they are accompanied by other justifications for civil pecuniary penalties.

International cooperation and alignment

4.47New Zealand law reform needs to take account of international conditions and standards to optimise its productivity and economic growth. Conflicts or a lack of harmonisation between regulatory regimes can create costs for those wishing to do business in New Zealand and for New Zealanders wishing to trade abroad. Increasingly then, New Zealand needs to consider the means of regulation adopted abroad and to weigh the need for alignment with foreign regimes. This is true of the international environment generally, but is particularly the case in the light of New Zealand’s Closer Economic Relationship (CER) with Australia, which is aimed at creating a seamless trans-Tasman business environment.175
4.48A core aim of the reform of New Zealand’s securities law is to align our regulatory regime with overseas regulatory systems.176  International developments also influenced the format adopted for our anti-spam legislation, which sought to ensure that New Zealand was participating in international regulatory arrangements to curb the growth of spam.177  Our Act mirrors the one adopted in Australia.178

4.49Notwithstanding this, we query the extent to which international alignment justifies the inclusion of civil pecuniary penalties in statutes. While there may be a need for the alignment of rules between different jurisdictions in the interest of promoting the accessibility of markets and ease of trade, it does not necessarily follow that the form and design of penalty needs to be the same. Indeed, civil pecuniary penalties imposed by a court feature only in a handful of jurisdictions. The trend in the United Kingdom and the United States, for example, is to hand greater enforcement powers to the regulators themselves.

Precedents in other regulatory regimes

4.50The format of a particular legislative regime is often repeated in later legislation because officials become familiar with it and because it is perceived to provide an effective and appropriate response. We suggest that the fact that precedents exist in other legislation will rarely be an adequate reason on its own for the inclusion of a civil pecuniary penalty regime in a statute.

169EDC Min (04) 24/13 (22 November 2004).
170“Theoretically, proceedings for a civil penalty should have lower transaction costs than criminal proceedings due to streamlined procedure”: P Spender “Negotiating the Third Way: Developing Effective Process in Civil Penalty Litigation” (2008) 26 CS&LJ 249 at 251.
171V Comino “Effective Regulation by the Australian Securities and Investments Commission: The Civil Penalty Problem” 33 (2009) MULR 802 at 828.
172See for example P H Robinson and J M Darley “Does Criminal Law Deter? A Behavioural Science Investigation” (2004) OJLS 173 at 182. Jeremy Bentham suggested three aspects of a penalty which influence its deterrent effect: the probability of it being imposed, the size of the penalty and the delay with which it may follow the event: J Bentham The Rationale of Punishment (R Heward, 1830) at ch VI.
173See further the discussion at para 7.11 onwards.
174Comino cites the example of ASIC v Rich [2009] NSWSC 1229, (2009) 236 FLR 1 which took many years to complete, involved more than 60 evidential and procedural rulings during the course of the substantive hearing, and a judgment which runs to 3015 pages. See Comino, at n 171 at 817, 828.
175See generally <www.mfat.govt.nz/Trade-and-Economic-Relations/2-Trade-Relationships-and-Agreements/Australia/index.php>.
176Ministry of Economic Development Review of Securities Law: Discussion Paper (2010) at 12. See also Nehme, above n 155 at 476.
177Hon David Cunliffe MP “Unsolicited Electronic Messages Bill–First Reading” (13 December 2005) 628 NZPD 1043.
178Similar policy imperatives influenced the drafting of the Therapeutic Products and Medicines Bill: see Therapeutic Products and Medicines Bill 2006 (103–1) (explanatory note) at 2.