Other elements of legislative design
Guidance as to the level of penalty
Most existing civil pecuniary penalty regimes set out factors that should be taken into account when setting the level of penalty, although, again, some are silent on the matter.
An example is s 90(4) of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 which provides:
In determining an appropriate pecuniary penalty, the court must have regard to all relevant matters, including—
(a) the nature and extent of the civil liability act; and
(b) the likelihood, nature, and extent of any damage to the integrity or reputation of New Zealand’s financial system because of the civil liability act; and
(c) the circumstances in which the civil liability act occurred; and
(d) whether the person has previously been found by the court in proceedings under this Act to have engaged in any similar conduct.
7.51The following “relevant matters” are common to a number of civil pecuniary penalty statutes:
- The nature and extent of the breach;
- The nature and extent of any loss or damage caused by the breach;
- The nature and extent of any financial gain made from the breach;
- Whether the breach was intentional, inadvertent or negligent;
- The level of civil pecuniary penalties that have been imposed in previous similar situations;
- The circumstances in which the breach took place;
- Any other matters the Court considers relevant.
7.52As under the Anti-Money Laundering and Countering Financing of Terrorism Act, some statutes give additional, specific statutory guidance relating to the purpose of the regime itself. For example, s 144(1) of the Dairy Industry Restructuring Act 2001 states that the Court must have regard to the purpose and principles of the subpart containing civil penalties, as expressed in ss 70 and 71 (broadly, to ensure the efficient operation of New Zealand dairy markets and encourage competition). Section 42Y of the Securities Markets Act 1988 states the Court must have regard to any purpose and criteria stated in the Act that apply to the civil remedy provision, and to the likelihood, nature and extent of any damage to the integrity of any of New Zealand’s securities markets.
7.53An alternative to setting out guidance in the statute would be to leave absolute discretion to the Courts. We suggest, however, that guidance should be included. In comparison with the criminal field, there is limited civil pecuniary penalty case law from which guidance can be taken. The case law that exists is largely limited to the imposition of civil pecuniary penalties under the Commerce Act 1986. The Court of Appeal has made it clear in the context of criminal sentencing that:
Judges must today “do the arithmetic”. That is they must indicate, in some manner which is amenable to review, where they started from and how they got to the sentence actually imposed.
7.54Even where, in that field, there are many sentencing decisions that can be drawn upon, there is widespread international acceptance of the need for further direction for judges, whether it be in the form of sentencing guidelines or guideline judgments, to achieve greater consistency.
7.55Transparency and consistency is also important when it comes to the setting of civil pecuniary penalties. Given the limited case law, there is arguably a heightened need for statutory guidance because of the very high maximum penalties that feature in the legislation, which can be applied to a broad range of behaviour and a broad range of offenders.
7.56If guidance is advisable, there is a question as to whether there is a list of core factors that should be included in civil pecuniary penalty statutes, such as those listed at paragraph 7.51 above. Other factors may also be relevant. For example:
- Whether the respondent has committed previous breaches.
- Whether other particular orders have already been made in respect of the breach.
- Whether there is a need to impose a lower penalty to ensure that the offender’s pool of resources are set aside for compensation claims.
- Whether individuals are implicated alongside a body corporate or other professional body. In Commerce Commission v Wrightson NMA Ltd, the Court penalised a single course of conduct and divided the penalty between the company and the individual concerned.
- Whether the breach was an attempt or the person in breach was an accessory. Ancillary liability may be considered deserving of a lesser penalty than primary liability.
- Whether discounts should be made for an admission of liability and/or cooperating against other defendants. For instance, Williams J allowed a 50 per cent discount in Commerce Commission v Koppers Arch Wood Protection (NZ) Ltd, drawing an analogy to sentence reductions in the criminal law for entering an early guilty plea.
- The financial circumstances of the defendant.
7.57Also relevant is the extent to which the interest in deterrence should be emphasised. Chris Noonan argues for courts to use economic analysis to guide the imposition of penalties in commercial and economic regulation cases. Deterrence would be a primary factor in that analysis, and would also provide the goal against which to assess various other factors relevant to penalty. For example, deterrence theory requires making the expected costs of price fixing greater than the expected gains to be made. This suggests courts should be able to quantify penalties based on the expected gain from the breach, not just the actual gain (which would also assist in cases where it is particularly difficult to quantify the gain made or loss avoided). Similarly, a deterrence-based penalty would not focus on the number of individual technical contraventions, but the expected effects of those contraventions assessed in a holistic manner. Noonan also suggests that when penalising cartels, lower penalties may be sufficient to deter contraventions if an effective leniency policy is in place. Conversely, deterrence theory supports imposing higher penalties on ringleaders. These are detailed economic-based theories which might not have universal application. Nevertheless, it may be desirable to give statutory guidance about matters that reflect these theories where they are thought relevant to a particular regime or contravention.
The Australian Attorney-General’s 2007 Guide to Framing Commonwealth Offences, Civil Penalties and Enforcement Powers
recommended that statutes should specify a list of factors relevant to quantum, citing those factors put forth by the Australian Law Reform Commission in its 2002 report.
Some of those factors do not appear in our own civil pecuniary penalty statutes, such as:
- whether professional advice had been obtained about the contravention, prior to the breach;
- in the case of a natural person, the attitude of the offender.
And, where the defendant is a body corporate:
- the level in the organisation at which the contravening conduct occurred;
- whether the corporation exercised due diligence; and
- whether it has a corporate culture conducive to compliance.
A framework for penalty setting
Including a non-exhaustive list of statutory factors is helpful, but it is also necessary for courts to articulate why each factor is significant and their relative significance, if penalties are to be just, predictable, and serve as a deterrent.
Some have argued that in addition to a statutory list of factors, courts should draw on criminal sentencing practice.
7.60The modern approach to criminal sentencing, while discretionary and subject to variation where appropriate, involves three basic steps:
- First, the court must arrive at a “starting point” by considering the aggravating and mitigating factors relevant to the offence committed;
- Second, the court considers factors relating to the circumstances of the offender, to determine whether a sentence higher or lower than the starting point is required; and
- Third, the court discounts the sentence to take account of the entry of a guilty plea and any assistance to the authorities provided by the offender.
The High Court has already implicitly and explicitly adopted aspects of criminal sentencing in its penalty judgments under the Commerce Act,
and use of a framework broadly based on the criminal law sentencing approach has been praised as more transparent and predictable than previous cases, where the Court has tended to list the factors relevant to the exercise of its discretion and then arrive at a global penalty figure.
However, Rodney Hansen J has warned against taking the analogy too far, as the objectives of criminal sentencing may differ markedly from those served by civil pecuniary penalties.
In addition, while predictability is important, it may be desirable to avoid the imposition of penalties being perceived as a tariff that is simply a cost of doing business in the relevant area.
7.62In conclusion, our tentative view is that the factors relevant to determining a penalty should be decided on a regime-by-regime basis. Having said that, the appearance in several regimes of the same factors suggests there is an identifiable core that it may be desirable to include in every civil pecuniary penalty regime.
Q37 Do you agree that civil pecuniary penalty statutes should include guidance for the courts as to the setting of the level of a penalty?
Q38 Is there a core list of factors that could be set out in legislation for courts to take into account when determining the quantum of a penalty and if so, what should it include? What other additional factors are or are not relevant?
Q39 To what extent should courts draw on criminal sentencing practice when determining the quantum of a penalty?