Contents

Chapter 7
Other elements of legislative design

Guidance as to the level of penalty

7.50Most 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.484  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:485
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.488
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:489

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:

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.495  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.496  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.497  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.
7.58The 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.498  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

7.59Including 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. 499  Some have argued that in addition to a statutory list of factors, courts should draw on criminal sentencing practice. 500

7.60The modern approach to criminal sentencing, while discretionary and subject to variation where appropriate, involves three basic steps:

7.61The High Court has already implicitly and explicitly adopted aspects of criminal sentencing in its penalty judgments under the Commerce Act,502  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.503  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.504  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?

484Overseas Investment Act 2005 and Telecommunications (Interception Capability) Act 2004.
485See for example the Commerce Act 1986, s 83(2) (for business acquisitions substantially lessening competition), Takeovers Act 1993, s 33Q, Securities Act 1976, s 55F(2), Securities Markets Act 1988, s 42Y, Anti-Money Laundering and Countering Financing of Terrorism Act 2009, s 90(4) Financial Advisers Act 2008, s 137K(3), Financial Service Providers (Registration and Dispute Resolution) Act 2008, s 79A(3), Dairy Industry Restructuring Act 2001, s 144, Telecommunications Act 2001, s 156L(2). See also the Electricity Industry Act 2010, s 56(2) and Gas Governance (Compliance) Regulations 2008, reg 52(3).
486Financial Advisers Act 2008, s 137K(3)(c), Financial Service Providers (Registration and Dispute Resolution) Act 2008, s 79A(3)(c), Commerce Act s 86(4)(b) (breach of an information disclosure requirement) and s 87(4)(c) (breach of a price-quality requirement). See also Electricity Industry Act 2010, s 56(2)(c) and Gas Governance (Compliance) Regulations 2008, reg 52(3)(c).
487Gas Governance (Compliance) Regulations 2008, reg 52(2)(a).
488See also s 33Q of the Takeovers Act 1993 which states the Court must have regard to the principles contained in the takeovers code; and s 137K(3)(b) of the Financial Advisers Act 2008 and s 79A(3)(b) of the Financial Service Providers (Registration and Dispute Resolution) Act 2008 which state the Court must take into account the nature and extent of any loss or damage suffered by a person as a result of the contravention, including the effect on a person of the loss of an opportunity to make a complaint to an approved dispute resolution scheme.
489R v S [2007] NZCA 243 (CA) at [79].
490See for example Unsolicited Electronic Messages Act 2007 Act, s 45(2)(c). See also Electricity Industry Act 2010, s 56(2)(e) and Gas Governance (Compliance) Regulations 2008, reg 52(3)(e). Noonan suggests this is more appropriate for inclusion in a retributive framework than one aimed at general deterrence: see Noonan, above n 454 at 258–259.
491Commerce Act 1986, 80(2A)(a): when setting a penalty for breach of Part 2 (restrictive trade practices), the Court is directed to consider whether an order for exemplary damages has already been made against the person for the same conduct.
492Commerce Commission v Wrightson NMA Ltd, above n 480.
493Commerce Commission v Koppers Arch Wood Protection (NZ) Ltd (2006) 11 TCLR 581 (HC). See also discussion in B Hamlin and M Sumpter “Fixing the Price of Commerce Act Breaches” [2011] NZLJ 230 at 233–234.
494Although Noonan suggests that in some price fixing cases, a penalty that effectively forces a firm out of business may nonetheless be justified: above n 454 at 263.
495Noonan, above n 454.
496Noonan, above n 454 at 257.
497Noonan, above n 454 at 257–258.
498Attorney-General’s Department (Criminal Justice Division) A Guide to Framing Commonwealth Offences, Civil Penalties and Enforcement Powers (September 2007 ed) at 69–70, citing Australian Law Reform Commission Principled Regulation: Federal Civil and Administrative Penalties in Australia (R95, Sydney, 2002) at 882, R29–1. The 2007 edition of the Attorney-General's Guide has now been revised: see para 8.12.
499Noonan, above n 454 at 254.
500Hamlin and Sumpter, above n 493 at 233–234.
501R v Taueki [2005] 3 NZLR 372 (CA) as modified by Hessell v R [2010] NZSC 135, [2011] 1 NZLR 607.
502Commerce Commission v Alstom Holdings SA [2009] NZCCLR 22 (HC) at [14].
503Hamlin and Sumpter, above n 493 at 231.
504Commerce Commission v EGL Inc HC Auckland CIV 404-2010-5474, 16 December 2010 at [13]–[14].