Other elements of legislative design
7.70Limitation periods provide a time within which legal proceedings must be initiated, either by providing a defence to proceedings brought after that date or by negating the enforceability of the right which is the subject of the proceedings.
Most civil pecuniary penalty regimes set a specific time limit within which proceedings must be commenced. The majority are of two or three years.
The shortest is the 12 month time limit in the Commerce Act 1986 for applying for a penalty for breach of an undertaking, from the date the relevant obligation in the undertaking was required to be met.
An example of a longer time limit is in the Anti-Money Laundering and Countering Financing of Terrorism Act 2009, in which “an application for a civil pecuniary penalty … may be made no later than 6 years after the conduct giving rise to the liability to pay the civil pecuniary penalty occurred.”
A number of these time limits begin to run from the time the breach occurred.
However, a number also begin to run from the time the breach was discovered or ought reasonably to have been discovered.
One of these, for Commerce Act restrictive trade practices penalties, contains a “longstop” period of 10 years.
This means that even if the claim remained undiscovered for a long period of time, if 10 years have passed since the date of the act or omission on which the claim is based, the regulator cannot apply for a penalty. A number of penalties incorporating reasonable discoverability tests do not
a longstop period.
This means that a latent civil pecuniary penalty proceeding could survive indefinitely.
When a civil pecuniary penalty regime does not stipulate a time limit, the Limitation Act 2010 will apply.
It appears that civil pecuniary penalties fall within the definition of “money claim” in that Act, as:
… a sum that is recoverable under an enactment and is, or is by way of, a forfeiture or a penalty, but does not include the following to which a person is liable on conviction for an offence:
(a) a fine:
(b) an amount of compensation, reparation, or restitution.
7.74As money claims under the Act, civil pecuniary penalties may be sought:
- within six years of the act or omission (the primary period); or
- within three years of the date on which the plaintiff knew or ought to have known of the facts in s 14 (the late knowledge period) but no later than 15 years after the date of the act or omission (the longstop period). The longstop period does not apply if the plaintiff can show lack of knowledge by reason of the defendant’s fraud.
7.75Those limitation periods provide a defence to penalty proceedings.
For penalties for acts or omissions before 1 January 2011, its predecessor Act, the Limitation Act 1950, will apply.
Under that Act, most civil proceedings are subject to a general six year limitation period. However, in s 4(5) it provides expressly that:
An action to recover any penalty or forfeiture, or sum by way of penalty or forfeiture, recoverable by virtue of any enactment shall not be brought after the expiration of 2 years from the date on which the cause of action accrued:
Provided that for the purposes of this subsection the expression penalty shall not include a fine to which any person is liable on conviction of a criminal offence.
7.77“Penalty” in that Act is not defined, but case law suggests it broadly accords with this Issue Paper's definition of a civil pecuniary penalty.
7.78In the remainder of this section we consider how civil pecuniary penalty statutes should approach issues of limitation.
Time limits for civil and criminal proceedings
7.79Limitation law operates quite differently in the civil and criminal spheres. Both involve a balancing of interests intended to achieve just outcomes for a range of parties although their underlying rationale and operation differs relatively significantly.
7.80Both the 2010 and 1950 Acts set down a general six year limitation period for bringing an action or claim. Both contain specific limitation periods tailored for particular classes of claimants and types of claim, reflecting the need to strike a balance between various interests. The 2010 Act provides a late knowledge period for claims, allowing claimants to bring proceedings even if the initial limitation period has expired where they can show they did not reasonably know of facts relevant to the claim. The 1950 Act did not include a late knowledge period, but during the life of that statute some causes of action were made subject to a common law test of “reasonable discoverability”. The cause of action would only accrue once the loss or damage caused by the wrongful act or omission was or ought to have been discovered by the plaintiff. Neither Act applies in the case of express statutory provision to the contrary.
7.81Under the Acts, the limitation periods operate as a defence that must be pleaded by the defendant. This means that the establishment of the defence does not extinguish any right, but prevents the Court granting relief.
7.82A defendant in civil proceedings can also invoke the equitable defence of laches or acquiescence, if there is undue delay on the part of the plaintiff in bringing the claim after becoming aware of their right to do so. The Court then has discretion to refuse relief even if time has not expired or where no limitation provision applies, if it would be inequitable or unreasonable to allow the claim to be brought. An equitable defence is generally only available where the claimant knew or reasonably should have known of the existence of a cause of action and where that delay was actually prejudicial to the defendant.
Limitation periods are required to achieve certainty and finality, particularly for defendants. By providing claimants with an incentive to bring their claims without delay, limitation periods ensure claims are decided on fresh evidence, minimising the potential for injustice to the defendant by having to defend stale proceedings.
They also recognise that, with the passage of years, people should be able to order their lives according to the status quo, without fear of being held to account for ancient obligations. However, limitation regimes must also work fairly for claimants, who have an interest in ensuring they have as much time as possible to seek relief for a meritorious claim.
7.84Other interests are also relevant, such as the interest of the State in deciding claims fairly on fresh evidence, and in avoiding expense and time spent litigating matters that may have diminished in significance over the years. Third parties may also require certainty as to the status quo, such as to ensure security of title where property is transferred.
7.85There is no general statute of limitation for criminal proceedings. However, s 25(b) of NZBORA protects the rights of defendants to be tried without undue delay. A defendant may allege that right has been breached if there is significant delay by prosecuting authorities in bringing the case to trial. The Court can also strike out criminal proceedings for delay as part of its inherent power to prevent abuse of its processes, whether the delay is caused by the prosecution or because there has been a long time between when the offence occurred and when it was reported. The delay must cause actual prejudice to the accused.
At present, limitation periods are set down in the Crimes Act 1961 and the Summary Proceedings Act 1957 for specific types of offences. For offences that may only be dealt with summarily, unless specific provision is made to the contrary, the information must be laid within six months from the time the “matter of the information arose”.
For offences punishable by less than three years imprisonment or a fine of less than $2,000, whether summary or indictable, s 10B of the Crimes Act sets a 10 year limitation period, unless a shorter period of limitation has been specified by statute.
The Acts are silent about offences with greater penalties than these. So, unless there is specific provision about an offence in its own statute, no limitation period applies.
7.87These provisions will be overtaken by s 25 of the Criminal Procedure Act 2011 once it comes into force. That section imposes various time limits for when a charging document may be filed, depending on the category of the offence. The most serious offences (category 4 offences) will continue to have no general statutory time limit, while other time limits will be between six months and five years, depending on the seriousness of the penalties available for the offence. The new time limits form part of the reorganisation and rationalisation of criminal procedure under that new Act.
7.88In criminal limitation law there is no private claimant to consider, but there is a public interest in ensuring that the passage of time does not allow criminal conduct to go unpunished. Balanced against this is the public interest in incentivising efficient criminal investigations and prompt prosecutions, in the interest of efficiency and fairness but also to minimise the likelihood that a defendant will be acquitted because of unreliable evidence or prejudicial delay. The prosecution has an interest in having as much time as possible within which to investigate and instigate proceedings but defendants have a right, after a time, to get on with life without the threat of a criminal proceeding hanging over their head.
7.89It appears that the dominant factor affecting criminal time limits is the seriousness of the offence. The time for filing an information lengthens with the severity of the criminal sanction. However, this calls for the exercise of prosecutorial discretion. Crown prosecution guidelines list the long passage of time between an offence taking place and the likely date of trial as a factor weighing in the decision of whether prosecution is in the public interest.
As offences decrease in seriousness, the public interest in prosecution also decreases.
Public interest is a key factor taken into account by the Crown when determining whether to prosecute. The six month limitation period currently in place for purely summary offences is thought adequate for the Crown to investigate and prepare its case, although that may be extended by statute where the offence involves a risk of serious harm to health and safety or involves fraud or dishonesty that is difficult to detect.
Civil pecuniary penalties and limitation law
Currently, of 15 civil pecuniary penalty statutes, three are silent as to limitation periods and will therefore be subject to the 2010 (or 1950) Act.
The remaining Acts contain internal limitation periods. These appear to be modelled on s 14 of the Summary Proceedings Act, usually providing that proceedings may be commenced within a certain time from when the matter occurred, arose or was discovered.
The language used is inconsistent and could give rise to legal arguments.
Very few statutes go beyond stating the length of the limitation period and whether time starts to run from the date of the breach or discovery of the breach. They do not address who must discover the breach, what constitutes discovery, or when time starts to run for a series of related breaches or continuing breaches.
Another difficult question of interpretation likely to arise for these regimes is whether their internal limitation provisions displace or exist alongside the 2010 Act. It was clear that no part of the 1950 Act applied if the relevant statute set its own time limits.
But s 40 of the 2010 Act states:
40 Other enactments may displace or affect defences
(1) A defence under Part 2 or 3 does not apply to a claim if an enactment other than this Act—
(a) prescribes for the claim a limitation period or any other kind of limitation defence; or
(b) provides for the determination or fixing of the time before which, or period within which, the claim must be made.
(2) However, this section does not limit or affect the operation of enactments other than this Act that—
(a) do what is specified in subsection (1) but apply to a claim not instead of, but as well as, this Act; or
(b) alter, extend, limit, or prevent this Act’s application or operation.
7.93For instance, the Takeovers Act 1993 states that civil pecuniary penalties may be sought within two years of the date on which the breach was discovered, but does not impose any longstop on that limitation period. Will the 15 year longstop period in the 2010 Act apply?
Is the categorisation of civil pecuniary penalties under the Limitation Act 2010 correct?
Given the nature of civil pecuniary penalties as punitive proceedings initiated by the State, should they be subjected to the six year limitation period applicable to more orthodox civil claims? The period set down by the Limitation Act 2010 can always be departed from, but it will provide the starting point for policy makers determining the length and operation of statutory limitation provisions.
Any such determination will need to balance the various interests concerned, taking into account the nature and function of civil pecuniary penalties. Criminal limitation law may be relevant to that inquiry.
Money claims under the 2010 Act now encompass claims for a civil pecuniary penalty. In contrast under the 1950 Act, they were dealt with separately from other types of civil claim and were subject to a two year limitation period. There is little detailed discussion of the policy decision to bring civil pecuniary penalty claims within the general category of money claims. One possibility relates to the abolition of the common informer procedure in England. Our 1950 Act is based on the English Limitation Act 1939, and s 4(5) seems to be drawn directly from a similar English provision.
Commentary on the English Act notes the English provision appeared to become redundant since the abolition of the common informer procedure in 1951.
7.96In Re Network Agencies International Ltd, the High Court suggested one reason for the reduced 1950 Act time period for civil pecuniary penalties is their punitive nature. Greater protection may be afforded to those faced with a punitive measure through the use of shorter limitation periods. The Court stated:
At least so far as the first of those considerations is concerned, it might well have been thought that those faced with punitive measures should receive greater protection than those faced with mere civil litigation over private compensation between two private citizens. Punitive measures commonly involve a moral stigma. Their quantum frequently exceeds the loss suffered by the victim. Consistent with the view that for those reasons those faced with a penalty have the most to lose, one might expect that where legislation confers a cause of action for the recovery of a sum of money, the choice between short and long limitation periods will turn upon whether the predominant purpose is to punish or to compensate.
7.97The aim of the 2010 Act was also to simplify the law. This may have warranted removing the differential treatment of various civil claims. However this reasoning is not evident in other parts of the 2010 Act. For example, in 1992, defamation claims were carved out and made subject to a three year limitation period under the 1950 Act, and the reduced period was taken over into the 2010 Act. Other distinct categories created under the 1950 Act have also been largely carried over to the 2010 Act, such as claims to recover land and claims for contribution.
There may be a question, then, as to whether civil pecuniary penalties should be dealt with in the pool of general money claims in the 2010 Act. One reason for returning to a shorter period may be that those charged with seeking civil pecuniary penalties (regulators) usually have information-gathering powers at their disposal and the power to amend pleadings once the proceedings have been commenced.
Notably, however, LAC Guidelines suggest that in general the Crown should be placed in neither an advantageous nor disadvantageous position with other litigants in relation to the setting of civil limitation periods.
7.99Arguments may also be made that civil pecuniary penalty proceedings should be treated differently because commercial certainty arguments are particularly relevant to them. However, this may be true of some civil pecuniary penalties – such as those that target businesses and professionals – but not all. There are also public interest factors to consider which weigh both ways in the balancing exercise. The interest in pursuing proceedings quickly, before evidence becomes stale and social circumstances change, favours a shorter period. The competing interest in allowing ample time to investigate and commence proceedings to increase the likelihood of success favours a longer period.
We also note that the new six year periods for civil pecuniary penalties increases the disparity between the parallel criminal/civil pecuniary penalties in the Hazardous Substances and New Organisms Act 1996. Prosecution of the parallel criminal offence must be commenced within two years of the time the matter arose, but its civil counterpart may now be sought up to six years after the event, and longer where late knowledge is established.
Should the civil pecuniary penalty limitation period be allowed to extend significantly beyond its criminal counterpart, and is the disparity an argument for returning to the former two year limitation period? This is also the case for limitation periods in the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 – the parallel offence must be sought within three years; but the civil penalty proceeding can be commenced within up to six years.
7.101Australian states have their own specific limitations enactments and further provisions are spread throughout various pieces of legislation at both state and federal level. The Australian Guidelines only recommend that civil pecuniary penalty statutes specify a time limit on proceedings, in order to give potential defendants certainty as to their liability. The Environment Protection and Biodiversity Conservation Act 1999 (Cth) sets a time limit of six years for seeking a civil pecuniary penalty.
Transitional issues for existing regimes
7.102An important point to note is that the treatment of civil pecuniary penalties as money claims under the 2010 Act will mean that civil pecuniary penalty provisions previously reliant on the 1950 Act are now subject to quite different limitation rules. For those civil pecuniary penalty provisions that fall under the 2010 Act, the two year limit will give way to a primary claim period of six years, a statutory late knowledge period and a longstop period of 15 years. Many civil pecuniary penalties that were never subject to common law concepts of reasonable discoverability will now provide for the plaintiff to have “late knowledge” of a breach. The initial policy decisions that drove reliance on the 1950 Act may need re-evaluating to determine whether the 2010 Act should now apply in its place.
How should civil pecuniary penalty statutes deal with limitation periods?
7.103The Law Commission’s preliminary view is that the setting of limitation periods for civil pecuniary penalties should be a conscious policy decision, taking into account the range of penalties that may be sought under a particular regime. Wholesale reliance on the 2010 Act is not necessarily desirable, since some civil pecuniary penalties cover a range of conduct of varying seriousness and some civil pecuniary penalty regimes contain a number of different penalties which may require separate limitation periods, such as the Commerce Act 1986. Also, non-monetary civil orders such as management bans are not covered by the Limitation Act 2010. Policy makers may need to examine carefully the range of orders in a single statute and think about how limitation periods apply to each, not just to the scheme as a whole. They will also need to clearly specify the extent to which a statute’s internal limitation rules displace or exist alongside the 2010 Act.
7.104There may be a case for the provision of guidance about when it might be appropriate for a civil pecuniary penalty statute to provide different or more detailed internal limitation periods than those set down by the 2010 Act. The LAC Guidelines discuss some considerations relevant to civil remedies generally, although these have not been updated since the move to the 2010 regime. For example, shorter periods may be required where:
- the wrong or thing complained of is relatively trivial, such as for some regulatory requirements;
- early resolution or finality is essential to ensure that the government or some other body or regime can operate effectively.
Longer periods may be required where it is obvious from the outset that the wrong complained of is serious and unlikely to be discovered for some years after the relevant act or omission occurred.
For example it has been argued that price fixing under the Commerce Act is more likely to be covert by nature,
whereas insider trading under the Securities Markets Act may be more likely to be overt by nature. Whether these observations are correct, and what influence they may have in other areas, is open to further analysis. Similar considerations may also influence whether the limitation period should incorporate a period for “late knowledge”, to adopt the terminology of the 2010 Act. This may justify shortening the initial period of limitation. Conversely if a long initial period of limitation is used, adopting a late knowledge period as well may be unnecessary or unfair.
Extending limitation periods may also make it more difficult for professionals or businesses to get insurance against legal claims, and the higher insurance cost will be passed on to consumers.
Should this be taken into account when setting limitation periods for civil pecuniary penalties that predominantly target professionals or businesses?
7.106There are additional issues to consider beyond merely the length of the limitation period. For example, from when should time start to run? In previous reports on limitation periods the Law Commission has supported the move towards calculating limitation periods from the time of the act or omission, rather than relying on concepts of accrual, and incorporating a concept of reasonable discoverability if necessary, and this is also the approach taken in the 2010 Act.
7.107The next question is when time should start to run if there are a series of related breaches for which one penalty proceeding has been commenced, or where there is a continuing breach, such as under s 27 of the Telecommunications (Interception Capability) Act 2004. Should time run from the first or last act or omission, or from when the continuing breach began or when it ended? These issues are likely to arise but few statutes deal with them, nor does the 2010 Act. Is it desirable to deal with these matters in statute or to leave them to be determined as a matter of judicial discretion according to the statutory context and the justice of the case? As the Law Commission noted in its 1988 report on limitation defences, fixed rules may act unfairly, but broad judicial discretions may undermine the need for certainty and repose which underlies all limitation periods.
If a late knowledge period is used, further questions arise, namely (i) whose knowledge is relevant; and (ii) what constitutes “knowledge”. The first point is important for penalties sought by a regulator for conduct which led to damage or loss being incurred by others. Does time start to run from when the regulator gains knowledge of the act or omission, when the person or persons who suffered loss gain knowledge, or some other alternative? The various options were discussed in the Court of Appeal and Supreme Court in a case concerning an action for civil remedies under the Fair Trading Act 1986 sought by the Commerce Commission on behalf of consumers.
A similar scenario may be envisaged in civil pecuniary penalty proceedings. Should this be specified in civil pecuniary penalty limitation periods? We note that under s 135(5) of the Employment Relations Act 2000, concerning limitation periods for penalties, the relevant knowledge is that of the person bringing the action.
7.109Another question is at what point in a regulator’s investigation it will be held that knowledge of a contravention was obtained. For instance this could be when the regulator had knowledge of the circumstances that would lead to a chain of inquiry as to the breach; or it might require knowledge of facts which would indicate a breach without significant further investigation. The relevant facts that must be known are set out in the 2010 Act, but not the degree of knowledge of those facts that is required. Should it be set out in civil pecuniary penalty statutes?
Q41 Do you agree that civil pecuniary penalty statutes should deal expressly with the issue of limitation?
Q42 Do you agree that guidance should be provided to policy makers on the matters influencing the choice of limitation periods?