Other elements of legislative design
Setting maximum penalties in civil pecuniary penalty legislation
Civil pecuniary penalties are notable for their very high maximum penalties. In some cases the maximum penalty is set as a fixed sum. For example the Takeovers Act 1993 provides for maximum penalties of $500,000 for an individual or $5m for a body corporate.
In other cases the maximum is set as a multiple of the value of any commercial gain resulting from the contravention; or a percentage of the turnover of the body corporate and all of its interconnected bodies corporate. Section 80 of the Commerce Act provides that the maximum penalty for breach of the restrictive trade practices provisions by a body corporate is:
the greater of–
(i) $10,000,000; or
(A) if it can be readily ascertained and if the Court is satisfied that the contravention occurred in the course of producing a commercial gain, 3 times the value of any commercial gain resulting from the contravention; or
(B) if the commercial gain cannot be readily ascertained, 10% of the turnover of the body corporate and all of its interconnected bodies corporate (if any).
7.28Other Acts contain similar formulations in that they allow the Court to link the penalty to the financial gain made from the breach or amount of loss avoided.
7.29In the criminal sphere, maximum penalties have been set in a fairly unsystematic way: there has been no agreed methodology or approach for determining the relative seriousness of an offence when it is created. The Ministry of Justice (and before 1995, the Department of Justice) has performed a vetting function in relation to statutory provisions creating new offences or penalties. Nevertheless, in the end the selection of a quantum has been largely intuitive. Furthermore, while a maximum penalty may accurately indicate Parliament’s view as to the relative seriousness of an offence, it is an assertion of seriousness for that particular Parliament and in light of the political and social circumstances when it was enacted. As a result, many maximum penalties are anomalous, do not reflect the relative seriousness of the offence and bear little or no relationship to current sentencing practice. The Law Commission has undertaken a review of maximum criminal penalties which will be published in the near future as a Study Paper.
7.30Given the approach to setting maximum penalties for criminal offences, it is difficult to assert that a more scientific or satisfactory approach can be adopted with civil pecuniary penalties. Nevertheless, the Commission suggests that some degree of guidance can and should be provided.
7.31First, as far as is possible, consistency should be achieved. By this, we do not mean consistency of maximum civil pecuniary penalties across the statute book, but rather that a consistent approach to penalty setting should be undertaken. As the Australian Law Reform Commission has observed, “in a rational system of punishment it is desirable that penalties prescribed by law correspond to offence seriousness in a consistent fashion”.
Secondly, penalties need to balance the promotion of good behaviour with ensuring that business is willing to take sensible commercial risks, in order to optimise growth and business development.
We note, for example, the concern that high maximum civil pecuniary penalties might have had the consequence of the cessation of genetic modification research in New Zealand.
Civil pecuniary penalties need to be set at a level which does not deter legitimate commercial endeavour or sensible risk-taking.
7.33Thirdly, we agree that the policy aims of civil pecuniary penalties provide some justification for the very high maximum penalties that feature on the statute book. Criminal penalties are set based on relative offence seriousness and the maximum penalties reflect the worst class of case in each particular category. They are directed at achieving the aims of criminal law which include retribution, rehabilitation and deterrence. Since most offending does not fall within the bracket of “worst class of case”, statutory maximum penalties tend to be set far above the sentences that would be appropriate for the ordinary run of offences of each type coming before the courts.
7.34The setting of civil pecuniary penalties should be based on similar imperatives. However, the policy aims of civil pecuniary penalties differ slightly from the aims of the criminal law. While they are directed at the punishment and denunciation of wrongdoers, greater emphasis is placed on their role in creating optimal incentives for participants to comply with the regulatory regime. The dominant imperative, then, is said to be the deterrence of non-compliance.
7.35Since many civil pecuniary penalties are targeted at corporate actors, it is inevitable that higher maximum penalties may be required to adequately deter the wealthiest potential contraveners. There is also an argument that the more difficult a breach is to detect or prove, the higher the penalty that is justified. As noted in chapter 4, where the offender is a body corporate, evidence of the breach may be harder to establish. It follows that high maximum penalties for corporate offending may well be acceptable, particularly since the Court is able to take account of factors such as the comparative size of the corporate body when imposing the penalty.
7.36However, the result of such high maximum penalties, which can be applied to such a broad range of behaviour, is that they give courts a great deal of discretion as to penalty quantum in any given case. For this reason, and given the limited case law on civil pecuniary penalties, it may be desirable for detailed statutory guidance to be provided to courts when imposing a penalty. We discuss this further below.
Parallel criminal and civil pecuniary penalties
7.37There is a variety of approaches where criminal offences and civil pecuniary penalties exist for the same or similar conduct. In some cases, the maximum monetary penalties are the same for both civil and criminal breaches, but conviction for a criminal offence may also be accompanied by a term of imprisonment. Under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 the monetary penalty for the equivalent criminal offence exceeds the civil pecuniary penalty maximum. However, under other statutes it is possible to have a higher civil than criminal monetary penalty imposed. For instance, breach of a price-quality requirement or order, or an information disclosure requirement or order under the Commerce Act 1986, is an offence if done intentionally, or can be punished by civil pecuniary penalty. The maximum civil pecuniary penalty is $500,000 for individuals and $5m for a body corporate, but the maximum criminal penalty is $200,000 for individuals and $1m for a body corporate.
Where parallel criminal and civil pecuniary penalties target the same conduct or breach, the respective criminal and civil pecuniary penalties must be set appropriately. We query whether, in those circumstances, maximum civil pecuniary penalties should be set lower than the equivalent maximum monetary criminal penalty. Otherwise, there may be a perverse incentive to take civil pecuniary penalty proceedings rather than a criminal prosecution.
Furthermore, where parallel criminal and civil pecuniary penalties exist, the former should surely be reserved for graver conduct than civil pecuniary penalties. Should the respective penalties reflect this?
7.39The Tokelau (Territorial Sea and Exclusive Economic Zone) Act 1977 provides an alternative approach. Breaches of the Tokelau (Exclusive Economic Zone) Fishing Regulations 1988 may be dealt with by way of civil pecuniary penalty (although none have been enacted). Section 8(n) of the Act provides that any penalties created may not exceed one-third of the maximum criminal fine available for the breach.
7.40The Telecommunications (Interception Capability) Act 2004 contains a daily penalty for continuing contraventions. The Court can order payment of up to $50,000 for each day the breach continues (on top of an initial penalty of up to $500,000). In relation to continuing criminal offences, the LAC Guidelines state that:
Continuing offences with daily penalties introduce the possibility of large, indeterminate fines. Generally, such a penalty will not be desirable, as certainty is a cornerstone of the criminal law. A more appropriate remedy may be an order requiring discontinuance, or some other relief designed to end the unlawful activity.
7.41Should this guidance also apply to civil pecuniary penalties?
Q33 Should the setting of maximum civil pecuniary penalties in legislation be guided by the following principles?
- should reflect the worst class of case in each particular category;
- should be designed to encourage compliance with the regulatory system at hand and so be set at a level to deter the classes and sizes of participants in that regulatory field;
- should balance the promotion of compliant behaviour with ensuring that business remains willing to enter the market and/or take sensible commercial risks.
Q34 Where parallel criminal and civil pecuniary penalties target the same conduct or breach, is it ever appropriate for maximum civil pecuniary penalties to be higher than the equivalent maximum monetary criminal penalty?