Recommendations on the Design of Pecuniary Penalties
UNDER EMBARGO UNTIL REPORT TABLED IN PARLIAMENT
MEDIA RELEASE 30 October 2014 Hon Sir Grant Hammond KNZM
Law Commission Makes Recommendations on the Design of Pecuniary Penalties
The Law Commission has reviewed the use of pecuniary penalties as a regulatory tool. Pecuniary penalties are financial penalties that policymakers are increasingly opting to use in place of criminal sanctions in order to punish and deter misconduct in a number of regulatory regimes. They were first used in 1986 in the Commerce Act and now appear in 18 Acts of Parliament. They represent a significant development in the evolution of New Zealand’s legislative penalties.
Contraventions calling for pecuniary penalties do not need to be proved beyond reasonable doubt because the penalties are imposed in civil proceedings. The defendant cannot be imprisoned and does not face a criminal conviction. However, the penalties are punitive and can amount to very substantial sums – in some instances, up to $1 million for an individual and more than $10 million for a company.
In its Report Pecuniary Penalties: Guidance for Legislative Design (NZLC R133, 2014), the Law Commission concludes that pecuniary penalties are a legitimate regulatory tool when used appropriately. However, they need to be carefully designed so that they do not create a risk of unfairness or injustice. The Commission makes nine recommendations to Government in that regard.
Policymakers need more guidance when they are considering whether to include pecuniary penalties in a regulatory regime. The Commission recommends that the Ministry of Justice be consulted on all proposals for pecuniary penalties at the policy development stage, and that the Parliamentary Counsel Office draft model provisions. The Law Commission’s Report also sets out 21 guidance points for policymakers that cover best practice when designing pecuniary penalties, which the Commission recommends be included in the Legislation Advisory Committee’s Guidelines on Process and Content of Legislation.
The guidance includes the following:
• Pecuniary penalties should be imposed by a court.
• They are punitive in nature and they should be designed with their punitive nature in mind.
• They should be imposed on the civil standard of proof (requiring proof of a contravention on the balance of probabilities, rather than beyond reasonable doubt).
should usually be able to claim the protection of a “penalty privilege” when faced with pecuniary penalty proceedings. Like the privilege against self-incrimination in the criminal law, a penalty privilege will protect against the misuse of intrusive and coercive State power. The privilege is not absolute and it may be limited or modified where that can be justified by reference to an overriding need for regulatory effectiveness. The Commission recommends that the Evidence Act 2006 should be amended so that a penalty privilege of this nature will apply to all pecuniary penalties in existing regulatory regimes. It also recommends that, if any existing regime can demonstrate that it requires the privilege to be limited or modified, its statute should be amended at the same time.
The Commission’s research has revealed that there is no clear methodology available to policymakers who are determining what maximum penalty should be set down in statute for breach of a pecuniary penalty provision. It recommends that the Government instigate a dedicated review of how maximum criminal and pecuniary penalties are set down in legislation, drawing on legal principle and economic theory.
The Commission also concludes that the Crown and its employees could potentially be liable for pecuniary penalties. This is a pertinent issue and the Commission recommends that Cabinet consider making it a requirement for any new pecuniary penalty regime to consider its potential impact on Crown liability.
Finally, the Commission recommends that all enforcement agencies that have the power to seek pecuniary penalties should publish policies setting out how they will do this. Several agencies already do so.
The Law Commission’s recommendations and its guidance for policymakers are set out in its Report Pecuniary Penalties: Guidance for Legislative Design (NZLC R133, 2014) which has been tabled in the House of Representatives.
The full Report, including a summary, can be found on the Commission’s website at http://www.lawcom.govt.nz/project/law-relating-civil-penalties/report .