Commerce Commission v Steel & Tube Holdings Limited
[2020] NZCA 39
•4 March 2020
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA484/2019 [2020] NZCA 39 |
| BETWEEN | COMMERCE COMMISSION |
| AND | STEEL & TUBE HOLDINGS LIMITED |
| CA485/2019 | ||
| BETWEEN | STEEL & TUBE HOLDINGS LIMITED | |
| AND | COMMERCE COMMISSION | |
| Court: | Gilbert, Ellis and Brewer JJ |
Counsel: | J C L Dixon QC, A M McClintock and B J Thompson |
Judgment: | 4 March 2020 at 2 pm |
JUDGMENT OF THE COURT
The applications for leave to bring a second appeal against sentence are granted.
____________________________________________________________________
REASONS OF THE COURT
(Given by Gilbert J)
Introduction
Steel & Tube Holdings Ltd (Steel & Tube) pleaded guilty to 24 representative charges brought by the Commerce Commission (the Commission) under the Fair Trading Act 1986 (the Act). The charges all related to steel mesh known as “SE62” which was sold as “500E grade” when it did not comply with the applicable testing procedures set out in the relevant standard.[1] 500E is a grade of steel mesh that has certain characteristics, including ductility, which provide strength and stability in the event of an earthquake.
[1]Australian and New Zealand Standards, Steel reinforcing materials (AS/NZS 4671/2001).
The charges fell into two categories. The first involved breaches of s 10 of the Act by making representations (on batch tags, batch test certificates, collateral and website) that were liable to mislead the public as to the nature, manufacturing process, characteristics or suitability for a purpose of the mesh. The second category of offending concerned false or misleading representations in breach of s 13 of the Act that the mesh had been tested and certified by an independent building product testing laboratory, when it had not been.
The charges spanned the four-year period from 1 March 2012 to 5 April 2016. Thirteen of the 24 charges related to conduct and representations from 1 March 2012 to 16 June 2014 for which the maximum fine was $200,000 per charge. The maximum penalty for each of the 11 charges in the later period was $600,000.
Although sentencing proceeded on an agreed summary of facts, there was a major dispute about the proper characterisation of Steel & Tube’s conduct. The Commission contended that Steel & Tube’s conduct involved a deliberate departure from the testing process in circumstances where the company knew it was not testing the mesh in accordance with the standard and knew its compliance representations were misleading. For this submission, it relied on the attribution provision in s 45 of the Act which provides that where, in proceedings under pt 5 of the Act in respect of any conduct engaged in by a body corporate, it is necessary to establish the state of mind of the body corporate, it is sufficient to show that a director, servant or agent of the body corporate, acting within the scope of that person’s actual or apparent authority, had that state of mind. The Commission argued that the knowledge of Steel & Tube’s former technical manager should be attributed to the company.
Judge Cathcart accepted Steel & Tube’s contention that s 45 did not apply because the relevant offences involved strict liability.[2] The Judge said the section could not be relied on to fill any gap in the evidence in seeking to demonstrate as an aggravating factor that Steel & Tube acted knowingly or deliberately.[3] The Judge proceeded on the basis that the offending was grossly negligent but did not amount to a knowing breach.[4]
[2]Commerce Commission v Steel & Tube Holdings Ltd [2018] NZDC 21579 at [90].
[3]At [92].
[4]At [92]-[93].
The Judge imposed a fine of $1.885 million.[5] This was arrived at by:
(a)adopting a starting point of $2.4 million for the first category of offences;[6]
(b)adding a starting point of $600,000 for the second category;[7]
(c)applying a discount of $100,000 for totality to arrive at a reduced overall starting point of $2.9 million;[8] and
(d)applying a reduction of 35 per cent to the adjusted starting point to allow for mitigating factors.[9]
[5]At [148].
[6]At [126].
[7]At [135].
[8]At [141].
[9]At [142].
Both parties appealed to the High Court against this sentence. The Commission contended the sentence was manifestly inadequate. Steel & Tube argued it was manifestly excessive. The parties remained in dispute about the applicability of s 45 of the Act and the proper characterisation of the offending.
Duffy J agreed with Judge Cathcart’s conclusion that s 45 was not engaged because offending in contravention of ss 10 and 13 involves strict liability.[10] She considered it was therefore not necessary to establish the state of mind of the body corporate.
[10]Commerce Commission v Steel & Tube Ltd [2019] NZHC 2098 at [65].
Duffy J nevertheless allowed the Commission’s appeal and substituted a fine of $2,009,280.[11] This was because she disagreed with the starting points adopted by the District Court and the adjustment for totality.[12] The substituted fine was arrived at by adopting what she considered was the lowest starting point available in the circumstances, being 42 per cent of the maximum penalty. This equated to a fine of $84,000 for each of the offences for which a maximum fine of $200,000 was available and $252,000 for each of the offences carrying a $600,000 maximum fine. Applying the uncontested discount of 35 per cent for mitigating factors, this reduced these fines to $54,600 and $163,000 per offence respectively giving an overall total of $2,511,600.[13] The final figure of $2,009,280 was arrived at by applying a 20 per cent discount for totality.[14]
The Commission’s application for leave to bring a second appeal
[11]At [132].
[12]At [109].
[13]At [115].
[14]At [119].
The Commission applies for leave to bring a second appeal on the following grounds:
(a)The Judge erred in finding that s 45 of the Act did not apply to Steel & Tube’s sentencing. The Commission contends that the interpretation adopted in the High Court would restrict the operation of s 45 to the three mens rea offences in the Act. Further, it argues it was necessary to assess Steel & Tube’s state of mind to evaluate the relevant factors which must be taken account of at sentencing in terms of the Sentencing Act 2002.
(b)Even if s 45 does not apply, the Judge erred in principle in not attributing the employee’s state of mind to the company for sentencing purposes. The Commission argues that s 45 does not displace ordinary common law rules of attribution, rather it expands those rules.
(c)The discount for totality was wrong in principle and excessive.
(d)The Judge failed to take account of all relevant factors including Steel & Tube’s size, resources and gain.
(e)As a result of these errors, the fine was manifestly inadequate.
The Commission contends that the proposed appeal involves matters of general or public importance. It observes that s 45 of the Act has not been considered by this Court previously. The Commission argues that deterrence of corporate defendants with substantial resources that have profited from their conduct is an issue of general or public importance.
Steel & Tube opposes the Commission’s application. It says the Commission’s argument on s 45 has no merit and is academic in that it would not have any impact on the fine ultimately imposed. It says the fine was approximately double the highest fine ever imposed on a single entity under the Act. It claims this was “patently out of step with precedent” and “inexplicable”. That the fine was not even higher could not raise any question of general or public importance.
Steel & Tube’s application for leave to bring a second appeal
Steel & Tube applies for leave to bring a second appeal on the grounds:
(a)The High Court erred in setting starting point bands without precedent, statutory support or submissions from either party on the issue.
(b)The fine was manifestly excessive, being approximately double the highest ever imposed on a single entity under the Act.
Assessment
We are satisfied the proposed appeal and cross-appeal raise matters of general or public importance justifying leave for a second appeal. In our assessment, the proper approach to attribution for the purposes of sentencing a corporate defendant for offences of this type raises a matter of general or public importance. The issue is not only important for sentencing under the Act, it is likely to have implications in sentencing for offences under other comparable legislation.
Given the disparate views taken in the courts below and the polarised positions adopted by the parties, it appears that guidance from this Court on setting appropriate starting points in circumstances such as the present and adjusting for totality could also be useful.
Result
The applications for leave to bring a second appeal against sentence are granted.
Solicitors:
Meredith Connell, Auckland for Commerce Commission
Matthews Law, Auckland for Steel & Tube Holdings Ltd
0
1
0