Commerce Commission v Wild Nature NZ Limited (in liquidation)

[2014] NZHC 2861

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-002758 [2014] NZHC 2861

UNDER

s 248(1)(c)(i) of the Companies Act 1993

BETWEEN

COMMERCE COMMISSION Applicant

AND

WILD NATURE NZ LIMITED (IN LIQUIDATION)

Respondent

Hearing:	17 November 2014
Appearances:	A M McClintock for Applicant D B Webster for Respondent
Judgment:	17 November 2014

ORAL JUDGMENT OF VENNING J

Solicitors:           Crown Solicitor, Auckland

WebsterLaw Limited, Auckland

COMMERCE COMMISSION v WILD NATURE NZ LIMITED (IN LIQ) [2014] NZHC 2861 [17 November

2014]

[1]      The Commerce Commission (the Commission) applies for leave to continue a prosecution against Wild Nature NZ Limited (Wild Nature) that company having gone into liquidation. The application is opposed by the liquidator of Wild Nature.

[2]      During 2011 the Commission conducted an investigation into allegations of false and misleading representations by importers and retailers of alpaca duvets, merino duvets and southdown wool duvets.   The conduct under investigation was alleged to involve the sales of thousands of mislabelled rugs and duvets valued at millions of dollars to groups of shopping tourists from China, Korea and Taiwan.

[3]      The tourists were brought to Auckland and Rotorua and to the retail outlets by tour organisers on the basis that the shops were selling genuine products.  That is that they were made in  New Zealand and that the duvets contained the alpaca, merino or southdown wools they were said to contain.

[4]      Ultimately the Commission charged eight companies  together with seven individuals.   All defendants pleaded guilty to charges under the Fair Trading Act

1986. Wild Nature is the only company that now remains to be sentenced.

[5]      The  penalties  imposed  on  other  defendant  companies  have  ranged  from

$22,000 up to $200,000 imposed on Duvet 2000 Limited.  That penalty was imposed following a starting point of $300,000.   Although the maximum penalty for all charges is $200,000, most companies faced a number of charges.

[6]      Having pleaded guilty in late 2012, Wild Nature was originally for sentence on 23 May 2013 and 15 August 2013.  Unfortunately sentencing was not reached on those days and on 16 September 2013 Wild Nature was placed into voluntary liquidation.   The Commission and other parties were not aware of and were not advised that the company had been placed into voluntary liquidation.

[7]      The sentencing of Wild Nature was adjourned from a further date of 24

October 2013 to await the outcome of an appeal against sentence by a number of the

other entities.  That appeal decision was delivered on 6 August 2014.  The appeals were dismissed.

[8]      Wild Nature was then for sentence in the District Court on 23 October 2014 but that was further adjourned pending the outcome of this application.  I understand that, depending on the outcome of this application, it is proposed that Wild Nature and its director will be sentenced in the District Court on 12 December 2014.  The Commission brought this application for leave to continue the prosecution once it became aware that Wild Nature was in liquidation and the liquidator had declined to agree to the proceeding continuing.

[9]      The application is under s 248(1). As relevant that section provides:

Effect of commencement of liquidation

(1)       With  effect  from  the  commencement  of  the  liquidation  of  a company,—

(a)       The liquidator  has  custody and  control  of the  company's assets:

(b)       The directors remain in office but cease to have powers, functions, or duties other than those required or permitted to be exercised by this Part of this Act:

(c)       Unless the liquidator agrees or the Court orders otherwise, a person must not—

(i)        Commence or continue legal proceedings against the company or in relation to its property; or

(ii)      Exercise  or  enforce,  or  continue  to  exercise  or enforce, a right or remedy over or against property of the company:

…

(2)       Subsection (1) of this section does not affect the right of a secured creditor, subject to section 305 of this Act, to take possession of, and realise or otherwise deal with, property of the company over which that creditor has a charge.

[(3)      This section is subject to section 139J(1) to (3) of the Reserve Bank of New Zealand Act 1989.]

[10]     As noted, the liquidator declined to grant leave.  She did so by letter of 13

October 2014.  The decision whether to grant leave or not is a discretionary one for the Court.

[11]     In  McPhail v  Durbridge Developments Ltd  (in  liquidation)1  Randerson J addressed the issue whether 248 applied to criminal proceedings and concluded it did.   Leave is required to commence or continue criminal proceedings once a company goes into liquidation.   In coming to that conclusion, Randerson J also considered s 308 of the Act which provides:

Fines and penalties

Nothing in this Part of this Act limits or affects the recovery of—

(a)      A fine imposed on a company, whether before or after the commencement   of   the   liquidation   of   the   company,   for   the commission of an offence; or

(b)       A monetary penalty payable to the Crown imposed on a company by a court, whether before or after the commencement of the liquidation of the company, for the breach of any enactment; or

(c)       Costs ordered to be paid by the company in relation to proceedings for the offence or breach.

[12]     In relation to that section, Randerson J concluded:2

In my view, this section is not intended to avoid the need to obtain leave under s 248 where it is proposed to commence or continue criminal proceedings against a company in liquidation.  It is concerned solely with the recovery  of  fines  and  costs  imposed  against  a  company  and  with  the recovery of monetary penalties payable to the Crown which are imposed on a company.

[13]     For  present  purposes  Ms  McClintock  accepts  that  leave  is  required  to continue with these criminal proceedings to sentence so for present purposes, and in the absence of fully reasoned argument on the point, I accept, consistent with Randerson   J’s decision and a subsequent decision of Thomas J in Worksafe New

Zealand v Riverland Adventures Ltd (in liq)3  that leave is required to commence or

1      McPhail v Durbridge Developments Ltd (in liquidation) HC Auckland M54/96, 9 March 1998, (1998) 8 NZCLC 261,610.

2      At 8.

3      Worksafe New Zealand v Riverland Adventures Ltd (in liq) [2014] NZHC 1350.

continue criminal proceedings and also that s 308 was not intended to avoid the need to obtain leave.

[14]     Returning to the issue of whether on the facts of this case the Court should grant leave, the Commission submits that public interest and considerations of deterrence and denunciation are important.  It considers that Wild Nature is the most culpable of the offenders that were before the Court.

[15]     In support of the opposition Mr Webster made a number of points, including that there is little public interest in continuing with the proceeding given the events in issue occurred three years ago.   While accepting the conduct was serious, the consumers affected were limited in number.   The offending did not affect the wider community.  Wild Nature had a genuine reason for its liquidation, (although there is no evidence before the Court to this effect).   Mr Webster’s instructions are the company had  sold  its  business  and  that  it  is  only subsequently that  the  Inland Revenue Department have commenced its investigation.  There is no need to allow the proceedings to continue for the purposes of denunciation and deterrence.   To the extent that those considerations are relevant, they have been met or addressed by the penalties imposed on the other defendants and Wild Nature’s director is, in any event, before the Court for sentence on the same date.

[16]     The  liquidator  has  sworn  an  affidavit,  which  although  brief,  confirms effectively the points made by counsel, noting that at the time the company was placed into voluntary liquidation, it was considered that any penalties imposed by the Court could be paid from the assets of the company.  I note she also makes the point that she is anxious to avoid the costs of the representation at sentencing.

[17]     Despite that evidence and Mr Webster’s submissions, I am satisfied that leave

ought to be granted in this case for the following reasons.

[18]     As is properly conceded by Mr Webster, the conduct is serious.  The breach of the Act by wrongfully promoting goods as New Zealand made obviously has the potential to affect New Zealand’s reputation in the important tourism market.

[19]     Wild Nature’s conduct is itself serious.  As Ms McClintock submits, it faces more charges than the other defendants which have already been sentenced and, further, the charges it has pleaded guilty to include the falsification of certificates to back up the false representations.

[20]     As noted, the previous largest penalty was imposed on Duvet 2000 Limited, which followed a starting point for penalty of $300,000.  The Commission will seek more than that in relation to Wild Nature because of the particularly cynical breaches of the Act it has pleaded guilty to.

[21]     The proceedings are well advanced.  All that remains is the sentence hearing. While the liquidator is concerned at the cost of that, the costs of the sentencing hearing should be limited.  In fact submissions should largely be prepared for that given that sentencing has been adjourned several times already.

[22]     The delay to date in finally dealing with the matter has not been of the

Commission’s making.

[23]     Despite Mr Webster’s submissions, I consider deterrence and denunciation are still important considerations.  Even if ultimately the Commission was not able to recover a fine or ultimately the District Court, for whatever reason, did not impose a fine at the level the Commission seek because of the Inland Revenue investigation into  Wild  Nature’s  affairs,  there  is  still  a  purpose  in  that  the  fine  marks  the seriousness of such offending.

[24]     As a related point, companies facing prosecution by regulatory authorities should not consider they can avoid the prosecution or penalty by voluntary liquidation.  For present purposes I accept that it appears from the liquidator’s report that Wild Nature acknowledged it was subject to a Commission investigation and expected that any penalties would be able to be paid.  But nevertheless, as a matter of principle, liquidation should not be seen as a means of escaping or avoiding the consequences of criminal activity.   That is also an answer to the point that the director separately faces the charges.

[25]     Given that the sentencing date is scheduled for 12 December, it is likely the sentence will  be imposed  and  dealt  with  before the  investigation  by the  Inland Revenue Department is completed.  But, in any event, even if it is not, the sentence on that date should not delay or affect the liquidation of the  company and the conclusion of the company’s affairs.

[26]     For the above reasons I am satisfied that it is appropriate in this case for leave to be granted.  Leave is granted accordingly.

[27]     Ms McClintock raised the issue of costs.  Mr Webster makes the point that the liquidator’s concern was to avoid further unnecessary costs.  Nevertheless, this is a matter where the usual rules should apply.  Costs should follow the event.  There will be an order for costs in favour of the applicant on a 2B basis together with disbursements as fixed by the Registrar.  Although ultimately it may be for another day, it seems that the costs on this application would fall outside s 308 and would simply be a debt in the liquidation.  However, that is simply an observation without

the benefit of submission.

Venning J