Fishpond Limited v Ministry of Business, Innovation and Employment
[2015] NZHC 3377
•7 December 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CRI-2015-092-5294 [2015] NZHC 3377
BETWEEN FISHPOND LIMITED
Appellant
AND
MINISTRY OF BUSINESS, INNOVATION AND EMPLOYMENT Respondent
Hearing: 7 December 2015 Appearances:
P F Wicks QC and M A Piper for the Appellant
S P Symon and S A Wilson for the RespondentJudgment:
7 December 2015
ORAL JUDGMENT OF MUIR J
Counsel:
P F Wicks QC, Barrister, Auckland
Solicitors:
Buddle Findlay, Auckland
Meredith Connell, Auckland
FISHPOND LIMITED v MINISTRY OF BUSINESS, INNOVATION AND EMPLOYMENT [2015] NZHC
3377 [7 December 2015]
Introduction
[1] The appellant pleaded guilty to and was sentenced in the District Court in relation to the following charges:
[2] One charge of aiding a supplier to sell prohibited interfering equipment, contrary to s 128(1)(b) of the Radiocommunications Act
1989 (the Act) and reg 37(1)(a)(iii) of the Radiocommunications
Regulations 2001;
[3] One representative charge of aiding a supplier to offer supply restricted radio apparatus without a licence, contrary to s 132(2)(b) of the Act;
[4] One representative charge of aiding a supplier to import for supply restricted radio apparatus without a licence, contrary to s 132(2)(a) of the Act;
[5] One representative charge of aiding a supplier to supply restricted radio apparatus without a licence, contrary to s 132(2)(a) of the Act;
[6] One representative charge of aiding a supplier to sell or offer for sale a fitting or appliance, knowing or being reckless as to whether it was electrically unsafe, contrary to reg 80 of the Electricity (Safety) Regulations 2010 (the Electricity Regulations); and
[7] One representative charge of aiding a supplier to sell or offer for sale a declared medium risk article for which no supplier declaration of conformity existed, contrary to reg 83 of the Electricity Regulations.
[8] The maximum penalty for the charges under the Act is a fine not exceeding
$200,000 for a body corporate. The maximum penalty for the charges under the
Electricity Regulations is a fine not exceeding $50,000 for a body corporate.
[9] The appellant was sentenced to a total fine of $50,000, comprised of a
$10,000 fine for each charge under the Act and a $5,000 fine for each charge under the Electricity Regulations.
[10] The appellant appeals that sentence on the grounds that the District Court failed to identify a starting point, used incorrect methodology, failed to take into account relevant mitigating factors, and that the end sentence is manifestly excessive having regard to the nature of the offending, steps taken to mitigate future offending and remorse.
Background
[11] The appellant runs a website through which, I am told, over 16 million products are offered for sale to members of the public. The products are largely sourced from overseas suppliers. The charges against the appellant concern Garmin DC50 GPS dog transmitter devices and Wireless Digital Audio Transmitter and Receiver Senders for RC Aircraft Multicopter devices sold through the appellant’s website. These devices use radio frequencies not permitted for public use in New Zealand and do not comply with the Electricity Regulations.
[12] The Garmin devices are manufactured in the United States and operate on a Multi-Use Radio Service (MURS) frequency. In New Zealand, MURS frequencies are not available for public use as they are licensed and used for commercial land- mobile radio communications, particularly in the transport, railway, forestry and logging industries, local authority utilities and electricity networks. They are essential for the safe and efficient operation of these businesses, as well as for emergency communications in areas where cellular services may not be available. If the Garmin dog tracking devices were used in such localities they may interfere with the communications of legitimate users of those band frequencies. Such interference could result in breaks in the reception of the signal that may cause either inefficient communication or misunderstanding. Of greater concern is that as a result of such interference, operators are likely to have reduced receiver volume to the point where calls from other parties are not heard. That poses serious safety risks that can result from missed calls that may be important, particularly in remote areas. There are also
risks to the efficient running of the businesses that rely on these frequencies for communication. Garmin dog tracking devices were prohibited in New Zealand under four separate Radiocommunications Regulations Notices, issued between 2012 and 2014.
[13] In respect of the Wireless Digital Audio Transmitter and Receiver Sender device, that device uses a radio frequency which is for aeronautical use only.
[14] In addition to using restricted radio frequencies, both devices were electrically unsafe. The plugs in the Garmin devices and in the Wireless Digital Audio Transmitter and Receiver Sender devices do not comply with the relevant New Zealand safety standards for the use of electricity. The compliance standards safeguard the users from the inherent dangers of electricity.
[15] These devices were sold through the appellant’s website by a third party and
could be purchased by a member of the public.
[16] No such sales in fact eventuated however. The Ministry carried out a “test purchase” and bought one Garmin device and one Wireless Digital Audio Transmitter and Receiver Sender device. I am told these were the only sales of these items.
[17] Since 2011 the appellant has received five warnings, albeit three of those were of a relatively informal nature, from Radio Spectrum Management (a department of the Ministry) about sales of devices that use various radio frequencies that are not permitted for public use in New Zealand. On each occasion the appellant was co-operative, immediately removing the devices in question from its website. After the second warning in 2012, the respondent met with the appellant to discuss regulatory compliance matters. At that meeting the appellant indicated that it would only market radio products from compliant traders. In 2013, the appellant was warned specifically about Garmin dog tracking devices and requested to immediately remove them from its website. It co-operated accordingly.
[18] Following inception of the prosecution, the appellant withdrew all Garmin devices and Wireless Digital Audio Transmitter and Receiver Sender devices from its website. It then removed a further 600,000 items that could have been in breach of various regulatory frameworks.
District Court decision
[19] The learned District Court Judge identified that the most significant of the principles and purposes of sentencing in the case were denunciation, deterrence and protection of the community. The Judge observed that the appellant had what he referred to as a “huge reach” within the New Zealand market and that the paramount culpability factor was the potential risk of harm, although his Honour recognised that all danger had now been eliminated. His Honour also recognised an element of duplication in the way the charges had been laid, namely that there were two devices that breached the same provisions, sold in two transactions to the same government agency.
[20] After setting out the parties’ respective submissions, the Judge proceeded to identify what he termed “the least restrictive outcome in all the circumstances” as being “on a global basis” a fine of $50,000. He did not follow the orthodox three- step methodology set out in Hessell v R.1 He did not identify a starting point or allow any discounts for mitigating factors or the appellant’s guilty plea. In relation to the fine of $50,000, he attributed $10,000 for each of the charges under the Act and $5,000 for each of the charges under the Electricity Regulations.
Grounds of appeal
[21] The appellant appeals the sentence on five grounds:
(a) The Judge erred in using incorrect sentencing methodology;
(b) The Judge made a material error in failing to identify a starting point; (c) The Judge failed to take into account the totality principle;
1 Hessell v R [2010] NZSC 135, [2011] 1 NZLR 607.
(d)The Judge made a material error in failing to take into account guilty pleas; and
(e) The global sentence is manifestly excessive.
Approach to appeal
[22] Section 250(2) of the Criminal Procedure Act 2011 states that the Court may allow an appeal if satisfied that:
(a) for any reason, there is an error in the sentence imposed on conviction; and
(b) a different sentence should be imposed.
[23] In any other case, the Court must dismiss the appeal.2
[24] The Court of Appeal in Tutakangahau v R has recently confirmed that s 250(2) was not intended to change the previous approach taken by the courts under the Summary Proceedings Act 1957.3 Further, despite s 250 making no express reference to “manifestly excessive”, this principle is “well-engrained” in the court’s approach to sentence appeals.4
[25] The approach taken under the former Summary Proceedings Act was set out in R v Shipton:5
(a) There must be an error vitiating the lower Court’s original sentencing discretion: the appeal must proceed on an “error principle.”
(b)To establish an error in sentencing it must be shown that the Judge in the lower Court made an error whether intrinsically or as a result of
additional material submitted to the appellate Court.
2 Criminal Procedure Act 2011, s 250(3).
3 Tutakangahau v R [2014] NZCA 279, [2014] 3 NZLR 482 at [26]-[27].
4 At [33], [35].
5 R v Shipton [2007] 2 NZLR 218 (CA) at [138]-[140].
(c) It is only if an error of that character is involved that the appeal Court should re-exercise the sentencing discretion.
[26] The High Court will not intervene where the sentence is within the range that can properly be justified by accepted sentencing principles. Whether a sentence is manifestly excessive is to be examined in terms of the sentence given, rather than the process by which the sentence is reached.6
Appellant’s submissions
[27] The appellant submits that the Judge’s failure to apply correct sentencing methodology resulted in a sentence that is wrong in principle and manifestly excessive. It submits that the novelty of the case requires the Court to articulate a starting point in order to justify the end sentence imposed. The appellant proposes that the Court identify starting points in relation to the respective charges and apply a totality principle to reach a global starting point.
[28] In respect of the totality principle, the appellant submits that the charges arise out of the same two transactions involving the same supplier and sales in the same manner to the same government agency. The appellant submits that after recognising this element of duplication, the Judge should have adjusted the global fine of $50,000 to reflect the totality of the offending and the duplication of charges.
[29] Mr Wicks QC submits that the offending falls at the lower end of the range, as there was no actual harm caused, as recognised by the Judge, and immediate and broad remedial action was taken by the appellant upon identification of the offending. He emphasises that the appellant was charged only as a party to the offending in recognition of the fact that the devices were sold by a third party on the appellant’s website; the fact that the appellant did not have actual knowledge that the devices were uploaded to and sold from its website and that the devices did not form a core part of the appellant’s business. He submits that the offending cannot be classified in that sense as wilful or reckless, and suggests that it was one of moderate
culpability.
6 Ripia v R [2011] NZCA 101 at [15].
[30] The appellant submits that an appropriate starting point for the four lead charges would be $10,000 and $5,000 for the lesser charges. It submits an appropriate discount for totality would be $20,000. It submits that a discount of 15 to 20 per cent is warranted in recognition of its remedial actions and to remove merchandise from the website and the fact that a donation of $5,000 was made to charity. Lastly, it submits a full guilty plea discount should be given. The end sentence, the appellant submits, should be a fine in the range of $15,000 to $20,000.
Respondent’s submissions
[31] The Ministry agrees that the sentencing exercise needs to be carried out afresh by this Court pursuant to s 250 of the Criminal Procedure Act 2011. The Ministry also agrees that a 25 per cent discount should be given for the guilty plea (although it notes that it accepted such a discount was appropriate in the District Court and no issue was raised by the Judge so that it was logically taken into account by him in his approach to sentencing). The Ministry, however, submits that an appropriate starting point is $80,000 and that total discounts from that should be limited to five per cent for the remedial actions taken and the guilty plea discount I have formerly identified.
[32] The Ministry justifies a higher starting point than the one suggested by the appellant by submitting that the case concerns two distinct goods, each presenting a different risk of harm under two different types of legislation.
[33] The Ministry disputes that the Judge failed to take into account the totality principle. It argues that the Judge’s adoption of a fine “on a global basis” is in itself an implicit recognition of the requirement to take into account the totality of the offending.
[34] The Ministry emphasises that the offending should be viewed in context; particularly that the appellant’s breaches of the Act continued over a significant period, in which the appellant received five warnings from the Ministry. The Ministry says that it is concerned by the persistent sale of devices that compromise the integrity of New Zealand’s radio frequency spectrum and the potential dangers to legitimate users of the system. It emphasises the underlying importance of the
Electricity Regulations to protect the public from unsafe appliances. Mr Symon’s points out that unsafe appliances are those which in terms of the legislation do pose a significant risk of serious personal harm or damage to property.
[35] The Ministry also emphasises the potential interference with industry, itself raising health and safety considerations which arise from breaches of the Act.
[36] The Ministry points to what it says are five aggravating features of the offending:
(a) Its commerciality: the Ministry submits that the appellant’s argument that the devices were not a core part of its business is contradicted by the fact that it removed 600,000 products that could be non-compliant. The Ministry acknowledges that it cannot quantify any gain made by the appellant from the offending, but submits that a starting point should aim to neutralise any gains the appellant may have received from its arrangement with the supplier of the devices.
(b)Compliance with New Zealand law: the Ministry submits that the appellant attempts to circumvent its legal obligations by placing a disclaimer in the “FAQ” section of its website that all responsibility for compliance with safety standards is assumed by the third party seller.
(c) Duration of the offending: various non-compliant radio devices have been offered for sale or sold consistently since 2011;
(d)Actual knowledge: the Ministry says that the number of warnings received by the appellant about unsafe or noncompliant radio products points to a significant level of actual knowledge;
(e) Risk of harm: the Ministry acknowledges no actual harm occurred, but submits that good fortune should not be treated as a mitigating feature.
(f) Role in the business: the Ministry submits that although the appellant is acknowledged as only having been a party to the offending, it nevertheless played a significant role as it allowed the items to be listed for sale on its website and processed the transactions.
[37] In respect of discounts for remorse and the charitable donation made, the Ministry submits that the donation was made after the sentence of the District Court was delivered but before this appeal was heard. It submits that allowing a discount for a belated action of this nature may set a precedent for defendants. The Ministry also submits that any suggestion of remorse is contradicted by the five warnings received by the appellant and its previous, similar offending.
[38] In respect of remedial steps taken by the appellant to ensure compliance, the Ministry accepts that such steps were undertaken and that a discount is appropriate but says that it should be no more than five per cent.
Relevant law
[39] This is the first prosecution which combines charges under the Act and the Electricity Regulations. It is also the first such appeal to the High Court. Accordingly, there is no appellate authority on setting global starting points for the two categories of the charge, but some guidance can be drawn from District Court cases that concerned breaches under one or other of the legislative provisions concerned here.
Prosecutions under the Act
[40] The majority of prosecutions under the relevant provisions of the Act involve offending by individuals who have been found in possession of a small number of offending devices. Such cases typically attract relatively small fines of up to $3,000. Two in particular are referred to in the respective submissions.
[41] The first, Ministry of Economic Development v Mackie, involved charges under s 132 of the Act.7 The defendants were a married couple who ran an
7 Ministry of Economic Development v Mackie [2015] NZDC 14555.
electronics store and sold cellphone jammers as part of their merchandise. The defendants were prosecuted as individuals, so that the maximum sentence under the Act was only $30,000. The Judge accepted that the defendants lacked actual knowledge and considered the sentence could be kept to a minimum. Mr Mackie was fined $600 and his wife $300 to recognise her lesser role in the business. The Judge did not identify a starting point. The case is not one I find particularly helpful.
[42] In Ministry of Business, Innovation and Employment v Adams the defendant faced six representative charges under the Act.8 The offending involved the importation and sale of restricted dog tracking devices, being different models of the Garmin devices in issue in the present case. Despite receiving a warning and an infringement notice about the devices, the defendant made offers to supply 35 devices on 22 occasions, and supplied 18 devices on seven occasions over a four month period. The defendant also carried out repairs for the devices. The District
Court adopted a starting point of $37,500.
Prosecutions under the Electricity Regulations
[43] In Worksafe New Zealand v Grabone Ltd, the defendants faced charges under s 163C of the Electricity Act 1992 and reg 80 of the Electricity Regulations.9 The second defendant Kmall imported bubble machines and sold them through Grabone’s website. The machines did not comply with relevant safety standards and one customer suffered a significant electric shock when she touched the machine. The victim notified Grabone of the incident, but Grabone continued to offer the
machines for sale. On a previous occasion Grabone had received a warning about selling non-compliant electrical products. The District Court found the offending to be moderately serious, and that there was a need for specific and general deterrence. The Judge adopted a starting point of $50,000 for the Electricity Act charge (for which a maximum fine is $500,000 for a body corporate) and a starting point of
$20,000 for the reg 80 charge. Applying the totality principle, the Judge reduced that
starting point to a global one of $60,000.
8 Ministry of Business, Innovation and Employment v Adams DC Nelson CRI-2014-042-00956, 8
September 2014.
9 Worksafe New Zealand v Grabone Ltd DC North Shore CRI-2014-044-002334, 6 October 2014.
[44] In Ministry of Business, Innovation and Employment v Dtwon Ltd and Zolo
Ltd the defendants were charged under s 163 of the Electricity Act and regs 80 and
84 of the Electricity Regulations. The defendants operated convenience stores which sold unsafe universal travel adaptors. The first defendant had been warned twice for similar offending and once in relation to identical offending. The second defendant had also received warnings. The District Court observed that the Court’s duty was to impose a penalty which took the devices off the market by force of deterrence.10 The Judge set a starting point of $50,000 for each defendant, apportioned between the three charges. After a reduction for a guilty plea, the Judge allocated $30,000 for the lead charge and $5,000 for each of the lesser charges.
[45] The last authority to which I refer is Worksafe New Zealand v 1-Day Ltd.11
The defendant’s business was analogous to the defendant’s in Grabone and the appellant’s business. The defendant faced one charge under each of regs 80 and 84 of the Electricity Regulations for the sale of unsafe bubble machines on two separate occasions. The second sale occurred after the defendant was contacted with a request for confirmation of the machines’ compliance. The defendant was unable to provide proper documentation. Additionally, the defendant had received two prior warnings about compliance with electrical safety standards. The Judge adopted a starting point of $44,000 for both charges and allowed a reduction of $10,000 to recognise the remedial steps taken to improve compliance and recall the unsafe merchandise.
Discussion
[46] Before turning to an analysis of the relevant authorities, I first address the appellant’s submissions in respect of the sentencing methodology, or lack thereof, adopted by the Judge.
[47] The three-step methodology summarised in R v Clifford12 and adopted in
Hessell v R is well-established and widely recognised as the default approach to sentencing. The methodology has also been adopted in cases where a fine is the only
10 At [21].
11 Worksafe New Zealand v 1-Day Ltd DC Hamilton CRI-2014-019-003017, 17 July 2015.
12 R v Clifford [2011] NZCA 260, [2012] 1 NZLR 23 at [60].
sentence available to the Court as it “promote[s] consistency and transparency in sentencing in this field”.13 In Hanham & Philp Contractors Ltd the Court of Appeal acknowledged that due to the varying financial capacities of individual offenders, some cases may result in significant disparities from the starting point, but that this should not detract from the advantages of the Hessell approach to sentencing for offences where fines are the only possible outcome.14
[48] In Peterson v Police Duffy J observed that a failure to follow this principled approach to sentencing makes it difficult for the appellate Court to assess how the sentence was arrived at.15
[49] I agree with the appellant’s submission that the Judge’s failure to articulate a sentencing methodology was an error of principle. More significantly, the failure to identify a starting point undermines the ability of this Court to assess the weight the Judge gave to any one particular factor, whether it be a factor relevant to the offending or the offender. In R v Lunjevich the Court of Appeal referred to a “need to identify a starting point”.16 Additionally, the novelty of the case strongly underlined the need, in my view, to abide by that approach.
[50] Accordingly, a fresh sentencing is required. I address the submissions regarding the totality principle and relevant discounts later in the discussion.
Relevant principles and purposes of sentencing
[51] I consider that the most relevant purposes of sentencing, as set out in s 7 of the Sentencing Act 2002, are to denounce the conduct of the appellant, to deter the appellant and other persons from committing the same or similar offences and to protect the community. I must also take into account the relevant sentencing principles which are set out in s 8. I must assess the gravity of the offending, the seriousness of the offence, and I must impose the least restrictive outcome that is
appropriate.
13 Hanham & Philp Contractors Ltd (2008) 6 NZELR 79 at [50].
14 At [50].
15 Peterson v Police HC Hamilton CRI-2009-419-000011 20 Feb 2009 at [5].
16 R v Lunjevich NZCA at [11].
Starting point
[52] The standard sentencing approach requires me to set a starting point in respect of the four lead charges under the Act and then to uplift that starting point in respect of the lesser charges under the Electricity Regulations. However, I choose to adopt an alternative approach and instead impose a global starting point that recognises the entirety of the offending. I do so because the factual circumstances of this case involve two devices, both of which breach electrical and radiocommunications safeguards, and both of which were acquired by the Ministry for the purposes of testing the appellant’s compliance with the relevant legislation. I am cautious of the need to recognise the totality of the offending, and consider that following the standard approach could result in double-counting.
[53] The appellant submits that Mackie recognises lower culpability in cases where the defendant is a party and lacks actual knowledge. It submits that the offending is less serious than in Adams on the basis that the appellant was a party and not personally involved in the sales and thus lacked actual knowledge that the devices were non-compliant.
[54] The Ministry submits that the present case is more serious than both Adams and Mackie as those cases concerned individuals rather than a body corporate; the appellant’s reach in relation to the public is far greater; those cases did not involve charges for electrical safety; and the appellant received more warnings.
[55] I agree that Adams and Mackie are of little help in setting a starting point in this case as they concerned the prosecution of private individuals, the maximum fine for whom is considerably smaller. In the case of the Act, it is in fact only 15 per cent of the maximum fine which may be imposed on a corporate entity.
[56] In selecting a starting point, the comments made by Tipping J in Lane
Appliance Centre Ltd v Commerce Commission, albeit in a different legislative environment seem to me to have some resonance. He said:17
17 Lane Applieance Centre Ltd v Commerce Commission (1989) 3 TCLR 374 (HC) at 380.
Traders must not be left with a view that it is worthwhile breaching the Fair
Trading Act because the profits will outweigh the fine.
[57] In respect of the cases under the Electricity Regulations, I find them useful for their general approach to imposing fines on corporate defendants who have received multiple warnings. I particularly agree with the comments made in Dtwon Ltd that the Court must impose a penalty which will take non-compliant devices off the market by force of deterrence.
[58] Looking at these various authorities the most significant and distinguishing feature of the present case is that the appellant received a number of warnings and/or notifications of concern over a four year period about compliance with proper radio and electrical safeguards. Importantly, all such warnings and communications related to non-compliant radio devices, and one specifically related to Garmin Dog Tracking devices. Significantly also, in May 2012 issues were raised in relation to baby monitoring devices in response to which the company committed itself only to selling New Zealand or Australian compliant products. Had it adhered to that commitment the current offending would never have occurred.
[59] Furthermore, unlike in some of the other cases referred to by counsel, the appellant did not merely receive warnings, but had meetings with the Ministry to discuss monitoring practices and on multiple occasions requested the Ministry’s assistance in that field. It cannot be disputed therefore that the appellant was clearly aware of its need to monitor all radio and electrical products sold through its website for compliance with the relevant legislation.
[60] The warnings and promises of adherence to legal obligation in my view mark this case out from others where the offending is in the party category. The appellant was fully aware of its obligations but the only available conclusion is that inadequacies in its compliance regime allowed ongoing infringement to occur. I make that comment even allowing for the fact that in this case human error is said to have been the reason for the offending as opposed to systemic failure. It is precisely that commercial context where risk and reward are balanced that deterrent sentences are most effective.
[61] I recognise that due to good fortune no harm has resulted from the offending, however I do not consider that this materially reduces the appellant’s culpability. Overall, I consider the gravity of the offending to be moderately serious and in light of the previous communications, warnings and unfulfilled promises of adherence to legislative requirements there is in my view a strong need to deter the appellant from this kind of offending in the future. I consider that a global starting point of $60,000 is appropriate. To my mind this clearly places the offending within the range of penalties potentially available, recognising such assistance as one can from the authorities.
Remedial action and remorse
[62] Following the laying of the charges, the appellant has removed some 600,000 products from its website that it suspected may raise questions of compliance. It also donated $5,000 to a charity, albeit that step was taken after the District Court sentencing.
[63] I agree with the Ministry that if a discount is given for the belated charitable donation, it may give rise to a concerning precedent, whereby corporate defendants of means may turn an action of remorse into an opportunity for separate discount on appeal. However, taking into account all of the steps taken by the appellant I do consider this is a case of genuine remorse appropriately warranting a separate discount apart from that inherently recognised in any guilty plea. I consider that a discount of five per cent is appropriate on that account. A further discount is necessary to recognise the appellant’s remedial steps which I accept were comprehensive and which no doubt carried with them significant administrative and revenue implications. I consider a discount of 10 per cent appropriate on the basis of those steps making for total discounts in this respect of 15 per cent.
Guilty plea
[64] The appellant is entitled to a full guilty plea discount of 25 per cent.
Result
[65] The final sentence is therefore a fine of $38,250. I apportion that as to
$5,000 for each of the two Electrictiy Regulations charges and for the arithmetical accuracy $7,062.50 for each of the Radiocommunications Act charges.
Muir J
0
4
0