Mobile Refrigeration Specialists Ltd v Department of Labour HC Hamilton CRI 2009-419-94
[2010] NZHC 851
•4 June 2010
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
CRI 2009-419-94
BETWEEN MOBILE REFRIGERATION SPECIALISTS LTD Applicant
ANDDEPARTMENT OF LABOUR Respondent
Hearing: 1 June 2010 (at Auckland) Counsel: S P H Elliott for Applicant
N P Chisnall for Respondent
Judgment: 4 June 2010
JUDGMENT OF HEATH J
This judgment was delivered by me on 4 June 2010 at 3.00pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Russell McVeagh, PO Box 10214, Wellington
Crown Law, PO Box 2858, Wellington
MOBILE REFRIGERATION SPECIALISTS LTD V DEPARTMENT OF LABOUR HC HAM CRI 2009-419-
94 4 June 2010
The application
[1] Mobile Refrigeration Specialists Ltd (MRS) seeks leave to appeal to the Court of Appeal under s 144(2) of the Summary Proceedings Act 1957 (the Act). The application arises out of my judgment of 29 March 2010 in which I dismissed MRS’s appeal against a fine imposed by the District Court at Hamilton, following its conviction on charges brought under the Health and Safety in Employment Act
1992.[1]
Jurisdiction
[1] Department of Labour v Icepak Coolstores Ltd & Ors DC Hamilton CRI 2009-019-11343, 15 December 2009 (Judge Spear).
[2] Section 144(2) and (3) of the Act provide:
144 Appeal to Court of Appeal
…
(2) A party desiring to appeal to the Court of Appeal under this section shall, within 21 days after the determination of the High Court, or within such further time as that Court may allow, give notice of his application for leave to appeal in such manner as may be directed by the rules of that Court, and the High Court may grant leave accordingly if in the opinion of that Court the question of law involved in the appeal is one which, by reason of its general or public importance or for any other reason, ought to be submitted to the Court of Appeal for decision.
(3) Where the High Court refuses leave to any party to appeal to the Court of Appeal under this section, that party may, within 21 days after the refusal of the High Court or within such further time as the Court of Appeal may allow, apply to the Court of Appeal, in such manner as may be directed by the rules of that Court, for special leave to appeal to that Court, and the Court of Appeal may grant leave accordingly if in the opinion of that Court the question of law involved in the appeal is one which, by reason of its general or public importance or for any other reason, ought to be submitted to the Court of Appeal for decision.
A second appeal may only be brought by leave. The decision on whether leave is granted is to be made by the High Court;[2] only if leave were refused can the Court of Appeal be asked directly to allow a second appeal to be brought.[3]
[2] Summary Proceedings Act 1957, s 144(2).
[3] Ibid, s 144(3).
[3] In R v Slater,[4] the Court of Appeal considered the extent of the jurisdiction to grant leave. It did so in the context of 144(3). Delivering the judgment of the Court of Appeal, Thomas J identified three components:[5]
[4] R v Slater [1997] 1 NZLR 211 (CA).
[5] Ibid, at p 215.
a) Is there a qualifying question of law?
b)Is the question one which, by reason of its general and public importance or for any other reason, ought to be submitted to the Court of Appeal?
c) Is the Court from which leave is being sought of opinion that the question it ought to be so submitted?
[4] Section 144(2) was not intended to provide a general second tier of appeal from decisions of the District Court in proceedings under the Act. As the Court of Appeal said in Slater:[6]
[6] Ibid.
… Parliament intended such proceedings to be brought to finality with the defendant having an appeal to the High Court other than when the conditions it has specified in subss (2) and (3) are met and leave to appeal is granted. Neither the determination of what comprises a question of law, nor the question whether that point of law raises a question of general or public importance, are to be diluted.
Background
[5] On Saturday 5 April 2008, emergency services were called to a coolstore at Tamahere, south of Hamilton. A smoke detector, in a plant room, had been activated. On arrival at the scene, some firemen entered the coolstore and cut their way into the plant room. One of them noticed what appeared to be a gas leak. Before they could exit the store, there was a major explosion. One fire-fighter suffered fatal injuries. Others were seriously injured.
[6] The coolstore was owned by Icepak Coolstores Ltd (Icepak). Refrigeration equipment, from which the explosion emanated, had been installed and was maintained by MRS.
[7] After an investigation, the Department of Labour charged Icepak, one of its directors (Mr Grattan) and MRS with offences against the Health and Safety in Employment Act 1992. Ultimately, guilty pleas were entered to the charges.
[8] Sentencing took place in the District Court at Hamilton, on
15 December 2009.[7] Icepak was fined $37,200 and ordered to pay reparation in a total sum of $95,000. Mr Grattan was fined $30,000. MRS was fined $56,200 and ordered to pay reparation totalling $175,000.
[7] Department of Labour v Icepak Coolstores Ltd DC Hamilton CRI 2009-019-11343, 15 December 2009 (Judge Spear).
[9] Icepak and MRS appealed against the fines imposed. Their appeals were dismissed in my judgment of 29 March 2010. The sole ground of appeal was whether, in calculating the fines to be imposed, the Judge took adequate account of the financial capacity of each company to pay. Icepak has not sought leave to appeal to the Court of Appeal.
[10] On the first appeal, MRS did not challenge the amount of the fine imposed. It was accepted as being appropriate to mark the offending.
[11] The Judge described MRS as “a small one-man company; effectively the trading entity of Mr Cook”.[8] He differentiated its position from that of Icepak by reference to MRS’s available insurance cover to meet reparation payments. Without that cover, the Judge described MRS as “of little value”.[9]
[8] Ibid, at [56].
[9] Ibid.
[12] Counsel for MRS, at sentencing, referred to a declaration of financial capacity for MRS.[10] He referred to MRS as “in effect insolvent”, with “very limited cashflow” and its liabilities exceeding assets. Counsel submitted that the imposition, of “even a small fine” was likely “to result in the company being put into
liquidation”. He submitted there was nothing to be gained by punishing MRS
beyond its ability to make recompense.
[10] Filed in accordance with s 33(3) of the Sentencing Act 2002.
[13] The Statement of Financial Position provided by MRS’s director, Mr Cook, disclosed that the only shareholders of that company were Mr Cook and his wife. As at 31 October 2009, more than 18 months after the fire and just under two months before sentencing, Mr Cook reported MRS as having a relatively modest operating profit for the “year to date”. The existence of various assets was disclosed, as was an overdraft guaranteed by Mr Cook and his wife, secured against all of the company’s assets and their home. Mr Cook also referred to contingent claims.
[14] A perusal of the October 2009 balance sheet produced by Mr Cook revealed company funded largely through its bankers, supported by the shareholders’ guarantees. Those guarantees were supported by a mortgage over Mr and Mrs Cook’s house, in favour of the bank. That had been the case for many years.
[15] The balance sheet as at April 2008 (around the time of the Tamahere fire) revealed a similar position, though the debt owing to the bank was not as high. I found that an inference was open to the Judge that this was a company that would continue to trade for so long as Mr Cook was prepared to support it. There was nothing before the Judge to suggest definitively that the company would be placed in liquidation, if a fine above a particular amount was imposed.
[16] I held that if the fines were to stand neither Icepak nor MRS was without remedy. I referred to s 88 of the Act in which provision is made for remission of fines on the grounds of financial incapacity. Section 88(3)(h) provides:
88. Action where fine remains unpaid
(3) Subject to subsection (3AA) of this section, the District Court Judge or Community Magistrate may, after considering the report of the Registrar, and the financial position of the defendant (whether determined from any financial statement prepared by the defendant or from other sources)—
…
(h) Remit the fine or a part of the fine.
….
[17] In expressing my conclusions I said:
[54] There are dangers in interpreting the Sentencing Act in a manner that allows corporate offenders to readily escape financial penalties on grounds of alleged impecuniosity. For example, a company may be incorporated with no working capital of its own, to undertake a particular venture. If that venture were to go wrong and harm was caused to its employees, the absence of liquid funds might tell against a fine. Yet, if that same company had been funded during its trading life through the provision of shareholder advances, it would not be unjust to put the shareholder to the choice of providing funds to pay the fine or leaving the company to go into liquidation.[11] Similarly, if a parent company stood to gain significant taxation advantages from losses incurred by a subsidiary, it would seem wrong in principle for those benefits to be retained by the parent to the exclusion of the company’s obligation to pay the fine. Again, the parent company could make a decision whether to advance moneys to pay the fine or to place the company in liquidation.
[11] Reform of the capital maintenance doctrine, on passing of the Companies Act 1993, has exacerbated this problem: generally, see Re DML Resources [2004] 3 NZLR 490 (HC) at paras [54]- [56].
[55] Those considerations suggest that, in the case of a company, the Court should require clear evidence of financial incapacity, supported by appropriate disclosure of all material facts (most of which will be in the exclusive possession of the offender), before imposing a sentence below that appropriate to mark the offending. Disclosure would need to address issues such as any benefits accruing to a parent company through the insolvency of a subsidiary. In contrast to a human offender, a fine imposed on a company, while not a provable debt in a liquidation, will rarely be recovered subsequently.[12] A company is not usually revived from liquidation.[13] An individual who is adjudged bankrupt remains liable to pay a fine, even after discharge from bankruptcy.[14]
[12] Companies Act 1993, ss 303(2) and 308.
[13] An ability to terminate a liquidation is contained in s 250 of the Companies Act 1993.
[14] Insolvency Act 2006, s 323(2).
[56] The need for full disclosure is supported by R v Khan.[15] The Court of Appeal observed that it was “essential, wherever a Court determines to deal with a matter by way of monetary penalty, that there is clear and unequivocal material as to what is realistic before the course of action is pursued”.[16] When reduction of an otherwise appropriate fine is sought, that “material” will generally be in the exclusive possession of the corporate offender.
[15] CA312/05, 7 March 2006.
[16] Ibid, at [41].
…
[60] In my view, applying Khan,[17] there was no “clear and unequivocal material” before Judge Spear to demonstrate that a fine above a particular level could not be paid. While the possibility of liquidation of each
[17] CA312/05 7 March 2006.
company was an unspoken premise on which counsel proceeded at sentencing, nothing was put before the Judge, in concrete terms, to suggest that consequence would necessarily follow, in respect of either Icepak or MRS. In the absence of material, supported by full disclosure of the reasons why historical support of shareholders to the operation of the company would not be continued to enable any fine to be paid, the Judge was entitled to proceed on the basis that the fine should reflect the amount required to denounce the conduct of each offender and to provide general deterrence.
[61] My review of the record in the District Court persuades me that the Judge took that view. I do not regard that conclusion as speculative. On the contrary, I consider I may safely infer that the Judge was not satisfied that the disclosed financial situation of each company justified a reduction in the level of the fine that was otherwise appropriate. (my emphasis)
Grounds of proposed second appeal
[18] Mr Elliott, for MRS, advanced three questions which, he submitted, met the criteria for the grant of leave. The questions posed in the original application for leave were refined prior to hearing.
[19] The final form of the proposed questions are:
Question one
In the context of the requirement under section 40 of the Sentencing Act
2002 for the Court to take into account the financial capacity of the offender when fixing the amount of a fine, in what circumstances may a Court impose
a fine which is beyond the capacity of a defendant company to pay, and which has the effect of putting the defendant company out of business?
Question two
Two parts:
(a)Where a defendant company is seeking to establish that it does not have the financial capacity to pay a fine above a particular amount, is it necessary for it to provide evidence as to the financial capacity of its shareholders (who are not defendants in their own right) in addition to its own? In other words, is the financial capacity of a company’s shareholders relevant to an assessment of the financial capacity of the company itself?
(b) If the answer to (a) is yes, then in circumstances where:
(i)the financial position of the defendant company submitted at sentencing was never challenged, and
(ii) there was no suggestion at sentencing that the evidence supporting that submission was insufficient and ought to
include evidence as to the financial capacity of the company’s shareholders,
can the fact that evidence regarding the financial position of its shareholders was not put forward, be relied upon by a Judge on appeal in determining that the sentencing judge was not satisfied that the defendant company was in fact unable to pay a fine above a particular amount? In other words, is an inference able to be drawn from an absence of evidence as to shareholders’ financial capacity, in circumstances where the defendant company [has] been given no reason to believe that such evidence was required?
Question three
In the context of the requirement under s 31 of the Sentencing Act 2002 for the Court to provide reasons for the imposition of any sentence, to what extent is it open to a Judge on appeal to infer the reasons for a sentencing judge’s decision in the absence of anything express in the judgment (ie what is the scope of s 31)?
[20] Mr Chisnall, for the Department of Labour, submitted that none of the questions met the s 144(2) criteria and that, in any event, leave should be refused because an alternative remedy was available to MRS which it had elected not to pursue: namely, an attempt to have fines remitted under s 88(3)(h) of the Act.
Analysis
[21] The first question would ask the Court of Appeal to rule on the circumstances in which a sentencing Court could impose a fine beyond the capacity of a defendant company to pay, with the consequence that the defendant company would be put out of business. I do not accept that is a question of law that is capable, in the circumstances of this particular case, of being submitted to the Court of Appeal. The appeal turned on my finding that the evidence before the Judge, on which he was obliged to form his own view, was insufficient to demonstrate financial incapacity to
a level that would justify reducing an otherwise appropriate fine.[18]
[18] See paras [55], [60] and [61] of my judgment of 29 March 2010, set out at para [17] above.
[22] The second question raises the relevance of the financial ability of a shareholder to provide funds to a company to meet a fine, when, from its own resources, the company would not be able to do so. The second part of the question is directed to the particular circumstances of this case, in which Mr Elliott submits
that the Judge raised no question specifically about financial incapacity once financial information had been provided. Mr Elliott submits that there is no clear authority on this issue and the question ought to be submitted to the Court of Appeal for determination.
[23] The premise on which my judgment proceeded, at least in relation to MRS, was the need to take a realistic view to the imposition of fines in cases where a company had been funded throughout its trading life through the provision of shareholder advances.[19] I did not suggest that in all cases it would be appropriate for a shareholder’s means to be taken into account.
[19] See para [60] of my judgment of 29 March 2010, set out at para [17] above.
[24] In my view, neither part of question two raises a question of law on which a second appeal is justified. The need for full disclosure when reduction of an otherwise appropriate fine is sought on grounds of financial incapacity was emphasised by the Court of Appeal in R v Khan.[20] My determination of what was needed was fact-specific to the circumstances of this case and does not raise any qualifying question of law.
[20] R v Khan CA312/05, 7 March 2006.
[25] The third question is not, in my view, arguable. In the way in which the question has been couched would suggest that an appellate Judge is not entitled to infer reasons for a sentencing Judge’s decision, if something were omitted from the judgment; even though the basis for the decision was clear.
[26] During argument it transpired that Mr Elliott’s real complaint was that he regarded it as “irrational” for me to draw an inference of what the Judge intended,[21] on the facts of this particular case. Whether that is so does not give rise to a qualifying point of law on which leave to appeal can be granted.
[21] See para [61] of my judgment of 29 March 2010, set out at para [17] above.
[27] In any event, the existence of an alternative remedy to remit the fines[22] militates against the grant of leave, for the reasons advanced by Mr Chisnall. I can see no reason why, with additional information relating to shareholder resources and
[22] (s 88(3) of the Act).
why it would be necessary to put the company into liquidation, a District Court
Judge would not reconsider the issue.
Result
[28] I am not satisfied that qualifying grounds have been made out to justify a second appeal.
[29] The application for leave to appeal is dismissed.
P R Heath J
Delivered at 3.00pm on 4 June 2010
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