Xinyl Zheng and Ichi Trade (NZ) Limited v Ministry of Health HC Auckland CRI 2007-404-384

[2008] NZHC 2382

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CRI 2007-404-384

CRI 2007-404-390

IN THE MATTER OF     a s 123 Summary Proceedings Act and an application to extend time for filing of an appeal

BETWEEN  XINYI ZHENG AND ICHI TRADE (NZ) LIMITED

Applicant

ANDMINISTRY OF HEALTH Respondent

Hearing:         28 April 2008

Appearances: P Tomlinson for Applicant

A Adams and S Tune for Respondent

Judgment:      30 June 2008 at 1:00 p.m.

JUDGMENT OF WOODHOUSE J

This judgment was delivered by me on 30 June 2008 at 1:00 p.m. pursuant to r540(4) of the High Court Rules 1985.

Registrar/Deputy Registrar

……………………………………

Solicitors:

Mr P Tomlinson, Solicitor, Auckland

Ms A Adams / Mr S Tune, Meredith Connell, Office of the Crown Solicitor, Auckland

ZHENG AND ICHI TRADE (NZ) LIMITED V MINISTRY OF HEALTH HC AK CRI 2007-404-384 30 June

2008

[1]      The appellants have appealed against sentences imposed for offences against the Medicines Act 1981 (“the Act”).

[2]      The appellants also applied for an extension of time for bringing the appeal. The respondent did not oppose this application.  There is a reasonable explanation for the delay, the delay is not of great length, the appeal raises questions of importance for the parties, and the respondent confirms that there is no prejudice to it.  In the circumstances leave to bring the appeal out of time is granted.

[3]      Mr Zheng and Ichi Trade (NZ) Limited (“Ichi”) pleaded guilty to a total of eight charges under ss 18 and 20 of the Act.  There was one offence by Mr Zheng against s 18(1) of the Act: sale on 27 June 2006 of a prescription medicine, viagra, other than by a pharmacist in a pharmacy.   Mr Zheng and Ichi both admitted an offence against s 20(2)(c) of the Act: between February and June 2006, advertising a new medicine, “natural viagra”, before consent to distribution of it had been given by the Minister of Health.  Ichi admitted five further charges of sale on 27 June 2006 of new medicines under s 20(2)(a) of the Act.

The facts

[4]      Ichi was incorporated in 2003.  The directors and shareholders are Mr Zheng and Yubo Liu.  I assume that Yubo Liu is Mr Zheng’s wife, although there does not appear to be any direct evidence to that effect.   I make this assumption from a declaration filed by Mr Zheng in the High Court, which refers to drawings by Mr Zheng’s wife from the company, and from other financial information provided.  Mr Zheng is trained as a Chinese herbalist and in acupuncture, which are his principal professions.   His turnover in the year to March 2006 was $36,445 with a profit before tax  of  $5,212.    The  principal  business  of  Ichi  is  recorded  in  its  annual accounts as the sale of Chinese herbs.  Ichi’s turnover in the year to March 2006 was

$109,053 with a loss of $2,034.

[5]      In June 2006 officers of the respondent Ministry of Health were investigating possible contraventions of the Medicines Act.   In the morning of 27 June, an investigator noticed a sign on the window of Ichi’s shop in Panmure, Auckland, advertising what was described as “natural viagra”.   There were descriptions of efficacy, and advice to speak to Dr Zheng.  The Ministry’s investigator went into the shop and asked for viagra.  An employee sold the investigator four red and brown coloured tablets for $30.   The investigator, a woman, was advised that the tablets were for use by a man.

[6]      The shop was searched later that morning.  The following tablets or capsules were found and seized:

a)       37 red and brown coloured tablets.  These were the same as the four earlier sold to the investigator.   These were in a drawer behind the counter.

b)        3 green coloured capsules in the same drawer.

c)       2 red coloured capsules in a blister pack labelled “Kang Da”.  These were in the same drawer as the other capsules and tablets.

d)180 blue and white coloured capsules in another drawer.  These were in plastic zip bags with 15 capsules in each bag.

[7]      The first three items, and the tablets sold to the investigator, all contained the prescription substance “sildenafil citrate”, which is the active ingredient in viagra. The two capsules labelled “Kang Da” contained 195 mg of sildenafil.  This is almost double  the  recommended  daily  dose.     Viagra  is  used  to  treat  male  sexual dysfunction.

[8]      Under the Medicines Act 1981, medicines are classified according to the risk they pose to consumers.   Prescription medicines are the highest risk category. Sildenafil citrate can cause serious adverse effects and can interact with commonly used medicines with serious, and occasionally fatal, outcomes.  It is recommended

that sildenafil not be used by men for whom sexual intercourse is inadvisable due to cardio-vascular risk factors.   There are other risks.   The categorisation as a prescription medicine is designed to reduce risks by seeking to ensure that sildenafil is not used except on medical advice and by prescription.

[9]      The 180 blue and white coloured capsules contained “sibutramine”.  This is the active ingredient in a prescription medicine known as “Reductil”.   Reductil is used for weight loss in the management of obesity.

[10]     Sibutramine can cause increased blood pressure and heart rate.   Its use is contra-indicated for people with a range of health problems, mental and physical.  It should not be used in combination with certain other medicines, such as anti- depressants and migraine treatments.  There are other risks.

[11]     Mr Zheng was interviewed on 27 June 2006.  He admitted that he had been selling the red and brown tablets since February or March 2006.   He said he was selling the tablets on behalf of someone else.  He said he was buying them for $15-

$20 per packet and had purchased approximately 20 to 30 packets; that is to say a total cost between $300 and $600.  There was no evidence of actual sales in respect of any of the other capsules, but under the Act possession of them for the purpose of sale is deemed to be a sale.  The approximate value of the tablets and capsules seized on the search was $740.

The offences and fines imposed

[12]     The  charge  against  Mr  Zheng  for  sale  of  a  prescription  medicine  under s 18(1) of the Act related to the four tablets sold to the investigator on 27 June 2006. The maximum penalty is six months imprisonment or a fine of $40,000.  Mr Zheng was fined $5,000.  There was no other charge under s 18 against Mr Zheng or Ichi. Ichi was charged with an offence relating to sale of the same four tablets, but under s 20, as noted below.

[13]     The second charge against Mr Zheng, and the six charges against Ichi, were under s 20(2) and (4), which make it an offence to sell, distribute or advertise new medicines before consent to distribution has been given by the Minister of Health. The maximum penalty for an individual is six months imprisonment or a fine of

$20,000.    The  maximum  penalty  for  a  body  corporate  is  a  fine  not  exceeding

$100,000.

[14]     Mr Zheng and Ichi admitted identical advertising charges under s 20(2) in respect of the advertisement in the shop window over the period from February to June 2006.   They were jointly charged with this offence.   Mr Zheng was fined

$5,000 and Ichi was fined $7,500.

[15]     The five remaining offences by Ichi were of selling new medicines without consent on 27 June 2006.  The essential facts of one of those offences were identical to the offence under s 18(1) admitted by Mr Zheng – sale of the four tablets to the Ministry’s investigator.  Each was charged with sale jointly with the other, but the charge against Ichi was brought under s 20(1).   Ichi, like Mr Zheng, was fined

$5,000.

[16]     The four other charges of selling new medicines admitted by Ichi related to the four sets of differently coloured capsules found on the search on 27 June 2006. Under the Act, “sell” includes, amongst other things, “having in possession for sale or exposing for sale”.  The four charges relating to the seized medicines were also charges of sale on 27 June 2006.   One of the charges, relating to the 37 red and brown coloured tablets, was in respect of tablets identical to those sold to the investigator, although a separate information was laid for the 37 tablets found in the shop.  On each of these four charges Ichi was fined $5,000.

District Court judgment

[17]     Matters relevant to sentence were carefully considered by the District Court Judge in a reserved judgment.   In the summary in this section, I will refer to the matters which appear to have been  given greatest  weight  by the  Judge.    Other matters will be noted in my assessment of the appropriate penalties.

[18]     The Judge appears to have considered the actual harm, or potential for harm, from the defendants’ actions to be the primary consideration.  She said, at [46]:

The starting point in determining the penalty must be the purpose of the legislation which is, without doubt, to protect the consumer.

She referred to aspects of the Act which give emphasis to this.

[19]     The Judge then noted a number of factors drawn from other cases, which she considered relevant (at [48]):

1.The need for deterrence, and the need to ensure breaches of the Act do not become a routine route to commercial profit, are important factors to be weighed (Ministry of Health v Pacific Pharmaceuticals Limited  (HC  AK,  16  February  2001,  A165/00,  Anderson  and Priestley JJ).

The penalty cannot be viewed as a licence fee for illegal conduct (Ministry of Health v Little DC CHCH, 1 December 2000, Abbott DCJ).

2.Where the conduct in issue is a cynical and deliberate breach for high profit, the penalty should reflect this (Pacific Pharmaceuticals).

3.Conduct  involving  a  health  risk  to  consumers  is  a  particularly aggravating feature which should be reflected in the penalty …

… (Pacific Pharmaceuticals and Ministry of Health v Vanilla Ltd & Ors DC DN, 3 February 2005, MacAskill DCJ, et al).

4.While the actual harm caused by a breach of the Act will always be a relevant fact in determining penalty, where no proven harm has been caused, the defendant can still be held accountable for the potential to cause harm (Vanilla Ltd).

5.Relevant mitigating factors include the lack of substantial profit, the co-operation with the authorities, and where there was no evidence that the product was, or could have been, harmful to the public.

6.Aggravating factors include the value of the medicines involved, the nature of the operation (a sophisticated, extensive and lucrative operation being at the upper end of the scale); and the actual and potential for harm.

[20]     Her Honour referred to uncontradicted evidence from Dr Stewart Jessamine. Dr Jessamine is the principal technical specialist, in the relevant area, with the New Zealand Medicines and Medical Devices Safety Authority.   Dr Jessamine noted numbers of serious risks associated with misuse of medicines containing the active

ingredients in Viagra (sildenafil) and in Reductil (sibutramine).  Some only of these risks are noted at paras [8] and [10] above.  The Judge then said, at [58]:

Deterrence is one of the primary purposes of sentencing in offending of this kind.  The defendants submit that the level of the fine should be relative to the level of commercialism of the operation.    While the level of commercialism may be a relevant factor, I do not regard it as the primary indicator of appropriate penalty.  In my view, the actual or potential for harm caused can more relevantly be reflected as a primary factor in determining the appropriate penalty.

Submissions on appeal

[21]     This appeal was heard in conjunction with an appeal by the Ministry of Health against sentence imposed in another case involving broadly similar charges under the Act: Ministry of Health v Lisa’s Health Limited and Lisa Ai (HC AK, CRI

2008-404-06/07, 30 June 2008, Woodhouse J).   The Solicitor-General granted the necessary consent for the Ministry to appeal against the sentence imposed.   The Ministry regarded these two appeals as test cases.

[22]     There were full and helpful submissions for the respondent.   I intend no disrespect to counsel for the Ministry in not noting the submissions in detail.  The essence was put in written submissions as follows:

The respondent’s submission is that the appellants’ offending posed a significant risk to public health and the sentencing response was appropriate. The Ministry urges this Court to endorse and adopt the District Court’s broad recognition of the public health policy factors underlying prosecutions of this nature.

The plethora of points raised by the appellants largely deal with matters particular to the offenders and do not impact significantly on the appropriateness of the starting point or the ultimate sentence.

[23]     I will deal with relevant submissions for the appellants in my assessment.

Discussion : broader principles

[24]     The broad submissions for the Ministry might be seen, at least implicitly, as a request that this Court fix a tariff, or at least a benchmark, for offences against ss 18

and 20.   This flows from the way in which the thrust of the submission for the Ministry was expressed in the passage just quoted, and the importance attached to the fact that two appeals against sentence for similar offences were being heard together.   The Ministry also, and explicitly in both cases, seeks this Court’s confirmation of sentence starting points.   The Ministry submitted to the District Court Judge, as she recorded, that the starting points should be as follows:

a)       For Mr Zheng, a fine between $6,000 and $10,000 on the advertising charge,   and between $15,000 and $20,000 on the selling charge; a total of $21,000 to $30,000.

b)        For Ichi, fines of $6,000 to $10,000 for the advertising charge, and

$20,000 to $30,000 in total for the five selling charges; a total on the six charges of $26,000 to $40,000.

[25]     I do not consider it appropriate to indicate a benchmark, let alone tariffs or bands, for the purposes of sentencing for offences against ss 18 and 20.   In the Pacific  Pharmaceuticals  case,  at  [22],  the  Court  responded  as  follows  to  a submission for the Ministry that a tariff be set:

The broad nature of the conduct proscribed by ss 20 and 58 [of the Act]

would make such an exercise somewhat hypothetical.

This applies equally to s 18.

[26]     I agree with the observation in Pacific Pharmaceuticals.  The Ministry’s wish that the Court at least fix a benchmark of general application is understandable up to a point.   But its renewed effort, notwithstanding the observation in Pacific Pharmaceuticals, perhaps warrants some further comment.  The cases relied on by the  Ministry  amply  illustrate  the  proposition  that  ss 18  and  20  of  the  Act  are designed to deal with cases covering a very wide range of circumstances.  Significant differences of fact between this case and Pacific Pharmaceuticals and which have a material bearing on sentence are discussed in paragraphs [34]-[35] below.   The Vanilla Ltd case involved, amongst other things, a large number of charges against three  defendants  under  s 18(2)  of  sale  of  prescription  medicines  without  a

prescription.  Associated with this was export of large quantities of medicines.  The estimated wholesale value of medicines seized by the Ministry was over $110,000. The annual turnover of the company, apparently associated with the offending business, was around $1.75 million.  The financial accounts of Ichi for the year to March 2006 record turnover of $109,000 and a loss of $2,000.  There was calculated dishonesty in the Vanilla Ltd case and none in this.   The Little case involved two charges of advertising of new medicines contrary to s 21.   The defendant was a registered medical practitioner.  The advertising in that case was on far greater scale than in the present case; one offence involving coloured brochures and a second offence involving a two column advertisement on the editorial page of the Christchurch Press with before and after photographs.  Culpability of the defendant was assessed as being medium to high.  He was fined $5,000 on each charge.

[27]     Because of the broad definitions in the Medicines Act, conduct caught by s 18(1) or 20(2) will include, at one end, a very small scale business involving sales of product which are “new medicines”, but which are basically harmless, and where the risk of consumers being misled in a material way is minimal.  At the other end will be operations involving high turnover and high profit, calculated dishonesty or at least deliberate attempts to evade controls, and risk of serious harm to health involving large numbers of consumers.  And there will be all the cases in between, with the variations between them also being illustrated by the difference in the facts of this case from the Lisa’s Health case.

[28]     So far as starting points are concerned, a difficulty in this case is that the Judge did not record a starting point for any of the offences.  Nor did she indicate her view on the starting points submitted for the Ministry.   This exercise is further complicated by the fact that, if calculations are made back from the fines imposed to an assumed starting point, the result in Mr Zheng’s case would be lower than what was proposed by the Ministry and in Ichi’s case the result would be higher, but there is no clear basis for the difference.   Expressed in a global way, and eschewing careful arithmetic, the assumption for a calculation back from the fines imposed would be a credit of 30% for the guilty pleas and 10% for other mitigating factors. In the case of Mr Zheng this would result in a starting point for both offences of around $16,000 compared with the Ministry’s submission of a range of $21,000 to

$30,000.  In the case of Ichi the fines imposed would work back to a starting point total of $54,000, compared with the Ministry’s submission of $26,000 to $40,000.

[29]     Fixing a starting point is, generally, desirable, with the starting point taking account of aggravating and mitigating features of the offending: R v Taueki [2005] 3

NZLR 372 at [8]. The fact that in this case the Judge did not articulate starting points for each offence does not mean that there was an error of principle if the end result can be shown to be justified. For the purposes of this appeal I have, in the next section of this judgment, assessed appropriate starting points for the principal offences committed by Mr Zheng and Ichi. Having regard to the discussion in this section, it is appropriate to expressly record that my assessment of starting points in this case are not intended to be of general application.

[30]     I do agree, with respect, with the Judge’s summary of some of the relevant factors reproduced in this judgment at para [19]  above.    This  includes  conduct involving a health risk to consumers as a particularly aggravating feature.  But I do not consider it appropriate to refer to particular factors as having some form of primacy in every case.  This is what the Judge was saying in the passages recorded at paras [18] and [20] above.  This all comes down to the one point that is of general application – each case must turn on its particular facts.

Penalties in this case

[31]     The ultimate issue on this appeal is whether the fines imposed on each of the appellants were manifestly excessive.  Analysis appropriately begins by determining a starting point for each appellant.  As there was more than one charge against each appellant it is convenient to select a lead charge.

[32]     In the case of Mr Zheng, the lead charge should be sale of a prescription medicine contrary to s 18(1).  The maximum penalty is six months imprisonment or

$40,000, compared with six months imprisonment or $20,000 for the offence against s 20(2).  The Ministry identified this as the lead offence of the two committed by Mr Zheng.

[33]     In the District Court the Ministry submitted the starting point should be a fine between $15,000 and $20,000.  In my judgment this starting point for the offence of selling four tablets admitted by Mr Zheng is far too high.  The submission for the Ministry seemed to be based on observations as to the appropriate penalty in the Pacific Pharmaceuticals case, but the facts are so different that no useful comparison may be made.  This may be illustrated by reference to some only of the differences.

[34]     The principal offence in the Pacific Pharmaceuticals case was breach of s 20(2) (sale of a new medicine) by a corporation.   The maximum penalty for an offence by a corporation was, and is, $100,000, not the maximum of $40,000 under s 18,  which  applies  to  individuals  as  well  as  corporations.     In  the  Pacific Pharmaceuticals case the total cost of the product purchased by the defendant was

$440,000, with a mark-up on sale of over $90,000. This was associated with a major marketing campaign with a mail-out to pharmacies throughout New Zealand and, not long after, shipment of the new medicine to pharmacies throughout New Zealand.

[35]     The stark difference between the Pacific Pharmaceuticals scale of operation and the present case does not need much elaboration beyond reference to the summary at paras [4]-[11] above, and the fact that the value of the product subject to the specific charge (four tablets sold to the investigator) was $30.  Against this is the fact that the active ingredient in the “new medicine” in the Pacific Pharmaceuticals case had not been shown to be harmful, or potentially harmful, if used in the wrong way.  The risk of serious harm to health from the product sold by Mr Zheng (and Ichi) was undoubtedly a serious aggravating factor, as the Judge said.   But in that regard, the tiny quantity of the product in respect of which Mr Zheng was charged does need to be put into perspective in relation to the very wide range of volumes that the Act is seeking to deal with where there is a risk of harm to health.

[36]     As  earlier  discussed,  the  fine  of  $5,000  imposed  by  the  Judge  may  be calculated  as derived  from  a  starting point  of  around  $8,000  to  $8,500,  on  the assumption that credits totalling around 40% were given or warranted.  I consider a starting point of $8,000 to $8,500 is too high for the offence in this case under s 18(1).  The factors given emphasis by the Judge undoubtedly warranted emphasis. But the emphasis given to risk appears to have obscured numbers of other important

considerations relating to the offending itself.   There were only four capsules and these were sold for a total of only $30.  If there was only one offender, the deemed sale of the other tablets would need to be weighed in an appropriate fashion, but here there were convictions of Ichi in respect of those other products and no charges against Mr Zheng.  The relative insignificance of the single sale by Mr Zheng needs to be put into the scale with all other ranges of offending sought to be encompassed by the maximum penalty of $40,000.  Mr Zheng’s offence is at the very bottom end. The Judge did not ignore the general point.  She said, at [56]:

[T]his was not a sophisticated operation where the profit was significant.  I am satisfied that the defendant’s primary businesses are as a herbalist and acupuncturist, and the sale of these tablets was incidental to that business. Thus, while the offending was for commercial gain, it is at the lower end of the scale.

However, in my judgment this aspect was not given sufficient weight.   And there appears to have been insufficient focus on the particular offence, taken as a lead offence against Mr Zheng, as opposed to the general offending by Mr Zheng and Ichi.

[37]     The Judge accepted that Mr Zheng’s “offending was careless rather than deliberate” (at [57]) and she acknowledged that this was a further factor to take into account.

[38]     For the offence by Mr Zheng against s 18(1) I would fix a starting point of

$2,000.  This is not a token fine for selling four tablets containing viagra, at a total sale price of $30.   There is then need to consider any aggravating or mitigating factors in relation to Mr Zheng.  The Judge identified one factor as an aggravating feature.  This was that there had been a failure by Mr Zheng to co-operate fully with the Ministry of Health.   This related to Mr Zheng’s advice to the Ministry’s investigator that he did not know the identity of the person from whom he had bought the viagra tablets.   Although co-operation should not be a mitigating circumstance, a failure to co-operate cannot be an aggravating factor (as opposed to obstruction).

[39]     There are a number of relevant mitigating factors.  The principal one is that Mr Zheng pleaded guilty.  There does not appear to be any reason why that should not have warranted a discount of 30%, if not more.  Mr Zheng does not have any previous convictions.   Mr Zheng also made an offer to the Ministry to arrange a seminar with the members of the New Zealand Chinese Medicine and Acupuncture Society Inc.   This was to enable a representative of the Ministry to explain the provisions of the Medicines Act and their importance.  The Judge referred to this, but in a manner which suggests it was not taken into account.   The seminar had not happened at the time of sentencing in the District Court.  However, it was confirmed on this appeal that a seminar was organised.  This is a relevant mitigating factor.  It warrants reasonable weight because it assisted the Ministry and shows Mr Zheng took the matter seriously.

[40]     Weighing the various considerations referred to in respect of Mr Zheng’s offence against s 18(2), and from a starting point of a fine of $2,000, in my judgment an appropriate fine would be $1,200, subject to two further considerations.  The first is the question of totality.   The second, and mandatory consideration under the Sentencing Act, is financial capacity to pay a fine, which I would extend in this case to include an overall assessment of the fines imposed on Mr Zheng and on his company.    I will  note  aspects  of  totality when  dealing  with  Mr  Zheng’s  other offence, and the Ichi offences.  The question of financial capacity of both appellants is best dealt with at the end.

[41]     Mr Zheng’s other offence was for the advertisement for “new viagra”.  It is an offence distinct from the sale offence under s 18(1), but the two are directly related in this case on the facts.  If the only evidence of tablets associated with the advertisement was the sale of the four tablets, and on the basis of my conclusion that the appropriate fine for the lead offence under s 18(1) is $1,200, an appropriate fine for the advertisement would be $500.  However, it was an advertisement associated with the sale of viagra tablets over a period of about four months.   The evidence from the seizure and Mr Zheng’s admission indicate sales or deemed sales of around

120 viagra tablets.  The investigator was sold four tablets for $30.  This indicates a total value associated with the advertising of approximately $900.  Compared with other cases, the advertising was rudimentary and the financial return was very small,

but  having  regard  to  these  additional  factors  I  consider  that  the  fine  for  the advertising by Mr Zheng should be $1,000.

[42]     My assessment of the total of fines for Mr Zheng is $2,200.  Assessed overall I do not consider that that is excessive.   I do consider that a total fine of $2,200 associated principally with the sale of four tablets for $30 does meet all relevant purposes and principles of sentencing for this case.

[43]     Mr Zheng and Ichi were charged with an offence in respect of the same advertisement.  The imposition of the same monetary penalty would not appear to have been justified in this case.  The advertisement referred to Dr Zheng, and made no reference to the company.   The company’s role, on this basis, would appear to have been secondary, but there was no consideration of this aspect by the Judge. The maximum penalty for an offence by a body corporate under s 20(1) is $100,000. However, this does not provide any material assistance in determining an appropriate fine for the secondary offending by Ichi, and with the level of that fine to be assessed against the fine imposed on Mr Zheng as the principal offender.  I consider that an appropriate fine on the company, before considering financial capacity, would not be more than $500.

[44]     One of the selling charges against Ichi under s 20(2) related to the four tablets sold to the investigator and in respect of which Mr Zheng was convicted under s 18(2).   Considerations similar to those applying to the joint advertising charge apply to this charge against Ichi.  My conclusion is the same for similar reasons: a fine of $500.

[45]     It is of assistance to identify a lead offence committed by Ichi.  On the basis that Mr Zheng was the principal offender in respect of the four tablets sold to the investigator and the advertisement, the lead offence of Ichi was the possession for sale of 180 capsules containing sibutramine.   Taking account of all the matters already discussed, I am not persuaded that the fine of $5,000 imposed by the District Court Judge is manifestly excessive, subject to the final question of capacity to pay.

[46]     The  three  remaining  sale  offences  by  Ichi  relate  to  the  three  differently coloured and labelled viagra tablets or capsules.  Although the different colours and labelling do support separate charges, having regard to the definitions in the Act, there is a linkage in a broad sense because the most significant aggravating feature is the presence of sildenafil.  In respect of capsules containing sildenafil the principal offence by Ichi was the deemed sale of the 37 red and brown coloured tablets.  The fine imposed was $5,000.  Again, I do not consider that this is manifestly excessive. However, the fines of $5,000 imposed for the other two sildenafil offences were manifestly excessive in my judgment, because of the linkage and the tiny number of capsules, three in one case and two in the other.  There was no evidence which could have justified any extrapolation from these five tablets of actual sales by Ichi of greater quantities, nor was there any suggestion by the Judge that that had occurred. There may be a suspicion of other sales, but the evidence is not there.   Fines for these two offences, standing alone, should not in my judgment exceed $500 each.  In expressing that conclusion I have no overlooked the fact that the two red coloured capsules contained almost double the recommended daily dose.

[47]     My assessment of the total fines for Ichi is $12,000.  Assessed overall I do not consider that that is excessive, but it is also a substantial total penalty for the level of offending on charges which in large measure are closely related.

Capacity to pay a fine

[48]     The remaining consideration is capacity to pay.  The Judge said, at [62]:

Finally, I have had regard to the financial circumstances of the defendant. The defendant [Mr Zheng] recorded a profit of $5,212.46 in the last financial year, while the defendant company recorded a loss of $2,034.  However, no submission is made that they are not able to meet the cost of a fine – rather that I should take into account their financial circumstances in fixing that penalty.

[49]     I  consider,  with  respect,  that  the  Judge  should  not  have  approached  the question of financial capacity in this way.   Section 40(1) of the Sentencing Act provides:

In determining the amount of a fine, the court must take into account, in addition to the provisions of sections 7 to 10, the financial capacity of the offender.

[50]     From the information provided, Mr Zheng did not have the capacity to pay fines totalling $10,000 and Ichi did not have capacity to pay fines totalling $32,500. There may have been a failure by counsel for the defendants in the District Court to say expressly that the defendants did not have capacity to pay fines over a stated amount, but the purpose in providing the precise figures of income and loss must have been to indicate that the capacity to pay was decidedly limited.  If there was ambiguity in the submissions for the defendant, the appropriate course indicated by the Sentencing Act was not to make an assumption against the interests of the defendant, but to clarify the ambiguity and, if need be, to obtain a declaration under s 41 of the Sentencing Act.

[51]     Because of the mandatory provision in s 40(1) I requested and received a declaration from the appellants as to financial capacity.  I will not go into the detail. Having regard to what is recorded, and taking account of the points made for the Ministry in relation to the declaration, I am satisfied that neither appellant had or has the financial capacity to pay fines of the amounts imposed by the Judge.   That would, of course, be a basis for allowing the appeal to that extent, but it is necessary to determine whether each of the appellants has financial capacity to pay fines of the reduced amounts assessed in the preceding section of this judgment.

[52]     In  reaching a conclusion  on  capacity to  pay I consider  I am  entitled  to consider the financial circumstances of Mr Zheng and of the company in a global way.   This is because it appears from the information available to me that the company is, in substance, controlled and owned by Mr Zheng, although his wife draws the greater income from it.  If there is to be a reduction in the fines that should otherwise be imposed, the reduction can be made in respect of the fines imposed on the company.  Assessed in this broad way, I am satisfied that Mr Zheng has capacity to pay fines totalling $2,200, particularly given time to pay to which he should be entitled.

[53]     I consider that Ichi does not have capacity to pay fines totalling $12,000 and that the maximum should be $6,000.  The assessment at this point is based on the company’s profit for the 2007 year, which was $6,294, and its cash on hand at the end of that year of $9,400.  A fine of $6,000 in those circumstances imposes a heavy penalty on the company.  I will allocate that global sum of $6,000 to the individual charges on a proportional basis.

Result

[54]     The appeal is allowed in respect of the fines imposed on the appellants, but not in respect of the orders to pay Court costs and for forfeiture and destruction, which orders are confirmed.

[55]     The following fines are imposed on Mr Zheng in lieu of the fines imposed in the District Court:

a)        Sale  of  a  prescription  medicine:  s 18(1)  of  the  Act:  information

(ending) -388: $1,200.

b)        Advertising new medicine: s 20(2)(c) of the Act: information -387:

$1,000.

[56]     The fines imposed on Ichi Trade (NZ) Limited in the District Court are set aside and the following fines imposed:

a)        Advertising: s 20(2)(c) of the Act: information -4365: $250.

b)        Sale of 4 red and brown tablets: s 20(2)(a) of the Act: information

-367: $250.

c)        Sale of 37 red and brown tablets: s 20(2)(a) of the Act: information

-368: $2,500.

d)       Sale of 3 green capsules: s 20(2)(a) of the Act: information -370:

$250.

e)        Sale of 2 red capsules: s 20(2)(a) of the Act: information -372: $250.

f)        Sale  of  180  blue   and   white   capsules:   s 20(2)(a)   of  the   Act:

information-374: $2,500.

Peter Woodhouse J