COMMERCE COMMISSION v STEEL & TUBE HOLDINGS LTD [2020] NZCA 549

COMMERCE COMMISSION v STEEL & TUBE HOLDINGS LTD [2020] NZCA 549 [9 November 2020]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA484/2019[2020] NZCA 549BETWEEN COMMERCE COMMISSIONAppellantAND STEEL & TUBE HOLDINGS LIMITEDRespondentCA485/2019BETWEEN STEEL & TUBE HOLDINGS LIMITEDAppellantAND COMMERCE COMMISSIONRespondentHearing: 12 August 2020Court: Miller, Brown and Courtney JJCounsel: JCL Dixon QC, A M McClintock and J B Hamlin for CommerceCommissionM R Heron QC and E McGill for Steel & Tube Holdings LimitedJudgment: 9 November 2020 at 4.00pmJUDGMENT OF THE COURTA Steel & Tube's appeal is allowed.B Commerce Commission's appeal is dismissed.C The fines substituted in the High Court are set aside.D We impose the fines set out at [155] of this judgment, totalling $1,560,000.____________________________________________________________________REASONS OF THE COURT(Given by Miller J)TABLE OF CONTENTSIntroduction [1]The facts [7]Steel & Tube [8]E-class mesh and the Standard [9]Steel & Tube introduced SE62 mesh and sold it in large quantities [12]Steel & Tube's failures to meet the Standard [14]What can be said about the non-compliant SE62 mesh? [19]Steel & Tube's misrepresentations about compliance [21]Steel & Tube's misrepresentations about independent third-party testing [23]Why did Steel & Tube not comply with the Standard? [27]What testing and compliance practices did Steel & Tube adopt? [31]Why did Steel & Tube represent that SE62 production was independently tested?[37]Steel & Tube's response to the Commission's investigation [38]The charges [42]The District Court sentencing [44]The High Court decision [52]The issues on further appeal [58]Attribution [60]Sentencing practice in Fair Trading Act penalty cases [79]The maximum fine [79]Limited statutory provision for totality [80]Number of charges and the aggregate maximum penalty in this case [83]A brief survey of sentencing practice [85]Synthesis [90]Commercial gain [95]The offender's financial capacity [102]The appropriate sentence in this case [106]Circumstances of the offending [107]Nature and use of the product [107]Extent to which the false statements were misleading [108]Extent, duration and systematic nature of the offending [110]The company's state of mind [111]Compliance culture and systems [117]Impact on consumers and other traders [118]Extent of any commercial gain or benefit from the offending [120]The starting point [126]The parties' positions [126]Comparable cases generally [127]Building timber: Commerce Commission v Carter Holt Harvey and R v Reid[128]Pain medication: Commerce Commission v Reckitt Benckiser (New Zealand)Ltd [129]Deer velvet: Commerce Commission v Gate Solutions Ltd [130]Heat pumps: Commerce Commission v Fujitsu General New Zealand Ltd [131]Bicycles: Commerce Commission v Bike Retail Group Ltd [132]Consumer credit: Budget Loans Ltd v Commerce Commission [133]Billing beyond termination: Commerce Commission v Spark New ZealandTrading Ltd, Commerce Commission v Vodafone New Zealand Ltd andCommerce Commission v CallPlus Services Ltd [134]The other steel mesh cases: Commerce Commission v Timber King Ltd,Commerce Commission v Brilliance International Ltd, and CommerceCommission v Euro Corporation Ltd [135]Conclusion: the global starting point in this case [139]Circumstances of the company [146]Remedial action and commitment to future compliance [146]Guilty pleas and co-operation [147]Financial resources [148]Totality [150]Overall assessment [153]Result [155]Introduction[1] This is a sentence appeal and cross-appeal for offending against theFair Trading Act 1986.[2] Steel & Tube Holdings Ltd pleaded guilty to 24 representative charges ofmisleading conduct and false representations in connection with its "seismic grade"steel mesh, known as SE62 mesh. It represented that the mesh, which is used toreinforce concrete structures, was 500E grade, meaning that it had been tested andcomplied with the relevant building standard, AS/NZS 4671:2001 ("the Standard"),and further that it had been tested independently.[3] The key characteristic of 500E steel is that it meets a high standard for ductility,or (put simply) the ability to stretch in a uniform way under stress. Following theCanterbury earthquakes the Standard was amended to require that steel mesh used inconcrete slab floors on "good" ground be 500E grade.1 Steel & Tube developed SE62mesh to meet this standard. During the four-year period covered by the charges,1 Amendment on 11 August 2011 to Standards New Zealand New Zealand Standard 3604:2011,Timber-framed buildings (14 February 2011), cl 7.5.8.1. This amendment required reinforcingsteel in slab-on-ground floors to be Ductility E Class in compliance with Standards New Zealandand Standards Australia Australian/New Zealand Standard 4671:2001, Steel ReinforcingMaterials (2 April 2001).1 March 2012 until 5 April 2016, the company sold approximately 480,000 sheets atan average premium over non-seismic mesh of $8.61 per sheet.[4] The steel may indeed meet the ductility requirements of the Standard, but thatcannot now be verified. What can be said is that it was not tested in the prescribedmanner, and so strictly could not be said to comply with the Standard. By representingthat it did, and that it had been independently tested, Steel & Tube misled consumers.[5] In the District Court the company pleaded guilty and was fined a total of$1,885,000.2 Both parties appealed to the High Court, where the fines were increasedto a total of $2,009,280.3[6] Both parties have been given leave to bring second appeals to this Court.4Steel & Tube maintains that the starting point of around $3.8 million set inthe High Court was without precedent or statutory support,5 and was adopted withouthearing argument, and that the resulting sentence, far exceeding any previouslyimposed on a single entity under the Fair Trading Act, was manifestly excessive.The Commerce Commission argues that the decisions below were affected by error.In particular, the High Court Judge wrongly held that the state of mind of the employeeresponsible for flawed testing processes could not be attributed to the company forsentencing purposes, wrongly allowed too great a discount for totality, and failed totake into account Steel & Tube's size, resources and financial gain: all of this meaningthat the sentence was manifestly inadequate.The facts[7] The following account is taken from the agreed summary of facts, a lengthyand dense document that conveys an impression of having been closely negotiated.2 Commerce Commission v Steel & Tube Holdings Ltd [2018] NZDC 21579 [District Courtdecision].3 Commerce Commission v Steel & Tube Holdings Ltd [2019] NZHC 2098 [High Court decision].Also see the supplementary judgment in which individual sentences are set out: CommerceCommission v Steel & Tube Holdings Ltd [2019] NZHC 2209.4 Commerce Commission v Steel & Tube Holdings Ltd [2020] NZCA 39 [Leave decision].5 See High Court decision, above n 3, at [115].Steel & Tube[8] Steel & Tube is a major and longstanding producer of steel products inNew Zealand. The summary of facts describes it as a substantial firm, employing1000 employees and operating 56 branches and distribution centres in New Zealand,and it records that in the year ended June 2016 its revenues were approximately $516million and its underlying earnings for the same period $19.4 million. Mr Heron QC,who appeared for Steel & Tube, advised us that the company's market capitalisation— it is listed on the New Zealand Exchange — was then $192 million but is now only$96.3 million.E-class mesh and the Standard[9] Steel mesh used in certain building applications must comply with theStandard, which provides for three ductility classes, L (low), N (normal) andE (earthquake).6 After steel-reinforced concrete slab foundations in houses performedpoorly in the Canterbury earthquakes, the Department of Building and Housingintroduced an amendment in 2011 requiring that steel mesh used in concreteslab-on-ground floors on "good" ground be of the E ductility class.[10] The Standard requires that reinforcing steel and steel mesh must meet certainchemical, mechanical and dimensional requirements, and it further requires,importantly, that testing against the Standard must follow prescribed sampling andtesting procedures. To be designated 500E, steel mesh must exhibit uniformelongation of not less than 10 per cent and yield stress of between 500 MPa and600 MPa, when tested in accordance with the Standard.[11] There are several relevant features of the Standard's testing requirements.First, tested steel must be aged, which means that it must be heated to a prescribedtemperature for a period, then cooled. This is designed to emulate changes that occurin steel as it ages naturally. Second, the Standard prescribes how steel must bestretched to demonstrate uniform elongation. Third, the Standard provides for batch6 This is provided for in Acceptable Solution or Verification Method documents issued by theMinistry of Business, Innovation and Employment the effect of which is to establish compliancewith the Building Code. See ss 17, 19 and 22 of the Building Act 2004. See also Australian/NewZealand Standard 4671:2001, above n 1, cl 5.2(c).testing and sets out how batch compliance is to be assessed. Four samples must betaken and tested per batch of up to 1,000 sheets. Yield stress, uniform elongation andyield ratio are to be calculated as the mean of the individual values from the numberof sampled items. Individual test values may not be used, and test results that do notmeet the Standard must be included when calculating the mean. Where a batch meandoes not meet the specified values for each parameter, a larger sample must be testedto establish compliance. Finally, the Standard establishes a procedure for collectingtest results and using them for long-term quality evaluation. This process is consideredimportant because it provides a broader picture of the underlying characteristics of theproduct. After 2003, a manufacturer who does not use long-term quality evaluationmust test a much larger number of samples per batch and more variables must beassessed.Steel & Tube introduced SE62 mesh and sold it in large quantities[12] Steel producers responded to the Department's initiative by introducing "E"grade steel mesh products. Steel & Tube called its products "Seismic SE Grade 500EDuctile Reinforcing Mesh". One of those products, which became its best seller, wasSE62, and it is the subject of the charges. Its designation comes from the terminologyused by the Standard: "S" means the bars are square, "E" means the steel is earthquakegrade, and "6" and "2" refer respectively to steel diameter (6 mm) and mesh spacing(200 mm). It was manufactured in sheets of varying sizes.[13] Steel & Tube began selling SE62 mesh in March 2012, and the 24 charges spanthe period from then until April 2016. Over the four-year period Steel & Tube soldapproximately 482 batches of the mesh, each comprising not more than 1,000 sheets.The summary records that the average price at which Steel & Tube sold SE62 smallmesh sheets to merchants during that period was $51.74 per sheet, while the averageprice for equivalent-sized mesh in its non-seismic range was $43.13 per sheet.Steel & Tube's failures to meet the Standard[14] Steel & Tube failed to meet the Standard in four respects. First, it did not agetest pieces. The impact of this failure cannot be measured with precision, but theCommission accepts it is likely to have been negligible.[15] Second, Steel & Tube did not measure uniform elongation in accordance withthe Standard at either of its two facilities in Auckland and Christchurch. The methodsused at those facilities differed. The method followed in Auckland may haveoverstated ductility of the mesh, but the extent of any overstatement cannot beestimated with precision.[16] Third, Steel & Tube followed a re-testing procedure which did not comply withthe Standard. Individual test results that failed the uniform elongation requirementwere excluded when calculating batch compliance. This may mean that some batchesdid not meet the Standard, but the extent of any overstatement cannot be estimatedwith precision.[17] Finally, Steel & Tube did not carry out long-term quality evaluation.This means that its test results may not accurately represent the characteristics of theproduct.[18] In consequence, the mesh that Steel & Tube produced during the four-yearcharge period and sold as 500E grade was not tested as the Standard required. None ofit could be described as 500E grade.What can be said about the non-compliant SE62 mesh?[19] The Commission tested three sheets of SE62 mesh purchased from a retailerand found that none met the uniform elongation requirement of the Standard and somefailed yield stress and yield ratio requirements. It then tested a further three sheets, allof which also failed the uniform elongation requirement. It does not follow that theoverall population of mesh fails to meet those requirements; far more extensivesampling would be needed to justify that inference.[20] Relying on advice from the Ministry of Business, Innovation and Employment,which is now responsible for the functions of the former Department of Building andHousing, the Commission and Steel & Tube agree that non-compliant steel mesh posesno risk to life when used in concrete slabs on the ground and is very unlikely to do sowhen used in suspended floors. It may carry a greater risk of loss of amenity thanwould compliant mesh. Steel & Tube maintains that the adverse impacts of installingmesh with uniform elongation as low as five per cent are negligible.Steel & Tube's misrepresentations about compliance[21] As noted above, the charges fall into two categories. The first 12 concernrepresentations on batch tags, batch test certificates and on the Steel & Tube websiteand in "various other collateral". They took the following form:(a) Batch tags were attached to each sheet of SE62, and most of themincluded the words "Seismic 500E grade mesh".(b) Employees who tested batches of mesh prepared test certificates copiesof which were attached to approximately 19 per cent of mesh deliveries.Each certificate represented that the "reinforcing steel class" was"500E" and noted that the testing standard was AS/NZS 4671:2001.(c) The mesh was described as 500E grade on other documents, includingbrochures, invoices and packing slips.(d) Steel & Tube's website narrated that its products were manufactured tocomply with the Standard and stated that "Seismic ConstructionMeshes are fabricated from 500E grade steel to specifications listed" inthe Standard. Other documents on the website included a customernewsletter, a corporate profile and a product catalogue. In various waysthey all represented that Steel & Tube used 500E steel in its seismicmesh, that the mesh met the Standard, and that the mesh had been testedin accordance with the Standard, the requirements of which weresummarised in some detail in product catalogues. Customers wereassured that the mesh met the Building Code. By way of illustration,the customer newsletter stated:In response to growing demand for a product to meet these[earthquake] requirements, Steel & Tube released a newgeneration product — Seismic SE Grade 500E DuctileReinforcing Mesh. The product range has been designed tofully comply with the new legislation and is an exact matchto the specifications listed in the steel reinforcing standard.This allows designers, specifiers and contractors to accuratelyand reliably select the correct reinforcing directly from thestandard without worrying about variations, equivalents oralternatives.By employing micro-alloyed Class E steel in the fabricationprocess, Seismic SE possess significantly greater ductilitythan hand-drawn wire meshes, which means the reinforcingcan continue to stretch under load after yield has beenreached. []Not only that, Seismic SE is tested and tagged before it leavesthe factory floor. Each tag is unique and links the sheet to itstest certification, date of manufacture and quality control data,and can be used to track the product's performance years afterit's installed. [][22] It will be seen that Steel & Tube went to some lengths to assure customers, inspecific terms, that its mesh not only met the Standard's specifications but also hadbeen tested to verify that it complied.Steel & Tube's misrepresentations about independent third-party testing[23] Charges 13 to 21 concern representations that the mesh had been tested byHolmes Solutions, which is an independent and accredited testing agency, or were ingeneral independently tested and certified. These charges also span the entire period.[24] The representation was made in batch test certificates. Four hundred andeighty-two offending certificates were issued for SE62 products and approximately2,700 copies were distributed with the mesh. The Holmes logo was located on eachcertificate below the words "tested by". It was accompanied by a signature and thewords "laboratory manager". Steel & Tube thereby represented that Holmes hadtested the product in a laboratory.[25] Holmes had tested the mesh in 2011 when Steel & Tube initially developed theproduct to demonstrate to the Department of Building and Housing that it met theStandard. But Holmes had not tested the steel covered by the batch tests certificates.Batch testing was done in-house. Nor did anyone at Steel & Tube have the title"laboratory manager".[26] During the same period, a document available for download on the Steel &Tube website and titled "Residential Product Solutions — Stronger Homes" also statedthat the company's seismic steel mesh was "independently tested & certified".These representations were false as all batch testing of the mesh had been internallyconducted by Steel & Tube itself, and they form the basis for charges 22 to 24.Why did Steel & Tube not comply with the Standard?[27] Steel & Tube assigned responsibility for developing seismic steel products toits technical manager, a senior and now former employee who had spent more than20 years in manufacturing (the "Former Employee"). He was a member of a jointAustralian and New Zealand committee which developed the Standard and held aNew Zealand Certificate in Engineering. He was considered an expert. However, hewas not knowledgeable in metallurgy or statistical analysis. He had a workingrelationship with Pacific Steel (a steel manufacturer) to ensure the steel coil used inthe mesh had the right composition and characteristics, and with Holmes on the 2011development.[28] Steel & Tube relied on the Former Employee to ensure its products met theStandard. No one signed off his decisions to not follow the Standard, nor did anyonecheck his work. There was no internal or external audit system to monitor compliance.He trained the staff who tested the mesh but they followed the processes he prescribed;they were not familiar with the Standard. The General Manager of Processing towhom he reported was not a technical expert and not able to review or question histechnical work.[29] The Former Employee retired in March 2014, leaving a sizeable knowledgegap in the company. His practices were continued by his successor.[30] We pause to remark on the way in which the parties have handled theresponsibility of the Former Employee. He was not charged. We do not suggest heought to have been, but his non-involvement places us at a disadvantage when it comesto assessing culpability. Mr Heron was at pains to say that Steel & Tube accepts it isresponsible for his actions, but it also considers itself a victim of his conduct.The summary of facts records explanations he gave, but the parties disagree about theinferences to be drawn from it about his state of mind.What testing and compliance practices did Steel & Tube adopt?[31] The summary records that the Former Employee tested aged and unaged piecesand compared the results to external tests on aged steel that had been carried out byHolmes. He concluded that ageing had a negligible effect on test pieces. Ageing alsoadded significant time to the production process. So he decided to dispense withageing.[32] The Former Employee also chose not to measure uniform elongation as theStandard required, considering his method better. His method was used inChristchurch but a different one was used in Auckland. The summary records thatneither complied with the Standard, but it does not give any details of what was done.[33] The Former Employee decided not to comply with the Standard's requirementsfor batch testing and re-testing. Uniform elongation values of less than 10 per centwere not recorded; rather, staff discarded the failed piece of mesh and tested another.He explained that failed values were not recorded because he worried the officeadministrator would mix up results or record incorrect information.[34] Staff who conducted the tests told investigators that failures were very rare.However, the procedure used must logically mean there may have been batches forwhich mean values were below the Standard but which were not re-tested as theStandard required.[35] The Former Employee explained that when re-testing was done he adopted amore stringent rule than the Standard prescribed; he tested for "minimums andmaximums" and a batch passed only if every individual test met the minimum valueof 10 per cent.[36] No long-term quality evaluation was undertaken. The Former Employeethought that the company had done enough by accumulating the data and having itavailable. We note here that Steel & Tube sought to rely on a 2003 amendment to theStandard which stated that long term testing might be waived for steel mesh to be usedin New Zealand provided all batch test results were above specified values, but theFormer Employee did not know of the waiver and did not rely on it when deciding notto carry out long term quality evaluation. It is not suggested that the waiver actuallyapplied, presumably because that would require that batch testing be done correctlyand produce no failed test results.Why did Steel & Tube represent that SE62 production was independently tested?[37] As noted above, Holmes tested the mesh in 2011. At that time Steel & Tubeasked it to provide a template test certificate that included the Holmes logo.Steel & Tube then added its own to the batch test certificates. It is not clear why thiswas done. The Former Employee maintained that the certificates conveyed thatHolmes had tested SE62 products when they were developed; put another way, theywere not misleading. That is plainly wrong. The summary of facts says that inclusionof the Holmes logo was an oversight and the Former Employee offered no credibleexplanation why it had not been removed. It records that there was "no intention togive the impression" that Holmes had tested production mesh.Steel & Tube's response to the Commission's investigation[38] This proceeding began with a Commission investigation into the quality ofsteel mesh imported by other companies, some of which have also been prosecuted.We address their circumstances below. The Commission then extended itsinvestigation to the question whether 500E mesh met the Standard. This brought tolight Steel & Tube's use of the Holmes logo. When that became public Steel & Tubevolunteered that it had been done in error.[39] At first the company claimed that its mesh met the Standard, but after beingpresented with the Commission's test results (see [19] above) it voluntarily ceasedselling 500E mesh and did not resume sales until it had an external testing regime inplace.[40] The summary of facts records that Steel & Tube cooperated with theCommission's investigation.[41] It also records that the Standard has since been amended to clarify andelaborate upon testing requirements. However, it is not suggested that the FormerEmployee misunderstood the Standard's requirements.The charges[42] The 24 charges laid against Steel & Tube were representative. As noted above,the first 12 charges were for representations, made in batch tags, batch test certificates,collateral and the company's website that its SE62 steel mesh was 500E grade.The Commission charged that they were liable to mislead the public about theproduct's suitability for purpose.7 Charges 13 to 24 were for false or misleadingrepresentations that SE62 steel mesh had an approval or endorsement, namely that ithad been tested by an independent building product testing laboratory, HolmesSolutions, or had been independently tested.8 Each charge was for a different timeperiod, although they overlapped.9[43] On 17 June 2014, during the period in which these charges were laid, themaximum fine for a body corporate increased from $200,000 to $600,000.10The District Court sentencing[44] Steel & Tube was sentenced on 23 October 2018 at Auckland. Judge Cathcartrecognised that the offending affected public confidence in the construction industrysuch that a significant penalty was required.11 The Commission contended for astarting point between $3.8 million and $4.6 million, with no allowance for totality,while Steel & Tube argued for a totality-adjusted starting point of $500,000 to$800,000. The Judge opted for a totality-adjusted figure of $2.9 million from whichhe deducted 35 per cent for mitigating factors including Steel & Tube's early guiltypleas.127 Fair Trading Act 1986, s 10.8 Section 13(e).9 See table at the end of this judgment.10 Fair Trading Act, s 40(1)(b).11 District Court decision, above n 2, at [5].12 At [8], [75] and [142].[45] The Judge cited a list of relevant factors drawn from Commerce Commission vTicketek New Zealand Ltd.13 He found that the company's conduct clearly infringedon the consumer protection objectives of the Fair Trading Act and the Standard.14Although the parties agreed there is no risk to life, consumers have been left in a stateof uncertainty.15[46] The Commission argued that the company's conduct was deliberate, andfurther that the infringement went undetected because senior management weregrossly negligent in failing to put in place adequate procedures and oversight.The argument that the company was guilty of a deliberate breach presumed the FormerEmployee's knowledge and intention could be attributed to the company. The Judgerejected that premise.16 In his view s 45 of the Fair Trading Act, which we discussbelow, is a special attribution rule which exists to sheet home liability to a bodycorporate.17 It applies when it is necessary to prove mens rea. In this case,Steel & Tube faced strict liability offences. For that reason, s 45 did not apply in thiscase. Even if it did, it could not be relied upon for sentencing purposes, for whichdeliberation is an aggravating factor that must be proved by a prosecutor.18 On thesummary of facts, there was nothing from which the Judge could properly infer thatknowledge of the Former Employee's actions reached senior management or thecompany's board.19[47] The Judge found Steel & Tube was grossly negligent.20 The company oughtto have known of the large-scale non-compliance over the four-year charging period.It failed to supervise the Former Employee properly, and it did not audit or review hisprocedures even after he retired. The lack of robust procedures would have been self-evident if basic enquiries had been made by senior management staff. The failure wasall the more culpable because Steel & Tube had complete control over what testing itwas conducting. The same finding of gross negligence applied equally to the13 At [72] citing Commerce Commission v Ticketek New Zealand Ltd [2007] DCR 910 at [47].14 At [77].15 At [79].16 At [87]–[88].17 At [90].18 At [91].19 At [92].20 At [93]–[95].independent testing misrepresentations, which could not be characterised asinadvertence. The Judge did not accept that there was an innocent explanation.21He noted that Steel & Tube had invited Holmes to become more involved in itscertification processes in 2014 and the proposal was provided, but not taken up; rather,Steel & Tube continued to issue batch certificates bearing the Holmes logo.[48] The Judge accepted that there was a need for a fine that reflected generaldeterrence, but there was no significant need for specific deterrence.22 Steel & Tubehad taken remedial action and radically changed its systems.23 He did not appear totake the company's gain into account.[49] Citing s 40 of the Sentencing Act 2002, the Judge considered Steel & Tube'sfinancial capacity.24 He accepted that an offender's means may be taken into accountto increase what would otherwise have been an appropriate fine, but he did not makeany adjustment. He reasoned that there must remain some proportionality betweenthe seriousness of the offending and the fine imposed. Further, publicity had alreadyaffected Steel & Tube, both in its reputation and in its share price.[50] Turning to the starting point, the Judge examined comparable cases.25He distinguished the leading case on which the Commission relied, CommerceCommission v Carter Holt Harvey, on the ground that knowledge of the unlawfulconduct reached a level of senior management and head office in that case.26The Judge also referred to recent decisions involving other companies selling steelmesh.27 In those cases starting points of $600,000 and $650,000 were adopted, but theoffending was on a much smaller scale than that of Steel & Tube. He concluded thatthe compliance representations justified a global starting point of $2.4 million, with a21 At [96].22 At [105].23 At [106].24 At [107]–[109].25 At [110]–[126]. See in particular Commerce Commission v Carter Holt Harvey DC AucklandCRI-2005-004-18578, 12 October 2006; and Commerce Commission v Glaxosmithkline (NZ) LtdDC Auckland CRI-2006-004-503913, 27 March 2007.26 At [118].27 At [123] citing Commerce Commission v Timber King Ltd [2018] NZDC 510; and CommerceCommission v Brilliance International Ltd [2018] NZDC 7359.further $600,000 for the independent testing representations.28 He made a modesttotality adjustment of $100,000.29[51] The Judge accepted that Steel & Tube had taken significant remedial action.30Apart from withdrawing the product from the market for a time, it entered enforceableundertakings with the Commission, engaged independent laboratories to test the mesh,invested in new systems and training, and hired an additional quality manager.The company had no previous convictions under the Fair Trading Act, and its pleaswere entered at the first reasonable opportunity.31 His decision to allow a 35 per centdeduction for mitigating factors is not in dispute.32The High Court decision[52] Both parties appealed.33 After surveying the background, Duffy J turned to thequestion of attribution. Because ss 10 and 13 of the Fair Trading Act create strictliability offences, the Commission need not prove the company's state of mind in orderto establish guilt. Rather, it sought to attribute knowledge for sentencing purposes,relying on s 45. Differing in this respect from Judge Cathcart, the Judge appeared toaccept that s 45 would apply to sentencing if it were necessary to prove the company'sstate of mind for liability purposes.34 In this case that was not necessary, and itfollowed that s 45 could not be relied upon at sentencing.35 Rather, the wilfulness orcarelessness of the conduct were to be treated as an aggravating factor under s 9 of theSentencing Act.36 She added that the common law could not be relied upon to attributethe Former Employee's knowledge to the company, for he was not part of the seniormanagement team.37[53] Citing the judgment of Tipping J in Commerce Commission v Noel LeemingLtd, the Judge accepted that acts constituting a strict liability offence may be classified28 At [126] and [135].29 At [141].30 At [144].31 At [8] and [147].32 At [148].33 High Court decision, above n 3.34 At [69].35 At [64]–[66].36 At [67].37 At [76].as inadvertent, careless or wilful.38 Inadvertence is a mitigating factor, while wilfulconduct is aggravating and careless conduct sits between, being viewed as eitherneutral or aggravating depending on the degree of carelessness involved. The Judgesuggested that in broad general terms starting points might be up to one third of themaximum fine for inadvertent misrepresentations, between one third and two thirds ofthe maximum fine for careless misrepresentations, and upwards of two thirds of themaximum fine for deliberate representations.39[54] The Judge characterised the state of mind of Steel & Tube's board of directorsand senior management as "gross carelessness by omission".40 The companycompletely failed to take any steps or put in place any procedures that might haverevealed the Former Employee's deliberate disregard for the Standard, or his deliberatedecision to allow mesh to be sold with false representations about independent testing.Steel & Tube is a large manufacturing company, not a small firm that might be givensome latitude when it comes to systems. It ought to have had careful quality controlsystems in place. The level of carelessness weighed in favour of a starting pointbetween 55 and 60 per cent of the maximum fine.41 The Judge found support in theimportance and wide dissemination of the representations, and the cost to purchasers.42Based on comparison of prices for seismic and non-seismic mesh, Steel & Tube wouldhave earned in the region of $24 million from the sale of the non-compliant mesh.Consumers had no way of verifying the accuracy of Steel & Tube's representations,and in most cases it will be difficult if not impossible to replace the mesh.43[55] Against that, the Judge noted that the non-compliant mesh will not belife-threatening in concrete slabs on the ground and very unlikely to be if used in asuspended floor system.44 The company had also been a victim of what she found tobe the Former Employee's deliberate misconduct.45 She was prepared to accept thatthe management of Steel & Tube had no reason to doubt that he was doing all that was38 At [92] citing Commerce Commission v Noel Leeming Ltd HC Christchurch AP139/96, 21 August1996.39 At [92].40 At [93].41 At [96].42 At [97]–[100].43 At [101]–[102].44 At [104].45 At [105].required of him. He was known to be an expert and he had arranged extensiveindependent testing with Holmes as the mesh was being developed in 2011.[56] Duffy J concluded that had she been sentencing the company at first instanceshe would have adopted a starting point somewhere between 46 and 56 per cent of themaximum fine.46 Had the conduct been deliberate or reckless, or the risk to life higher,or had their non-compliance demanded expensive rectification, the gravity of theoffending would have been closer to the maximum. The Judge adopted a starting pointof 42 per cent, which she considered the lowest figure that was available in thecircumstances.47 That would lead on our calculation to a total starting point of justover $3.8 million.[57] The Judge calculated that after allowing for mitigating factors her calculationwould lead to individual fines of $84,000 (for the offences with a $200,000maximum), and $252,000 (for the offences with a $600,000 maximum), resulting in atotal fine of $2,511,600.48 The Judge then allowed a 20 per cent discount for totality,bringing the total fine imposed on all charges to $2,009,280.49 This she distributedamong the charges as a percentage — 22 per cent — of the maximum fine availableon each charge.The issues on further appeal[58] When granting leave to appeal, this Court stated that the attribution issue is amatter of general or public importance.50 And given disparate views taken by thecourts below and polarised positions adopted by the parties, it appeared that guidanceon starting points could also be useful.[59] We will begin with attribution, establishing whether the Former Employee'sstate of mind ought to be attributed to the company. We will then consider relevantsentencing purposes, principles and factors and review the authorities. We will addressthe significance of Steel & Tube's size and resources and its financial gain from the46 At [108].47 At [115].48 At [115].49 At [119].50 Leave decision, above n 4, at [14]–[15].offending. Finally, we will decide whether the sentence substituted in the High Courtwas manifestly excessive or inadequate; and if it was either of those things we willadjust it accordingly.Attribution[60] A company may commit an offence, and because it acts only through humanagency the actions and states of mind required for the offence are those of humanactors which the law attributes to the company.51 Those actors need not be confinedto those who hold office under the company's constitution, or to those who are thecompany's "directing mind and will".52 They may include servants or agents.The appropriate rule of attribution depends on the substantive law creating the offence;the question is how was that law intended to apply to a corporate defendant.53 So, forexample, in Linework Ltd v Department of Labour, in which a company wasprosecuted for failing to take reasonably practicable steps to avoid risking itsemployees' safety, it was held that the acts of the supervisor in charge of a worksiteshould be attributed to the company.54 This Court cited R v British Steel Plc, aworkplace safety case in which Steyn LJ, as he then was, held that it would defeat thestatutory objective if the company could avoid criminal liability where the offendingact was committed by someone who was not its directing mind.55[61] The Fair Trading Act is a consumer protection statute which regulates conductin trade. It promotes fair conduct and prohibits certain unfair conduct and practices.Relevantly, s 10 prohibits conduct that is likely to mislead the public as to the nature,manufacturing process, characteristics, suitability for a purpose, or quantity of goods;and s 13(e) prohibits false or misleading representations that goods have (among otherthings) any approval, endorsement or performance characteristics. It is an offence todo these things.56 It is common ground that both the offences of contravening s 1051 Cullen v R [2015] NZSC 73, [2015] 1 NZLR 715 at [35]–[36]. The Sentencing Act 2002 does notmention corporations but the s 2 definition of "person, owner" in the Crimes Act 1961 includes"any board, society or company, and any other body of persons".52 Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 3 NZLR 7 (PC) at14–16.53 At 12.54 Linework Ltd v Department of Labour [2001] 2 NZLR 639 (CA) at [38] and [46]–[47].55 R v British Steel Plc [1995] 1 WLR 1356 (CA) at 1362–1363.56 Fair Trading Act, s 40.and s 13(e) are strict liability offences and that some other offences under the Actrequire mens rea.[62] The Act creates special rules of attribution. In s 45(2) it attributes to a bodycorporate the conduct of any servant or agent acting within the scope of their actual orapparent authority:57(2) Any conduct engaged in on behalf of a body corporate—(a) by a director, servant, or agent of the body corporate, actingwithin the scope of that person's actual or apparent authority;or(b) by any other person at the direction or with the consent oragreement (whether express or implied) of a director, servant,or agent of the body corporate, given within the scope of theactual or apparent authority of the director, servant or agent—shall be deemed, for the purposes of this Act, to have been engaged inalso by the body corporate.[63] Attribution of conduct is also addressed in s 44(1)(c), which creates anaffirmative defence that a contravention of s 40 was due to the act or default of anotherperson and the defendant took reasonable precautions and exercised due diligence toavoid it. For purposes of that defence, another person does not include a director orservant or agent of a corporate defendant.58[64] Attribution of a state of mind is addressed in s 45(1), which provides thatwhere, in proceedings under Part 5 (which includes the offence provision, s 40) inrespect of any conduct engaged in by a body corporate, "it is necessary to establish"the state of mind of the body corporate, it is sufficient to show that a director, servantor agent, acting within the scope of that person's actual or apparent authority, had thatstate of mind:45 Conduct by servants or agents(1) Where, in proceedings under this Part in respect of any conductengaged in by a body corporate, being conduct in relation to whichany of the provisions of this Act applies, it is necessary to establishthe state of mind of the body corporate, it is sufficient to show that a57 Section 45 appears under the subpart headed "Civil proceedings" in the Fair Trading Act but itapplies equally to criminal proceedings.58 Section 44(2).director, servant or agent of the body corporate, acting within thescope of that person's actual or apparent authority, had that state ofmind.(5) A reference in this section to the state of mind of a person includes areference to the knowledge, intention, opinion, belief or purpose ofthe person and the person's reasons for that intention, opinion, beliefor purpose.[65] The statutory language is obviously concerned with attribution to a corporationof the state of mind and conduct of a director, servant or agent.59 The corporatedefendant is liable by reason of its agency relationship with the individual director,employee or agent concerned, so long as that person was acting within the scope oftheir actual or apparent authority.60[66] The extent of the statutory attribution reflects the purpose of consumerprotection. It is not confined to senior management; rather, it extends to the conductor state of mind of any employee or agent whose conduct on behalf of the defendantfirm may mislead consumers. Nor is it confined to actions within that person's actualauthority; it extends to their apparent authority. Apparent authority arises in tradewhere a firm holds out that its employee has authority to make representations as toits goods or services, there is a reasonable basis on which the consumer can assumethis authority exists, and the consumer relies on that authority.61[67] Steel & Tube does not dispute attribution of the Former Employee's conductfor purposes of the offences. It does not contend that the conduct was beyond hisactual or apparent authority. For purposes of the Act his conduct is deemed unders 45(2) "to have been engaged in also" by Steel & Tube.[68] The parties join issue on the question whether it is "necessary" in thisproceeding to establish the state of mind of Steel & Tube so as to permit attribution of59 Poynter v Commerce Commission [2010] NZSC 38, [2010] 3 NZLR 300 at [8]–[9] and [48]–[50].The Court was speaking of s 90 of the Commerce Act 1986, which is in identical terms to s 45.60 We record that we are not here concerned with the question whether the individual is also liableas a principal offender: see Giltrap City Ltd v Commerce Commission [2004] 1 NZLR 608 (CA)at [51]–[56]; and Megavitamin Laboratories (NZ) Ltd v Commerce Commission (1995) 6 TCLR231 (HC).61 See Savill v Chase Holdings (Wellington) Ltd [1989] 1 NZLR 257 (CA); and Pascoe PropertiesLtd v Attorney-General [2014] NZCA 616, [2015] NZAR 457.the Former Employee's state of mind under s 45(1). They agree that these are strictliability offences, for which s 44 permits limited defences of absence of fault; thedefendant may prove reasonable mistake or reasonable reliance on another person whois not an employee or agent acting within the scope of actual or apparent authority.[69] We are satisfied that it is necessary to establish the company's state of mind forsentencing purposes, for four reasons. First, s 45(1) does not specify that attributionis limited to proof of liability. Rather, the subsection applies whenever it is necessaryto establish a body corporate's state of mind in a proceeding under (relevantly) s 40(1),which states that any person who contravenes certain provisions of the Act commitsan offence and is liable on conviction to a fine not exceeding, in the case of a bodycorporate, $600,000. To state the obvious, in a proceeding under s 40 a court mustboth convict the defendant and fix the appropriate penalty.[70] Second, at sentencing a court must consider the applicable sentencingpurposes, principles and factors in ss 7–9 of the Sentencing Act. The state of mind ofthe defendant is an orthodox sentencing consideration for strict liabilityoffences.62 After all, strict liability is designed to encourage those in trade to meet thestandards of care that legislation requires of them.63 A court is always interested in thereasons why those standards were not met. State of mind may inform the court'sassessment of the gravity and culpability of the offending.[71] Third, when sentencing under this legislation courts commonly categoriseconduct as inadvertent, careless or wilful, following the judgment of Tipping J in NoelLeeming.64 This categorisation rests on the defendant's state of mind, which is in issuehere. Mr Heron argued that the Commission had not proved as an aggravating factorthat the Former Employee's conduct was knowing or wilful; on the contrary, thecompany should be sentenced on the basis that it was merely careless. Steel & Tubecannot both argue that a court need not consider its state of mind at sentencing andthat its sentence should be calculated on the premise that it was at worst careless.62 Kiwi Drilling Co Ltd v R (1997) 4 ELRNZ 23 (CA) at 27 citing Machinery Movers Ltd v AucklandRegional Council [1994] 1 NZLR 492 (HC) at 503; and Lane's Appliance Centres Ltd v CommerceCommission (1989) 3 TCLR 374 (HC) at 380.63 Megavitamin Laboratories (NZ) Ltd v Commerce Commission, above n 60, at 252.64 Commerce Commission v Noel Leeming, above n 38, at 5. We have more to say about thiscategorisation at [89] below.If state of mind materially affects sentence, then it is a matter of necessity that theCourt should establish it.65[72] Fourth, necessity is not only a question of law. It may be a question of fact inthe particular proceeding. In this case, it will be apparent that the company's state ofmind is a matter of real significance and real controversy.[73] We add that if s 45(1) did not apply to sentencing for strict liability offences acourt would have to adopt some alternative attribution rule. Ms McGill argued thatnone is necessary, but that cannot be correct so long as the company's state of mind isa relevant consideration at sentencing; its state of mind must be that of some humanagent which is attributed to the company in the circumstances.66 Based on theauthorities, especially Linework Ltd,67 there is no room for an attribution rule thatwould excuse Steel & Tube responsibility for the Former Employee's state of mind.The legislation requires that a corporate defendant should be liable for the conduct ofany employee in the course of whose employment consumers were misled. Even ifs 45 had not covered the field, we would hold that the Former Employee's state ofmind should be attributed to the company on ordinary common law rules of attribution.He was a senior figure whose actual authority extended to production, testing andcertification of the mesh. The company could escape attribution in his case only if a"directing mind and will" rule was adopted. That would be quite contrary to thepurpose of the legislation.[74] For these reasons we accept Mr Dixon QC's submission that it was an error tosentence on the basis that the company did not share the Former Employee's state ofmind but rather was a victim of his conduct.[75] All of that said, liability is binary — a defendant is guilty or not — butculpability is a sliding scale. The Former Employee was a senior employee, but it was65 It is arguable that a corporation is incapable of moral agency and deterrence is the only relevantsentencing purpose; see for example Sylvia Rich "Corporate Criminals and Punishment Theory"(2016) 29(1) Canadian Journal of Law and Jurisprudence 97. But corporations may commitoffences under the Fair Trading Act and the Sentencing Act does not exempt them from itsgenerally deserts-based approach to sentencing.66 Meridian Global Funds Management Asia Ltd v Securities Commission, above n 52, at 12.67 Linework Ltd v Department of Labour, above n 54.the company that was being sentenced and its board and senior management figuresdid not know of his conduct. Their behaviour was of a different kind; they carelesslyfailed to supervise and monitor what he was doing. How far is attribution to extendfor sentencing purposes?[76] The answer lies in s 45(1), which provides that it is "sufficient" to show arelevant director, employee or agent had a given state of mind. The state of mind ofan agent whose misleading conduct is the subject of the charge suffices for sentencingpurposes, but that person need not be the only agent whose conduct and state of mindmay influence sentencing. The court may inquire further. State of mind may matterat two points in time; when the offence was committed and at sentencing. So far asthe offence date is concerned, senior management's complicity in, or ignorance of, anemployee's actions may aggravate or mitigate culpability, depending on thecircumstances. At sentencing, where senior management invariably speaks for acorporate defendant, the court is interested in co-operation with the authorities,assumption of responsibility, and commitment to future compliance.[77] We accept that the strict liability character of the offences affects sentencingprocesses. A court must take as proved any facts essential to proof of liability, butmens rea (let alone any specific intent) is not an essential element of these offences.The court may rely on any facts proved at trial or upon which the parties agree. It maydraw appropriate inferences from facts proved or agreed.68 Otherwise facts that havea material bearing on sentence are characterised as aggravating or mitigating, with theburden and standard of proof being distributed between the parties accordingly unders 24. To this extent we respectfully agree with Duffy J.[78] We part company with the Judge in that we consider carelessness should notbe treated as a default state of mind, with inadvertence and knowing breachcharacterised as mitigating or aggravating facts. The circumstances of the particularcase determine whether facts are material and have the effect of aggravating ormitigating the sentence.68 R v Kinghorn [2014] NZCA 168 at [20]–[21], citing Caswell v Powell Duffryn AssociatedCollieries Ltd [1940] AC 152 (HL) at 169–170 per Wright LJ; and Pokai v R [2014] NZCA 356at [30]–[31].Sentencing practice in Fair Trading Act penalty casesThe maximum fine[79] We begin by noting that the maximum penalty for a single offence by a bodycorporate is a fine of $600,000.69 That is the result of legislative amendments enactedin 2014 as part of an updating of consumer laws.70 The maximum fine was trebled,seemingly not because existing fines had proved inadequate but to better align thelegislation with Australian consumer laws.71Limited statutory provision for totality[80] Section 40(2) of the Fair Trading Act provides that where a person is convictedin respect of two or more contraventions of the same provisions and the contraventionsare of the same or substantially similar nature and occurred at or about the same time,the aggregate fine may not exceed the maximum for a single offence. Judge Cathcartfound that this provision did not apply because "Steel and Tube's offending occurredover a period of four years and involved differing conduct",72 and no issue was takenwith that on appeal in the High Court or before us. It could not be said that all of theoffending occurred at or about the same time. It is nonetheless worth pausing over thesubsection, partly because the bands adopted by Duffy J were based on percentages ofthe maximum fine per charge laid, partly because the parties join issue on the Judge'sallowance for totality, and partly because the subsection has something to say aboutlegislative policy.[81] Section 40(2) can be traced to the Swanson Report, which led to acorresponding provision in the Australian Trade Practices Act 1974.73 The concernwas that "a single advertising theme would, if used in a nation-wide, multi-mediacampaign, result in the commission of a large number of offences within very fewdays".74 The Trade Practices Act Review Committee explained that:69 Fair Trading Act, s 40(1)(b).70 Fair Trading Amendment Act 2013, s 27.71 (11 December 2012) 686 NZPD 7410.72 District Court decision, above n 2, at [136].73 Trade Practices Act Review Committee Report to the Minister for Business and Consumer Affairs(Australian Government Publishing Service, Canberra, 1976).74 At 9.136.9.137 The Committee is concerned about the possible magnitude of thepenal liability that advertisers may incur in respect of essentially similaradvertisements, placed respectively in newspapers or on radio or television, inthe framework of a single advertising campaign lasting no longer than twomonths. By 'essentially similar advertisements' we mean advertisementswhere the substance of the conduct differs only as to the names, addresses ortelephone numbers of persons from whom the goods or services are available,or by whom the goods or services are made, the date of publication, thepublisher, the colour or size of the advertisement, the advertised prices or theperiod during which the advertised goods or services are available.[82] It will be seen that the prohibition on fines for multiple offences exceeding themaximum for a single offence was to be tightly circumscribed; to qualify, the offencesmust be essentially similar and must be committed over a reasonably short period.The Committee was concerned that the imposition of criminal penalties would causeserious difficulties for advertisers. The same point was made by New Zealand officialscommenting on submissions that recommended deleting s 40(2) from the Fair TradingBill 1985.75 The more general point to emerge from s 40(2) is that the legislaturerecognised that breaches of the Act may take the form of repeated and essentiallyidentical offences which should be sentenced, in qualifying cases, as if they were asingle offence. We return to this point when discussing totality under the SentencingAct at [150] below.Number of charges and the aggregate maximum penalty in this case[83] In this case there are three distinct representations and each covers a continuousperiod of four years (during which the maximum penalty was increased).Six representative charges might have covered the conduct and the period.76 In theabsence of any information to the contrary we will assume that the Commissionfollowed its own guidelines, which state that the nature and number of charges shouldadequately reflect the criminality of the defendant's conduct as disclosed by the factsalleged.77 Put another way, the aggregate maximum fine for the 24 charges in this case75 Fair Trading Bill 1985 (149–2), cl 34(2). Department of Trade and Industry Report (Report to theCommerce and Marketing Select Committee, CM/86/112 D4). See submissions from theNew Zealand Association of Citizens Advice Bureaux Inc at [2.5.2], Dunedin Community LawCentre, New Zealand Federation of Labour at [16] and [17], New Zealand Retailers' FederationInc at [21], and Poverty Action Link at [6.3].76 The three distinct representations are: the compliance representations, the independent testingrepresentations, and the Holmes representations. Two charges could be laid for each to reflect theincrease in maximum penalty during the period of offending.77 Commerce Commission Criminal Prosecution Guidelines (October 2013) at [29].— $9.2 million — is a function of a prosecutorial assessment of Steel & Tube'sculpability.[84] We do not criticise the decision to lay so many charges, and we have noted thatthe Commission claims that Steel & Tube's gain far exceeds the maximum for any onecharge. We do observe that in cases where a course of conduct has led to multipleidentical charges a court should be conscious of a risk that the aggregate maximumfine will have a framing effect on the starting point. If in such a case the court sets thestarting point for each charge separately it is very likely that a substantial totalityadjustment will be required, as Duffy J did here.78A brief survey of sentencing practice[85] Fair Trading Act sentencing practice has developed in the District Court, whichhas much exposure to such cases, and to a lesser extent in the High Court on appeal.It appears that no sentencing appeals have previously reached this Court.[86] For present purposes we may begin with Commerce Commission v L D Nathan& Co Ltd,79 in which Greig J adopted the following list of relevant considerations fromAustralian case law:80 the objectives of the Act; the importance of the untruestatement which was made or published; the degree of culpability, in the context ofwilfulness or carelessness, which will generally involve a consideration of thecircumstances in which the statement was made or published; the extent to which thestatement departed from the truth; the extent of its dissemination; the extent ofprejudice or harm (if any) to consumers or other traders which resulted from thestatement; whether any efforts have been made to correct the statement; and theimportance of deterrence.[87] In Commerce Commission v Ticketek New Zealand Ltd, a sentencing decisionfor misleading representations in breach of s 13(i) of the Act, Judge Abbott surveyedthe authorities and added the following relevant considerations to the above list:8178 High Court decision, above n 3, at [119].79 Commerce Commission v L D Nathan & Co Ltd [1990] 2 NZLR 160 (HC) at 165.80 Drawn from the judgment of French J in Gardam v Splendid Enterprises Pty Ltd (1987) 9 ATPR48,495 (FCA) at 48,502.81 Commerce Commission v Ticketek New Zealand Ltd, above n 13, at [47].the attitude of the offender in respect of remorse, co-operation with the authorities,and remedial action, in particular in respect of correction; the financial circumstancesof the offender; any guilty plea(s); the previous record of the offender; the effect ofany publicity regarding the prosecution and/or the defendant's activities; where thereare two or more defendants, the relationship between them and the respectiveculpability of each of them (which is of course not a factor in the present case); andwhere there are two or more charges, the totality principle.[88] These cases offer a helpful checklist of considerations that may arise in anygiven case, but the list is not exhaustive, and in any given case some of the listedconsiderations may not arise or may require closer analysis. Notably, the judgment ofMoore J in Budget Loans Ltd v Commerce Commission contains a useful list ofconsiderations that are likely to matter in cases involving calculated manipulation ofvulnerable consumers.82[89] The authorities do not address sentencing levels, which have received littleattention in appellate courts. In Noel Leeming, Tipping J offered the ascending orderof seriousness that we have already mentioned: inadvertent, careless or wilful.83This categorisation has been adopted in a number of sentencing decisions.84 We agreethat courts should distinguish between inadvertent and careless conduct, and "wilful"or "deliberate" is not over-inclusive so long as it is taken to mean that the offender hadthe specific intent to mislead or deceive in the relevant respect. (As will be seen, thislast point leads us to characterise the Former Employee's conduct in this casedifferently from the courts below.) However, this categorisation rests on the offender'sstate of mind to the potential exclusion of other factors. For that reason, we think itwas an error to base sentencing bands or guidelines on it.82 Budget Loans Ltd v Commerce Commission [2018] NZHC 3442 at [71].83 Commerce Commission v Noel Leeming Ltd, above n 38, at 5.84 The term "wilful" is often used interchangeably with "deliberate". See Commerce Commission vClark's Organic Butchery Ltd DC Waitakere, 25 May 2006 at [63]–[70]; Commerce Commissionv Weedons Poultry Farm Ltd DC Christchurch CRN 1009004163, 15 March 2001 at 4; andCommerce Commission v Sports Resources Ltd DC Auckland CRN 600045004417-20, 23 April2007 at [36]. See also Premium Alpaca Ltd v Commerce Commission [2014] NZHC 1836 at [75]citing the earlier decision of Tipping J in Megavitamin Laboratories (NZ) Ltd v CommerceCommission, above n 60, at 252.Synthesis[90] The cases recognise that sentencing should begin with the objects ofthe Fair Trading Act, which pursues a trading environment in which consumerinterests are protected, businesses compete effectively, and consumers and businessesparticipate confidently.85 To those ends it promotes fair conduct in trade and the safetyof goods and services and prohibits certain unfair conduct and practices.[91] Customary sentencing methodology applies. Factors affecting seriousness andculpability of the offending may include: the nature of the good or service and the useto which it is put; the importance, falsity and dissemination of the untrue statement;the extent and duration of any trading relying on it; whether the offending was isolatedor systematic; the state of mind of any servants or agents whose conduct is attributedto the defendant; the seniority of those people; any compliance systems and cultureand the reasons why they failed; any harm done to consumers and other traders; andany commercial gain or benefit to the defendant.[92] Factors affecting the circumstances of the offender include: any past history ofinfringement; guilty pleas; co-operation with the authorities; any compensation orreparation paid; commitment to future compliance and any steps taken to ensure it.The court may also make some allowance for other tangible consequences of theoffending that the defendant may face. By tangible we mean to exclude publicopprobrium that is an ordinary consequence of conviction;86 publicity ordinarilyserves sentencing purposes of denunciation and accountability. The defendant'sfinancial resources may justify reducing or increasing the fine.87 Of course any othersentencing considerations applicable, such as totality and the treatment of likeoffenders, will also be taken into account.[93] This catalogue of considerations is derived from the legislation and the cases.It is not exhaustive, nor is it mandatory. We offer it for several reasons. It seeks tomake clear that the offender's state of mind is just one of a number of culpabilityfactors, albeit important. It treats state of mind as a question of fact and degree.85 Fair Trading Act, s 1A.86 See for example Commerce Commission v Noel Leeming Ltd, above n 38, at 7.87 See [148] below.It recognises that the starting point should reflect not only the conduct and state ofmind of those employees or agents responsible for the contravention but also theirseniority and the existence and effectiveness of any compliance systems and culture,which are usually attributable to senior management. It includes the extent of anycommercial gain or benefit and the defendant's size or financial capacity, as one wouldexpect for offending in a commercial setting. Finally, it is organised according tocircumstances of the offence and the offender, consistent with modern sentencingmethodology.[94] It is necessary to say something more about gain and financial capacity in thiscontext.Commercial gain[95] The Fair Trading Act does not provide that fines should eliminate commercialgain from the offending. By contrast, the Act does provide in s 40A for an additionalpenalty for offences against s 24, which prohibits pyramid selling. A court may ordera convicted defendant to pay a fine plus the value of any commercial gain resultingfrom a contravention that occurred when producing a commercial gain. The civilstandard of proof applies.[96] Nonetheless, courts have long accepted that gain is a relevant consideration atsentencing for offending under the Fair Trading Act generally. Gain may affect thecourt's assessment of the offending's gravity and culpability,88 and it is also likely tocorrespond to the extent of any economic loss, damage or harm to victims of theoffending.89 To achieve deterrence, which is one of the purposes of sentencing, asentence should address incentives to offend; to that end, courts have held that it maybe necessary to set fines at a level that eliminates commercial gain.9088 Sentencing Act, s 8(a).89 Section 9(1)(d).90 See Lane's Appliance Centres Ltd v Commerce Commission, above n 62, at 381; CommerceCommission v Weedons Poultry Farm Ltd, above n 84; Commerce Commission v Clark's OrganicButchery Ltd, above n 84; and Commerce Commission v Sports Resources Ltd, above n 84, at [63].[97] That brings us to the measurement of gain. The cases do not have much to sayabout it.91 We approach the topic by emphasising that the object of the measurementexercise must be kept clearly in mind. The court is interested in identifying gain thatis attributable to the wrongful conduct.[98] Gain may vary according to the nature and circumstances of the offence.In cases where the quality of goods or services has been misrepresented, theappropriate measure of gain may be the offender's revenue attributable to theoffending conduct. By way of illustration, in a case in which battery-farmed eggs werepassed off as free-range the offender's marginal revenue was $1.75 per dozen, beingthe difference between the price of the two products.92 The only additional costsincurred by the offender were those of falsely labelling or marketing the eggs, forwhich no allowance was made (or could be made as a matter of sentencing policy).Judge Kean described the gain as "super profit", meaning as we understand it that themarginal revenue was gained at no cost.[99] In other circumstances a court may find that an estimate of gain shouldincorporate relevant expenses of the business. In Lane's Appliance Centres Ltd vCommerce Commission Tipping J assumed that the firm's net profit was an appropriatemeasure of gain:93I have borne in mind the means and specifically the turnover and net profit ofthe appellant in coming to the view that the total penalty cannot be describedas clearly excessive.[100] The Judge presumably had it in mind that in a commercial setting a penaltywill sufficiently deter if it eliminates the offender's profit. We accept that as a generalproposition (while respectfully doubting whether profit was the correct measure ofgain in that case — the company falsely represented that goods cost the consumer lessthan they actually did, so its gain was the difference in price). But again the object ofthe exercise must be kept in mind. "Net profit" may permit an accounting approach91 We have considered pecuniary penalty cases under the Commerce Act, but they are of littleassistance, perhaps because the assessment gain in that setting usually depends on a counterfactualthat is hypothetical in nature: Telecom Corporation of New Zealand Ltd v Commerce Commission[2012] NZCA 344 at [43].92 Commerce Commission v Weedons Poultry Farm Ltd, above n 84.93 Lane's Appliance Centres Ltd v Commerce Commission, above n 62, at 381.that incorporates revenues and expenses of a business having no direct connection tothe offence. That may needlessly enlarge the court's inquiry and result in anunderestimate of gain.[101] In practice courts do not usually engage in close analysis of gain, which doesnot set an upper or lower limit for fines. Other information, such as advertising data,sales volumes or revenue may sufficiently inform the court about the scale andseriousness of the offending. Deterrence is only one consideration at sentencing, andits requirements in any given case are a matter of judgement rather than calculation.To the extent that a court thinks it necessary or appropriate to estimate gain, a courtmay find that proved revenue attributable to the offending conduct is an adequatemeasure. In such a case, defendants may be able to discharge an evidential burden ofshowing that an allowance ought to be made for expenses associated with theoffending goods or services. For reasons developed at [123] below, we consider thatan allowance for marginal costs of producing SE62 mesh would be appropriate in thiscase.The offender's financial capacity[102] The Sentencing Act provides in s 40 that when determining the amount of afine the court must take into account the financial capacity of the offender, whetherthe effect is to reduce or increase the amount of the fine. Few authorities address thesection. Most of those cited in the leading texts predate the Act.94[103] A wealthy defendant's means cannot be characterised as an aggravating factorin themselves. Rather, they may justify increasing a fine to ensure it serves its purpose.In Schnellinger v R this Court said of a wealthy defendant ordered to pay a heavy finethat it was appropriate to have regard to her means to ensure the fine did have theeffect of punishing her.95 It has been held that a fine should "sting" from the offender's94 See GG Hall (ed) Hall's Sentencing (online ed, LexisNexis) at [SA40]. Pecuniary penalty casesunder the Commerce Act address size, notably Telecom Corporation of New Zealand Ltd vCommerce Commission [2012] NZCA 344, but we do not rely on them. The Sentencing Act doesnot govern pecuniary penalties and size matters partly because of a correlation with market power.95 Schnellinger v R CA223/82, 18 May 1983.perspective,96 and also serve as a personal deterrent.97 In Sentencing Act terms, anincrease under s 40 may serve purposes of accountability, denunciation and deterrence.[104] It has been suggested that a fine might be increased under s 40 having regardto unaccounted-for proceeds of the offending.98 We prefer the view that commercialgain is an aggravating feature of the offending, so should be taken into account whensetting the starting point.[105] The fine should retain proportionality to the offending. For that reason, it isgood practice to determine the amount that would be payable but for the offender'smeans, then adjust down or up as appropriate.99 This is appropriately done at thesecond stage of the sentencing analysis. As always, having calculated the end sentencethe judge must step back and inquire whether it is correct in all the circumstances.The appropriate sentence in this case[106] This is not a guideline judgment. We will not attempt to establish sentencingbands (and those proposed by Duffy J should not be used). But because this appearsto be the first sentencing appeal under the Fair Trading Act to reach this Court, thejudgment will inevitably be looked to by sentencing judges.100 For that reason we willassess the appropriate sentence ourselves, then consider whether the sentencesubstituted in the High Court was manifestly excessive or inadequate.96 Djou v Commonwealth Department of Fisheries [2004] WASCA 282, (2004) 150 A Crim R 255at [23] citing Sgroiv v R (1989) 40 A Crim R 197 (WASCA) at 200–201.97 Affco New Zealand Ltd v Muir (Department of Labour) (2008) 6 NZELR 281 (HC) at [34].98 Wynotts v Commerce Commission HC Auckland AP80/92, 13 July 1992.99 See R v Jerome [2001] 1 Cr App R (S) 316 (EWCA Crim) at 318.100 The Court has dealt with civil pecuniary penalties imposed under the Commerce Act but thoseauthorities, while instructive, are not squarely applicable to criminal offending under the FairTrading Act. See Carter Holt Harvey Building Products Group Ltd v Commerce Commission(2001) 10 TCLR 247 (CA); Giltrap City Ltd v Commerce Commission, above n 60; and Kuehne+ Nagel International AG v Commerce Commission [2012] NZCA 221, [2012] 3 NZLR 187.See also Commerce Commission v Ophthalmological Society of New Zealand Inc [2004] 3 NZLR689 (HC); and Commerce Commission v Telecom Corporation of New Zealand Ltd [2011]NZCCLR 19 (HC).Circumstances of the offendingNature and use of the product[107] SE62 mesh is a widely used and long-life product the safety of which mattersgreatly to consumers. The structural integrity of their buildings may depend on it inthe foreseeable event of an earthquake. It is a product that consumers cannot readilyevaluate for themselves. The Standard was created accordingly to ensure thatearthquake grade steel would perform to expectations. Steel & Tube appreciated allof this. In its marketing material the company emphasised compliance, stating forexample that the mesh was "made to New Zealand standards", "NZ Building CodeCompliant" and "seismic rated".Extent to which the false statements were misleading[108] Compliance with the Standard is mandatory for mesh used in certainapplications. The compliance and independent testing representations wereaccordingly very important. They were also widely disseminated; they were made notonly in marketing materials but also in batch tags on some 480,000 sheets of mesh.[109] However, it cannot be said that the mesh failed to comply for want of thenecessary chemical, mechanical and dimensional properties. It was designed toperform to the Standard's specifications. It failed because Steel & Tube did not followthe prescribed sampling and testing requirements, but rather adopted alternativetesting practices. The independent testing representations were highly misleading.Extent, duration and systematic nature of the offending[110] The offending was systematic; the Former Employee adopted his own testingprocesses and implemented them (with variations) at both company facilities.As Mr Dixon submitted, Steel & Tube placed much emphasis on compliance in itsmarketing material. The offending continued for four years and, as just noted, itoccurred on a large scale.The company's state of mind[111] The Former Employee was not part of the company's senior management team,but he was senior in status, entrusted with the development and production, and tosome extent, the marketing of the mesh.[112] We have explained that the courts below held the Former Employee's state ofmind should not be attributed to Steel & Tube for sentencing purposes.They sentenced the company on the basis that the conduct of its senior managementwas "grossly negligent" (Judge Cathcart) or "gross[ly] careless[] by omission"(Duffy J).101 We have taken a different view, holding that the Former Employee'sstate of mind is appropriately attributed to the company. The parties join issue aboutwhat his state of mind was at the time.[113] Helpfully, the courts below did address the point. Judge Cathcart accepted thatsome of the misconduct was deliberate. The Judge drew an inference that the FormerEmployee chose to allow dissemination of the independent testingmisrepresentation.102 He found that decisions to depart from the requirements of theStandard were also deliberate; the Former Employee thought his alternative methodswere better or equivalent and more efficient. Duffy J found that the Former Employeeengaged in deliberate misconduct.103 The Commission invited us to reach the sameconclusions.[114] We agree that the Former Employee chose not to comply with the Standard'stesting requirements. He considered that ageing had negligible impact and delayedproduction and he believed his methods for measuring elongation were superior.Lacking statistical training, he chose not to record failed tests, used his own methodfor retesting, and did not undertake long-term testing.[115] The compliance failures were accordingly intentional, but as we haveexplained above offending should be considered "wilful" or "deliberate" when theoffender acted with a specific intent to mislead or deceive in the relevant respect.101 District Court decision, above n 2, at [93]; and High Court decision, above n 3, at [93].102 District Court decision, above n 2, at [98].103 High Court decision, above n 3, at [68] and [93].We do not think the Former Employee did that. He believed rather that the meshcomplied with the Standard's chemical, mechanical and dimensional specifications. Ithad been engineered and produced to do so. The compliance failures are explained byhis belief that his testing processes were equivalent or superior to those prescribed bythe Standard. Contrary to the Commission's submissions, he was not trying to passnon-seismic mesh off as earthquake grade. There are indications in the summary offacts that to some degree the Former Employee was trying to control costs ofproduction or testing, but that purpose did not extend to producing mesh of lowerquality than the Standard requires and the Commission does not allege that he actedfor commercial gain. These considerations distinguish this case from those in whicha trader knowingly passed its product off as something else104 or deliberately dupedconsumers about their rights.105[116] The independent testing representations are a different matter. We agree withJudge Cathcart that the Former Employee's explanation for using the Holmes logo onbatch test certificates cannot be accepted and we consider the inference is almostinescapable that his decision to use the logo in that way, on batch testing certificatespurportedly signed off by a laboratory manager, amounted to a knowingmisrepresentation that Holmes had tested batches to which the certificates wereattached.106 Other representations the steel was "independently tested and certified"were clearly false and amounted to knowing misrepresentation.Compliance culture and systems[117] As noted, it is common ground that the company's board and seniormanagement did not know of the offending. That lack of knowledge could mitigatethe company's culpability if the offending had happened notwithstanding appropriategovernance processes and systems. In fact it happened and persisted over timebecause the Former Employee was not supervised and his work was not audited.Good compliance processes were essential given the nature and use of the product.Their absence, in a company of Steel & Tube's size, was inexcusable. Counsel couldnot resist the lower courts' characterisation of these omissions as grossly careless.104 For example see Commerce Commission v Weedons Poultry Farm Ltd, above n 84.105 For example see Budget Loans Ltd v Commerce Commission, above n 82.106 District Court decision, above n 2, at [59].It follows that Steel & Tube cannot mitigate its culpability by pointing to its guidingminds' ignorance of the offending.Impact on consumers and other traders[118] We accept the Commission's argument that consumers who bought the meshhave been left in some degree of uncertainty about its properties. This could be animportant consideration, but it does not appear to be so in the particular circumstancesof this case. The company maintains that the mesh meets the Standard's performancespecifications, and on the evidence before us it may well do so. There is no evidenceof any loss to owners whose buildings contain the non-compliant mesh.107[119] There is no indication that other suppliers of building mesh were victims ofSteel & Tube's conduct. Several of them have been prosecuted by the Commissionfor misrepresentations about compliance with the Standard. The cases are relied onfor comparison purposes, and we mention them at [135] below.Extent of any commercial gain or benefit from the offending[120] The Commission estimates Steel & Tube's unlawful gain at approximately$4 million, representing the difference in price between SE62 mesh and non-seismicmesh sold in the relevant period. Its reasoning is that the mesh could not be sold ascompliant; and that being so, the price of non-seismic mesh is the proper comparator.It characterises the sum of $4 million as "super profit". Mr Dixon argued that gain isthe dominant sentencing consideration in this case.[121] We accept that SE62 small mesh was sold for $51.74 per sheet, rather thansome lesser figure, because it was said to comply with the Standard. It is a reasonableinference that its market price would be close to that of non-seismic mesh given thatit could not be used in some building applications.[122] However, we are not prepared to treat the difference between the prices ofseismic and non-seismic mesh as the company's gain. It was not "super profit".107 Reparation has not been sought. We were told that the Commission does not know who ended upwith the mesh.The company was not passing off standard mesh, a different product, as seismic mesh.It was attempting to comply with the Standard. On the summary of facts, SE62 meshis not materially more likely to fail than the product it was represented to be.[123] How is gain to be assessed in these circumstances? We would be prepared tooffset the company's marginal revenue by making some allowance for costs that weredirectly incurred in producing SE62 mesh and would not have been incurred in theproduction of non-seismic mesh. We infer that the production costs of SE62 mesh arehigher than those of non-seismic mesh, if only because the steel is of higher quality.[124] The summary of facts contains no information that might allow us to quantifythose costs. Mr Heron submitted that the company's profit margins are slender — itstotal after-tax profit in 2016 was $25.8 million on revenues of $515.9 million — butthat is not a measure of the marginal costs of producing SE62 mesh. However, werecognise the case was dealt with below on a simpler basis, consistent with existingauthority, so the absence of such information should not be held against Steel & Tubein the circumstances.[125] In the result, we are unable to estimate gain attributable to the offending.All that can be said is that it is less than $4 million, and perhaps much less.The starting pointThe parties' positions[126] Mr Heron submits that the fines imposed on Steel & Tube should properly sitsomewhere between $540,000 and $1,080,000, those figures representing the finesimposed in Commerce Commission v Brilliance International Ltd and CommerceCommission v Reckitt Benckiser (New Zealand) Ltd, which we discuss below.108That suggests a starting point of about $800,000 to $1,650,000. The Commissioncontends for an adjusted starting point of between $4 million and $4.5 million, ratherthan the $3.8 million actually adopted in the High Court. It would assign about75 per cent of that to the compliance representations and the balance to the108 Commerce Commission v Brilliance International Ltd, above n 27; and Commerce Commission vReckitt Benckiser (New Zealand) Ltd [2017] NZDC 1956.independent testing representations. Both parties seek support for their positions incomparable cases.Comparable cases generally[127] We make two introductory points about the cases cited. First, the maximumpenalty increased in 2003 (from $100,000 to $200,000) and in 2014 (to $600,000).Second, in some of the cases the sentencing court endorsed a negotiated penalty, whichdetracts from the authority of those decisions. Absent contradictors a court may notbe well placed to assess the appropriate penalty for itself.109Building timber: Commerce Commission v Carter Holt Harvey and R v Reid[128] These cases, which the Commission contends are the most relevant examples,concerned timber used in construction. The timber was graded for its structuralproperties using a machine stress technique. Australian and New Zealand Standardsset minimum properties that each grade of timber must meet. Carter Holt Harvey, alarge company, sold timber which was labelled as compliant but most of it was not.These were not testing failures; the timber did not meet the performance requirementsof the relevant Standards. Dissemination of the misrepresentations was very extensiveand the offending covered a three-year period. On investigation, it was found thatCarter Holt managers had known for some time that it was marketing and sellingnon-compliant timber. The company made no attempt to alert the market to the factthat the standard was not being met. It appears that over the three-year period CarterHolt reported $177 million in net sales revenue from timber sold as compliant.110The parties agreed that a fine of $45,000 should be imposed on each of 20 charges;that is a total of $900,000.111 (The Commission based its proposed starting point inthis case on that figure, allowing for increases in the maximum penalty.) Mr Reid,who was the general manager of the wood products division, was also prosecuted, butwas sentenced some months later.112 It appears from Judge Bouchier's sentencing109 Chris Noonan "Of Arsenic, Antitrust and Agreed Penalties for Price Fixing" (2006) 12 NZBLQ253 at 264–267.110 This figure does not appear in the Carter Holt Harvey sentencing decision but it is contained inthe summary of facts appended to the decision and appears to have been accepted by the Judge.111 Commerce Commission v Carter Holt Harvey, above n 25, at [15].112 R v Reid DC Auckland CRI-2007-004-5790, 5 April 2007.decision in Mr Reid's case that the Commission alleged the offending was deliberatebut that was disputed and no clear findings were made.113Pain medication: Commerce Commission v Reckitt Benckiser (New Zealand) Ltd[129] A manufacturer passed off versions of its standard product, Nurofen, assuperior by representing that they were formulated to target various specific pains.Judge Jelas described the conduct as grossly misleading.114 Gain was estimated onwhat appears to be a "super profit" basis, at more than $1 million.115 The offendingcontinued over a five-year period ending in December 2015 and some of the chargeswere subject to the $600,000 maximum fine. The company persisted despite being onnotice that its representations were potentially misleading and despite having beendirected by Australian authorities to withdraw the same misleading packaging in thatjurisdiction.116 The penalty of $1,080,000 (from a starting point of about $1.6 million)was largely negotiated.117Deer velvet: Commerce Commission v Gate Solutions Ltd[130] This 2020 case concerned deer velvet supplements sold for their alleged healthbenefits. The capsules contained less velvet than was described on product labels andwere topped up with a filler. The offending was large scale — more than 11 millioncapsules were affected — and Judge Phillips found that the defendant knew the claimswere false but did not deliberately deceive or mislead.118 The company had instructedits suppliers to produce products containing less deer velvet than was stated on thelabels. It pleaded guilty but did not cooperate with the Commission and the penaltywas fixed only after a lengthy disputed facts hearing.119 It was fined $194,400, but thestarting point was fixed using the bands adopted by Duffy J in this case.120113 At [37].114 Commerce Commission v Reckitt Benckiser (New Zealand) Ltd, above n 108, at [21].115 At [33].116 At [36].117 At [54]–[55].118 Commerce Commission v Gate Solutions Ltd [2020] NZDC 10193 at [95].119 At [370]–[372].120 At [366]–[367].Heat pumps: Commerce Commission v Fujitsu General New Zealand Ltd[131] Counsel did not focus on this 2017 case but we mention it because it involveda major business that made, via television and other advertising, verywidely-disseminated representations about the quality of its product. Fujitsu claimedthat its heat pumps were more energy-efficient than those of its rivals and also claimedthat tests proved this. These claims were unsubstantiated. The company compliedimmediately when challenged.121 It was found to be careless.122 Judge Mill could notquantify gain but appeared to accept it was not determinative in thesecircumstances.123 The starting point was $510,000.124Bicycles: Commerce Commission v Bike Retail Group Ltd[132] In this 2017 case the defendant had engaged in a very extensive marketingcampaign in which it falsely represented the normal price of its bicycles over atwo-year period, claiming that advertised stock was being sold at half price or asclearance stock. The offending was calculated. Judge D J Sharp was satisfied that thecampaign increased the defendant's turnover and noted that it poured $2 million perannum into advertising, but he was not able to estimate its profit.125 A starting pointof $1.2 million was adopted.126Consumer credit: Budget Loans Ltd v Commerce Commission[133] We have already mentioned this 2018 case. It involved especially egregiousoffending, in which the defendant cynically misrepresented to vulnerable consumersits rights to repossess their property and to charge additional sums. The companyfaced 125 charges and the maximum fine at the time was $200,000. The starting pointadopted was $800,000.127 A fine of $720,000 was upheld on appeal.128121 Commerce Commission v Fujitsu General New Zealand Ltd [2017] NZDC 21512 at [51].122 At [75].123 At [58].124 At [81].125 Commerce Commission v Bike Retail Group Ltd [2017] NZDC 2670 at [10]–[11].126 At [15].127 Budget Loans Ltd v Commerce Commission, above n 82, at [35].128 At [2] and [94].Billing beyond termination: Commerce Commission v Spark New Zealand TradingLtd, Commerce Commission v Vodafone New Zealand Ltd and Commerce Commissionv CallPlus Services Ltd[134] In each of these cases the Commission prosecuted large telephone companiesfor billing customers for services after a relevant termination period had ended.In Spark, a $675,000 fine was imposed for conduct that continued for three and a halfyears and resulted in customers overpaying approximately $6.5 million.129In Vodafone, a $350,000 fine was imposed for conduct that continued for almost sevenyears and resulted in overpayments of $285,359.130 In Callplus, a $121,500 fine wasimposed for conduct that continued for more than six years and resulted in overpayments of $132,578.131 In the Vodafone and Callplus cases, staff were aware thatbilling beyond termination issues existed but protocols for making manual adjustmentswere not consistently used.The other steel mesh cases: Commerce Commission v Timber King Ltd, CommerceCommission v Brilliance International Ltd, and Commerce Commission v EuroCorporation Ltd[135] There are three other steel mesh cases arising from the same Commissioninvestigation that revealed Steel & Tube's offending. The cases are Timber KingLtd,132 Brilliance International Ltd133 and Euro Corporation Ltd.134[136] Timber King faced five charges covering the period from June 2015 untilFebruary 2016. It represented that the mesh was 500E grade and compliant with theStandard, when it did not comply and had not been tested and sampled as the Standardrequired. The performance of the mesh was seriously substandard. It wasmanufactured and tested overseas, and the defendants said that they had relied heavilyon the mesh producer. On one occasion, however, the defendants falsely represented,using a forged certificate, that mesh had been tested by a New Zealand agency.The offending was on a small scale; about 2600 sheets of mesh were sold.The defendants pleaded impecuniosity. Judge Ronayne adopted the Commission's129 Commerce Commission v Spark New Zealand Trading Ltd [2019] NZDC 7801.130 Commerce Commission v Vodafone New Zealand Ltd [2019] NZDC 15705.131 Commerce Commission v Callplus Services Ltd [2020] NZDC 2655.132 Commerce Commission v Timber King Ltd, above n 27.133 Commerce Commission v Brilliance International Ltd, above n 27.134 Commerce Commission v Euro Corporation Ltd [2020] NZDC 13297.suggested starting point of $600,000 for most of the conduct and $60,000 for thefraudulent testing representation.135 No allowance was made for totality.136[137] Judge Ronayne also sentenced Brilliance International for similar offendinginvolving imported mesh. In this case, the defendant was heavily involved in settingup the testing processes used by the overseas manufacturer. Its testing processes weresimilar to those of Steel & Tube. However, the mesh was still better quality thannon-seismic mesh. Some of it was independently tested but most was tested by themanufacturer. The defendant was charged with falsely representing that the meshcomplied with the Standard and had been independently tested. These claims werewidely disseminated but the offending was on a moderate scale; the defendant sold upto 56,125 sheets of mesh. The Judge was satisfied that it gained some revenue as aresult of the misrepresentations but it seems no estimate was provided.137 Some of theoffending predated the increase in maximum penalty. The Judge adopted a startingpoint of $600,000 for the compliance representations and $200,000 for the testingrepresentations.138 No allowance was made for totality.139[138] Euro Corporation was the last of these defendants to be sentenced, on 10 July2020. Its conduct covered the period 1 January 2012 to 31 August 2015. It, too, falselyrepresented that its imported mesh complied with the Standard. It had no reasonablebasis for asserting that the mesh met the Standard's performance requirements,although it seems that the mesh did in fact comply, and the mesh had not been testedas the Standard required. The defendant also misrepresented that its mesh had beenindependently tested, although this was the result of an initial oversight that becamecareless over time. The parties agreed on a starting point of approximately $470,000but Judge M-E Sharp, who characterised the offending as careless, fixed it at a lowerfigure, $420,000.140 She declined to find that consumers suffered detriment, noting135 Commerce Commission v Timber King Ltd, above n 27, at [102] and [103].136 At [104].137 Commerce Commission v Brilliance International Ltd, above n 27, at [77].138 At [109] and [114].139 At [115].140 Commerce Commission v Euro Corporation Ltd, above n 134, at [20].the absence of any evidence that the mesh failed to meet the Standard'sspecifications.141 A modest allowance was made for totality.142Conclusion: the global starting point in this case[139] Some of the defendants in the cases cited to us offended in a calculated andhighly deceptive way, intending to profit by misleading consumers. Sometimes theproduct sold was materially different from what it was represented to be or thedefendant persisted after being put on notice of its contraventions. Sometimes theoffending resulted in significant gains for the defendant and corresponding harm toconsumers. These are serious aggravating features which may require a court toconsider s 8(c) of the Sentencing Act and might have justified the starting pointssought by the Commission had they been present in this case. But they were not.To that extent we accept Mr Heron's submission that Steel & Tube's offending wassubstantially less culpable than that of either Reckitt Benckiser or Carter Holt Harvey.[140] What makes Steel & Tube's offending serious is the important use to which theproduct is put, the vital importance of compliance with the Standard, the absence ofany adequate excuse, and the large scale and long duration of the offending.These features must dominate sentencing in its case. It bears repetition that these arestrict liability offences.[141] All the cases are instructive for their diversity of offending and their treatmentof culpability factors, but they were cited principally for the fines imposed and we donot find those very useful, even when allowances are made for changes in themaximum penalty. Every case depends on its particular circumstances, and on ourapproach to the legislation the fines imposed in some of them could have beenmaterially larger. The other steel mesh cases involved very similar offending but thedefendants' culpability varied along with the scale of the offending.[142] We agree with the Commission that the compliance charges are the moreserious charges in this case, notwithstanding that they did not involve intentional141 At [14]–[15].142 At [19].deception. They went to compliance with the Standard (which did not mandateindependent testing). Compliance was critically important for this product havingregard to its intended use and the reliance that would be placed on it. Therepresentations were widespread and a very large quantity of the mesh was sold.[143] Against that, the representations were not intended to mislead or deceive.Steel & Tube believed the mesh did comply and that its testing processes wereequivalent or superior to those of the Standard. The company did not mislead for gain,and we are not able to estimate what gain it actually made. The company respondedby withdrawing the mesh from the market as soon as it was put on notice that its testingprocesses did not comply.[144] The starting point calls for an evaluative judgment against applicablesentencing purposes, principles and factors. We would adopt a global starting point of$1.5 million for the compliance representations if sentencing Steel & Tube at firstinstance. We do not accept that deterrence calls for a higher figure, partly because theoffending was misguided rather than deliberate and partly because we cannot estimatethe company's gain. As noted above, we do not accept the Commission's estimate of$4 million. The substantial starting point reflects the considerations mentioned at[140] and [142], as well as the change in maximum penalty during the period ofoffending. It would be higher but for the considerations mentioned at [143].[145] We agree with the Commission that the independent testing representations aresomewhat less significant than the compliance representations, but they were clearlymade and widely disseminated, and we have accepted that the offending was deliberatealbeit not as culpable as some of the comparable cases. We would adopt a globalstarting point of $900,000 on those charges. That results in an overall starting pointof $2.4 million taking into account all aggravating and mitigating features of theoffending.Circumstances of the companyRemedial action and commitment to future compliance[146] Judge Cathcart accepted that Steel & Tube took significant remedial steps toensure future compliance.143 It engaged independent laboratories to conduct testing;invested in new software to record, store and produce test certificates and monitorlong-term quality data; provided additional training for staff; and hired an additionalquality manager.Guilty pleas and co-operation[147] It is common ground that Steel & Tube co-operated with the Commission, tookremedial action and entered early guilty pleas. The allowance of 35 per cent made byJudge Cathcart is not in dispute.Financial resources[148] As noted at [8] above, Steel & Tube is a large company by New Zealandstandards. There is no doubt that it can afford to pay a fine of $1,560,000.The question is whether it ought to be required to pay more for accountability,denunciation or deterrence reasons. The Commission complains that the courts belownever answered the question whether the fine that would otherwise be imposed wasadequate having regard to the company's means.[149] For this purpose it is appropriate to consider the company's profitability, whichwe have mentioned at [124] above. The substantial fines we would impose are amaterial cost for this company, and we think they sufficiently serve the relevantsentencing purposes. The company's resources do not call for an increase.Totality[150] The Sentencing Act provides that concurrent sentences of imprisonment aregenerally appropriate for offences that are of a similar kind and connected in some143 District Court decision, above n 2, at [144].relevant way.144 Individual sentences must reflect the serious of each offence, butwhere cumulative sentences are imposed they must not result in a total sentence thatis wholly out of proportion to the gravity of the overall offending.145 The totalityprinciple applies to other sentence types, including fines. Section 40(2) does notexclude the totality principle in sentencing under the Fair Trading Act, but ratherprescribes how it is to apply in qualifying cases.[151] The offending in this case was all of the same or very similar kind and veryclosely connected. Cumulative sentences are necessary because the offending wasextensive in scale and duration and the appropriate penalty exceeds the maximumavailable for any single offence. As noted above, it is not in dispute that Steel & Tubeis unable to invoke s 40(2).[152] A totality adjustment may be necessary in such a case if the court has calculatedthe sentence for each offence separately.146 The required totality adjustment could besubstantial, as we have explained at [84] above and as Duffy J correctly recognised.In practice courts do not always sentence in that way. Offending of this type, in whicha course of conduct is the subject of a number of near-identical charges, may besentenced on a global basis, with the resulting penalty being distributed in anappropriate manner among the charges. We accept what we take to be theCommission's underlying point about totality, namely that when a global starting pointhas been set a totality adjustment should not be necessary. On the approach we havetaken, we would not make a totality adjustment here.Overall assessment[153] In the result, we would impose the following global fines if we weresentencing Steel & Tube at first instance: for the compliance representations,$1.5 million, and for the independent testing representations, $900,000.[154] The appellate question is whether the sentence substituted in the High Court ismanifestly excessive. We are satisfied that it was and should be reduced to the sums144 Sentencing Act, s 84(2).145 Section 85.146 Section 85(1).just mentioned. That penalty will be distributed among the charges as a proportion ofthe maximum penalty.Result[155] The appeal of Steel & Tube is allowed, and that of the Commission dismissed.We set aside the fines substituted in the High Court and impose the following fines,totalling $1,560,000:CRN Date Range Offence PenaltyCompliance representations1 17004502002 1 March 2012 to30 June 2012s 10 $44,318.182 17004502000 1 July 2012 to31 October 2012s 10 $44,318.183 17004501999 1 November 2012 to28 February 2013s 10 $44,318.184 17004501998 1 March 2013 to30 June 2013s 10 $44,318.185 17004501997 1 July 2013 to31 October 2013s 10 $44,318.186 17004501996 1 November 2013 to28 February 2014s 10 $44,318.187 17004501995 1 March 2014 to16 June 2014s 10 $44,318.188 17004501994 17 June 2014 to31 October 2014s 10 $132,954.559 17004501993 1 November 2014 to28 February 2015s 10 $132,954.5510 17004501992 1 March 2015 to30 June 2015s 10 $132,954.5511 17004501991 1 July 2015 to31 October 2015s 10 $132,954.5512 17004501990 1 November 2015 to6 April 2016s 10 $132,954.54Holmes representations13 17004501989 1 March 2012 to31 August 2012s 13(e) $24,375.0014 17004501987 1 September 2012 to28 February 2013s 13(e) $24,375.0015 17004501986 1 March 2013 to31 August 2013s 13(e) $24,375.0016 17004501985 1 September 2013 to28 February 2014s 13(e) $24,375.0017 17004501984 1 March 2014 to16 June 2014s 13(e) $24,375.0018 17004501983 17 June 2014 to31 December 2014s 13(e) $73,125.0019 17004501982 1 January 2015 to30 June 2015s 13(e) $73,125.0020 17004501981 1 July 2015 to13 December 2015s 13(e) $73,125.0021 17004502008 1 January 2016 to6 April 2016s 13(e) $73,125.00Independent testing and certification representations22 17004502011 20 May 2013 to16 June 2014s 13(e) $24,375.0023 17004502010 17 June 2014 to16 May 2015s 13(e) $73,125.0024 17004502009 17 May 2015 to6 April 2016s 13(e) $73,125.00Total $1,560,000Solicitors:Meredith Connell, Auckland for Commerce CommissionMatthews Law, Auckland for Steel & Tube Holdings Ltd