THE CHIEF EXECUTIVE OF LAND INFORMATION NEW ZEALAND v BCH INVESTMENTS LIMITED [2019] NZHC 1630

THE CHIEF EXECUTIVE OF LAND INFORMATION NEW ZEALAND v BCH INVESTMENTS LIMITED[2019] NZHC 1630 [12 July 2018]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2017-404-198[2019] NZHC 1630BETWEEN THE CHIEF EXECUTIVE OF LANDINFORMATION NEW ZEALANDPlaintiffAND BCH INVESTMENTS LIMITEDDefendantHearing: 8 July 2019Appearances: F J Cuncannon and M L Clarke-Parker for the PlaintiffG M Illingworth QC for the DefendantJudgment: 12 July 2018JUDGMENT OF POWELL J[Civil Penalty]This judgment was delivered by me on 12 July 2019 at 3.30 pm pursuant toR 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate:[1] The plaintiff, the Chief Executive of Land Information New Zealand("LINZ"), and the defendant, BCH Investments Ltd ("BCH"), seek approval for ordersunder the Overseas Investment Act 2005 ("the Act") and, in particular, orders that:(a) BCH pay within 20 working days:(i) a civil penalty of $300,000;(ii) account taker's costs of $260,282.68; and(iii) scale costs on a 2B basis of $27,763.50.(b) BCH is to divest to independent third parties its entire interestin two properties within two years with leave reserved to LINZto seek further orders under s 47 of the Act if divestment has notoccurred within that time.[2] The orders are sought following the acquisition by BCH of the two propertiesreferred to, 79 and 95 Gills Road, Albany ("the properties"). The properties aresensitive for the purposes of Part 1 of the Act because 79 Gills Road adjoins a scenicreserve. As a result, there was no dispute that BCH, an overseas person for thepurposes of s 7 of the Act, breached s 22 of the Act in acquiring first an equitable andthen a legal interest in the properties without the acquisition of those interests beingconditional on consent being obtained under the Act.[3] Since it acquired the properties, BCH has proceeded to sub-divide theproperties including:(a) obtaining resource consent;(b) undertaking earthworks and sediment and erosion control work;(c) connecting essential facilities (such as sewerage, undergroundpower, storm and wastewater) to the individual lots; and(d) providing for footpaths, kerbs and street lighting to thedevelopment.[4] LINZ, as the regulator under the Act has, since BCH's non-compliance cameto light and notwithstanding the issue of the present proceedings in 2017, worked withBCH to enable the sub-division to be completed in an orderly manner. This hasenabled the interests of third parties, including both contractors and subsequentpurchasers of the properties, to be protected. This process was facilitated by first,BCH admitting liability four months after the proceedings were issued and secondly,the appointment of Stephen Bell of KPMG as an "account taker" under Part 16 of theHigh Court Rules 2016, on the understanding that the costs of KPMG, wouldultimately be met by the defendant. Although the development is yet to be finallycompleted KPMG has also been able to confirm that there will, for various reasons,ultimately be no financial benefit to BCH in carrying out the development.Legal principles[5] The authority for the orders sought by the parties is set out in s 48 of the Actwhich at the time BCH acquired its interests in the properties relevantly provided:48 Court may order person in breach to pay civil penalty(1) On the application of the regulator, the court may order a person (A)to pay a civil penalty to the Crown or any other person specified by the courtif A has—(a) contravened this Act; (2) The court may order A to pay a civil penalty not exceeding the higherof—(a) $300,000; or(b) any quantifiable gain (for example, the increase in the valuesince acquisition) by A in relation to the property to which theconsent or exemption relates or for which a consent shouldhave been obtained; [6] In the cases involving s 48 to date this Court has accepted that the method fordetermining a quantum of pecuniary penalties under the Commerce Act 1986 shouldbe applied with any necessary modifications for the jurisdiction. In particular, criminalsentencing principles are used to fix an appropriate pecuniary penalty, includingassessing the seriousness of the offending and relevant aggravating and mitigatingfactors to determine a starting point, before considering matters specific to thedefendant that may warrant an uplift or reduction from that starting point.[7] In particular, in Chief Executive of Land Information New Zealand v CarbonConscious New Zealand Ltd, Edwards J identified a number of factors that mayprovide guidance when fixing the quantum of pecuniary penalties,1 as well asidentifying a number of factors said to be relevant in the Commerce Act context inconsidering features specific to the offender.2[8] Similarly, Lang J commented in Chief Executive of Land Information NewZealand v Tang:3Where penalties are agreed between the parties, as in the present case, theCourt is not required to embark on its own enquiry as to an appropriate figure,but rather to consider whether the proposed penalties are within the properrange.4 The policy rationale behind this is to promote acknowledgement ofwrongdoing and ensure that defendants who negotiate a resolution are notdeterred by the fear that the Court will reject their proposed penalty becauseit does not "precisely coincide with the penalty the Court might haveimposed".5(Footnotes in original.)Discussion and analysis[9] The principal issue is whether, on the facts of this case, the principles set outabove can be reconciled with the orders sought, given these represent the maximumpenalty that this Court can order.1 Chief Executive of Land Information New Zealand v Carbon Conscious New Zealand Ltd [2016]NZHC 558 at [31], citing Law Commission Pecuniary Penalties: Guidance for Legislative Design(NZLC R133, 2014) at [16.47].2 At [47].3 Chief Executive of Land Information New Zealand v Tang [2018] NZHC 382 (2018) 92 NZ CPR460 at [19].4 Chief Executive of Land Information New Zealand v Carbon Conscious New Zealand Ltd [2016]NZHC 558 at [24], citing Commerce Commission v Alstom Holdings SA [2009] NZCCLR 22 (HC)at [18].5 Commerce Commission v Alstom Holdings SA [2009] NZCCLR 22 (HC)at [18].Setting the starting point[10] Having considered the submissions of the parties and relevant legal principlesI am satisfied that the starting point for the civil penalties in this case is appropriatelyfixed at $300,000. In particular, the following matters are relevant:(a) The penalty proposed encompasses two breaches of the Act; theacquisition of an equitable interest followed by the acquisition of a legalinterest in the properties. Although these events occurredsimultaneously the single penalty reflects the totality of the offending.(b) The breaches involved the acquisition of two properties at a purchaseprice of $12,950,000.00, totalling almost 5 hectares. The propertieswere purchased for the purpose of carrying out a 117 lot residentialdevelopment with a potential for significant commercial gain.(c) While as noted there was no financial gain resulting from the breach itwas nonetheless a significant commercial undertaking.(d) Had BCH made a quantifiable gain on the acquisition and developmentof the properties the penalty would have been significantly higher thanthe maximum penalty available under s 48(2)(a) of the Act.(e) Given the size, scope and nature of the development proposed BCHshould have undertaken explicit enquiries as to its obligations under theAct.(f) The present case is quite different to earlier cases under the Act.Specific factors[11] Both parties have identified a number of specific matters, both positive andnegative, including the fact that some of those involved on behalf of BCH in this casewere also involved in Tang; the size and resources of BCH; the level of cooperationprovided by BCH; and the failure of BCH's legal advisors to alert BCH of itsobligations under the Act. Counsel are however agreed that none of these factorswarrant either an uplift or reduction of the penalty. On the contrary, and in particular,counsel submit that in this case BCH has already received a tangible benefit for thecooperation provided. This benefit is demonstrated by LINZ allowing thedevelopment to be completed and not insisting upon the immediate disposal of theproperties when the breach of the Act became apparent. Having had the opportunityto consider this I concur with that analysis and agree that there is no basis for adjustingthe starting point for personal circumstances in this case.Decision[12] For the reasons set out above I therefore make the following orders as soughtby the parties:(a) BCH is to pay to LINZ within 20 working days of this judgment:(i) a civil penalty of $300,000.00;(ii) the account taker's costs of $260,282.68; and(iii) scale costs on this proceeding on a 2B basis of$27,763.50.(b) BCH is to divest to independent third parties its entire interestin the Albany Properties within two years of this judgment, withleave reserved to LINZ to seek further orders under s 47 of theAct if divestment has not occurred within that time._______________________________Powell J