COMMERCE COMMISSION v STEEL & TUBE HOLDINGS LIMITED [2020] NZCA 39

COMMERCE COMMISSION v STEEL & TUBE HOLDINGS LIMITED [2020] NZCA 39 [4 March 2020]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA484/2019[2020] NZCA 39BETWEEN COMMERCE COMMISSIONApplicantAND STEEL & TUBE HOLDINGS LIMITEDRespondentCA485/2019BETWEEN STEEL & TUBE HOLDINGS LIMITEDApplicantAND COMMERCE COMMISSIONRespondentCourt: Gilbert, Ellis and Brewer JJCounsel: J C L Dixon QC, A M McClintock and B J Thompsonfor Commerce CommissionM R Heron QC, E McGill and A M W Stewart for Steel & TubeHoldings LimitedJudgment:(On the papers)4 March 2020 at 2 pmJUDGMENT OF THE COURTThe applications for leave to bring a second appeal against sentence are granted.____________________________________________________________________REASONS OF THE COURT(Given by Gilbert J)Introduction[1] Steel & Tube Holdings Ltd (Steel & Tube) pleaded guilty to 24 representativecharges brought by the Commerce Commission (the Commission) under the FairTrading Act 1986 (the Act). The charges all related to steel mesh known as "SE62"which was sold as "500E grade" when it did not comply with the applicable testingprocedures set out in the relevant standard.1 500E is a grade of steel mesh that hascertain characteristics, including ductility, which provide strength and stability inthe event of an earthquake.[2] The charges fell into two categories. The first involved breaches of s 10 ofthe Act by making representations (on batch tags, batch test certificates, collateral andwebsite) that were liable to mislead the public as to the nature, manufacturing process,characteristics or suitability for a purpose of the mesh. The second category ofoffending concerned false or misleading representations in breach of s 13 of the Actthat the mesh had been tested and certified by an independent building product testinglaboratory, when it had not been.[3] The charges spanned the four-year period from 1 March 2012 to 5 April 2016.Thirteen of the 24 charges related to conduct and representations from 1 March 2012to 16 June 2014 for which the maximum fine was $200,000 per charge. The maximumpenalty for each of the 11 charges in the later period was $600,000.[4] Although sentencing proceeded on an agreed summary of facts, there wasa major dispute about the proper characterisation of Steel & Tube's conduct.The Commission contended that Steel & Tube's conduct involved a deliberatedeparture from the testing process in circumstances where the company knew it wasnot testing the mesh in accordance with the standard and knew its compliancerepresentations were misleading. For this submission, it relied on the attributionprovision in s 45 of the Act which provides that where, in proceedings under pt 5 ofthe Act in respect of any conduct engaged in by a body corporate, it is necessary toestablish the state of mind of the body corporate, it is sufficient to show that a director,servant or agent of the body corporate, acting within the scope of that person's actual1 Australian and New Zealand Standards, Steel reinforcing materials (AS/NZS 4671/2001).or apparent authority, had that state of mind. The Commission argued that theknowledge of Steel & Tube's former technical manager should be attributed to thecompany.[5] Judge Cathcart accepted Steel & Tube's contention that s 45 did not applybecause the relevant offences involved strict liability.2 The Judge said the sectioncould not be relied on to fill any gap in the evidence in seeking to demonstrate asan aggravating factor that Steel & Tube acted knowingly or deliberately.3 The Judgeproceeded on the basis that the offending was grossly negligent but did not amount toa knowing breach.4[6] The Judge imposed a fine of $1.885 million.5 This was arrived at by:(a) adopting a starting point of $2.4 million for the first category ofoffences;6(b) adding a starting point of $600,000 for the second category;7(c) applying a discount of $100,000 for totality to arrive at a reducedoverall starting point of $2.9 million;8 and(d) applying a reduction of 35 per cent to the adjusted starting point toallow for mitigating factors.9[7] Both parties appealed to the High Court against this sentence.The Commission contended the sentence was manifestly inadequate. Steel & Tubeargued it was manifestly excessive. The parties remained in dispute aboutthe applicability of s 45 of the Act and the proper characterisation of the offending.2 Commerce Commission v Steel & Tube Holdings Ltd [2018] NZDC 21579 at [90].3 At [92].4 At [92]-[93].5 At [148].6 At [126].7 At [135].8 At [141].9 At [142].[8] Duffy J agreed with Judge Cathcart's conclusion that s 45 was not engagedbecause offending in contravention of ss 10 and 13 involves strict liability.10She considered it was therefore not necessary to establish the state of mind of the bodycorporate.[9] Duffy J nevertheless allowed the Commission's appeal and substituted a fineof $2,009,280.11 This was because she disagreed with the starting points adopted bythe District Court and the adjustment for totality.12 The substituted fine was arrived atby adopting what she considered was the lowest starting point available inthe circumstances, being 42 per cent of the maximum penalty. This equated to a fineof $84,000 for each of the offences for which a maximum fine of $200,000 wasavailable and $252,000 for each of the offences carrying a $600,000 maximum fine.Applying the uncontested discount of 35 per cent for mitigating factors, this reducedthese fines to $54,600 and $163,000 per offence respectively giving an overall total of$2,511,600.13 The final figure of $2,009,280 was arrived at by applying a 20 per centdiscount for totality.14The Commission's application for leave to bring a second appeal[10] The Commission applies for leave to bring a second appeal on the followinggrounds:(a) The Judge erred in finding that s 45 of the Act did not apply to Steel &Tube's sentencing. The Commission contends that the interpretationadopted in the High Court would restrict the operation of s 45 tothe three mens rea offences in the Act. Further, it argues it wasnecessary to assess Steel & Tube's state of mind to evaluate the relevantfactors which must be taken account of at sentencing in terms ofthe Sentencing Act 2002.10 Commerce Commission v Steel & Tube Ltd [2019] NZHC 2098 at [65].11 At [132].12 At [109].13 At [115].14 At [119].(b) Even if s 45 does not apply, the Judge erred in principle in notattributing the employee's state of mind to the company for sentencingpurposes. The Commission argues that s 45 does not displace ordinarycommon law rules of attribution, rather it expands those rules.(c) The discount for totality was wrong in principle and excessive.(d) The Judge failed to take account of all relevant factors including Steel& Tube's size, resources and gain.(e) As a result of these errors, the fine was manifestly inadequate.[11] The Commission contends that the proposed appeal involves matters of generalor public importance. It observes that s 45 of the Act has not been considered bythis Court previously. The Commission argues that deterrence of corporate defendantswith substantial resources that have profited from their conduct is an issue of generalor public importance.[12] Steel & Tube opposes the Commission's application. It says the Commission'sargument on s 45 has no merit and is academic in that it would not have any impacton the fine ultimately imposed. It says the fine was approximately double the highestfine ever imposed on a single entity under the Act. It claims this was "patently out ofstep with precedent" and "inexplicable". That the fine was not even higher could notraise any question of general or public importance.Steel & Tube's application for leave to bring a second appeal[13] Steel & Tube applies for leave to bring a second appeal on the grounds:(a) The High Court erred in setting starting point bands without precedent,statutory support or submissions from either party on the issue.(b) The fine was manifestly excessive, being approximately doublethe highest ever imposed on a single entity under the Act.Assessment[14] We are satisfied the proposed appeal and cross-appeal raise matters of generalor public importance justifying leave for a second appeal. In our assessment,the proper approach to attribution for the purposes of sentencing a corporate defendantfor offences of this type raises a matter of general or public importance. The issue isnot only important for sentencing under the Act, it is likely to have implications insentencing for offences under other comparable legislation.[15] Given the disparate views taken in the courts below and the polarised positionsadopted by the parties, it appears that guidance from this Court on setting appropriatestarting points in circumstances such as the present and adjusting for totality couldalso be useful.Result[16] The applications for leave to bring a second appeal against sentence aregranted.Solicitors:Meredith Connell, Auckland for Commerce CommissionMatthews Law, Auckland for Steel & Tube Holdings Ltd