THE CHIEF EXECUTIVE OF LAND INFORMATION NEW ZEALAND v WEST DRURY HOLDING LIMITED [2021] NZHC 704

THE CHIEF EXECUTIVE OF LAND INFORMATION NEW ZEALAND v WEST DRURY HOLDINGLIMITED [2021] NZHC 704 [31 March 2021]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV 2021-404-000093[2021] NZHC 704BETWEEN THE CHIEF EXECUTIVE OF LANDINFORMATION NEW ZEALANDPlaintiffAND WEST DRURY HOLDING LIMITEDDefendantHearing: 31 March 2021Appearances: K R Muirhead & M A Hori Te Pa for the PlaintiffS M Bisley for the DefendantJudgment: 31 March 2021JUDGMENT OF VAN BOHEMENThis judgment was delivered by me on 31 March 2021 at 1.00pmPursuant to Rule 11.5 of the High Court RulesRegistrar/Deputy RegistrarSolicitors/Counsel:Meredith Connell, WellingtonBuddle Findlay, WellingtonIntroduction[1] The plaintiff, the Chief Executive of Land Information New Zealand and theRegulator under the Overseas Investment Act 2005 (the Act), alleges that thedefendant, West Drury Holding Ltd, acquired a legal interest in "sensitive land"without obtaining consent as required under the Act.[2] The land is the property at 647 Burtt Road, Drury (the Property).[3] West Drury Holding admits the breach of the Act.[4] The parties have agreed on how the breach should be resolved. They seekorders that West Drury Holding pays a civil pecuniary penalty of $125,000 and$15,000 towards the Regulator's costs.[5] The purpose of this hearing is to decide the quantum of the penalty to beimposed.The relevant circumstances[6] The Property comprises 23.3 ha of non-urban land. As such, it is "sensitiveland" under s 12 and sch 1 pt 1 of the Act because it is non-urban land that exceedsthe applicable five ha threshold. For that reason, any "overseas person," as that termis defined in s 7 of the Act, who wishes to obtain an interest in the Drury property mustobtain consent in accordance with ss 10 and 12 of the Act.[7] West Drury Holding acquired the Drury property on 6 June 2017 for$9,200,000.[8] West Drury Holding is a company incorporated in New Zealand. At allrelevant times, Yin Zhufeng held 39 per cent of the shares in West Drury Holding.[9] Although Mr Yin has held a New Zealand residence class visa since 16 January2017, he had not resided in New Zealand in the period immediately preceding theacquisition of the Drury property. As a consequence:(a) Mr Yin was not "ordinarily resident in New Zealand" at the time of theacquisition in accordance with the meaning of that term in s 6(2) of theAct;(b) Mr Yin was, therefore, an "overseas person" in accordance withs 7(2)(a) of the Act; and(c) Because Mr Yin held more than 25 per cent of the shares in West DruryHolding at the time of the acquisition, West Drury Holding was also an"overseas person" in accordance with s 7(2)(c) of the Act.[10] On 6 June 2017, title to the Drury Property was transferred to West DruryHolding, at which point West Drury Holding obtained a legal interest in the property.[11] At no time during the transaction did West Drury Holding or its representativesor associates apply for consent under the Act. As a result, the transfer of title to theDrury Property to West Drury Holding constituted a breach of s 42 of the Act.[12] West Drury Holding has admitted the breach.Approach to fixing civil penalties[13] Section 48 of the Act provides that the Court may order the payment of apecuniary penalty for a breach of the Act.[14] At the time West Drury Holding acquired the Property, s 48(2) provided that acivil penalty for failure to obtain consent must not exceed:(a) $300,000; or(b) Any quantifiable gain (for example, the increase in the value sinceacquisition) by the person in breach in relation to the property for whicha consent should have been obtained.[15] That is the scale of penalties that may be imposed in the present case. It is ofnote that the scale of the penalties that may be imposed under s 48 was significantlyincreased last year by the Overseas Investment (Urgent Measures) Amendment Act2020.[16] The Court has made a number of decisions imposing civil penalties under s 48.They include Chief Executive of Land Information New Zealand v Carbon ConsciousNew Zealand Ltd,1 Chief Executive of Land Information New Zealand v Tang,2 ChiefExecutive of Land Information New Zealand v Agria (Singapore) PTE Ltd,3 ChiefExecutive of Land Information New Zealand v Hong,4 Chief Executive of LandInformation New Zealand v BCH Investments Ltd,5 Chief Executive of LandInformation New Zealand v FFG Investment Ltd,6 and Chief Executive of LandInformation New Zealand v Chor Ltd.7[17] All of these decisions except Agria involved a failure to obtain consent beforemaking an overseas investment in sensitive land. Agria involved a breach of goodcharacter conditions in a consent.[18] In these decisions, the Court has adopted an approach similar to that used tofix pecuniary penalties under the Commerce Act 1986. That is, the Court fixes astarting point by assessing the seriousness of the breach, taking into account relevantaggravating and mitigating factors specific to the breach. The Court then has regardto any factors specific to the defendant that may warrant an uplift in or discount fromthe starting point.81 Chief Executive of Land Information New Zealand v Carbon Conscious New Zealand Ltd[2016] NZHC 558.2 Chief Executive of Land Information New Zealand v Tang [2018] NZHC 382, (2018) 19NZCPR 460.3 Chief Executive of Land Information New Zealand v Agria (Singapore) PTE Ltd [2019] NZHC514.4 Chief Executive of Land Information New Zealand v Hong & Others [2019] NZHC 1561.5 Chief Executive of Land Information New Zealand v BCH Investments Ltd [2019] NZHC 1630.6 Chief Executive of Land Information New Zealand v FFG Investment Ltd [2019] NZHC 3293.7 Chief Executive of Land Information New Zealand v Chor Ltd [2020] NZHC 1254.8 See, for example, the approach taken in Commerce Commission v Alstom Holdings Ltd SA (2009)NZCCLR 22 (HC) at [14], as applied in Carbon Conscious, above n 1, at [47]; in Tang, above n 2,at [15]; in Agria, above n 3, at [34]; in Hong, above n4, at [22]; and in FFG Investment, above n6, at [17].[19] The Court has also held, similar to the approach adopted in Commerce Actcases, that the primary purpose of civil penalties imposed under the Act is deterrenceof both the person in breach and those who might be tempted to breach therequirements of the Act in a similar way in the future.9 That purpose has beenreinforced by the increase in the scale of penalties enacted last year.[20] The Court has also held that where penalties are agreed between the parties theCourt is not required to embark on its own enquiry as to an appropriate figure butrather to consider whether the proposed penalties are within the proper range.10The Regulator's assessment[21] Ms Muirhead and Ms Hori Te Pa, counsel for the Regulator, submit that WestDrury Holding's breach was moderately serious, given the size of the property and itspurchase price of $ 9,200,000. They note that West Drury Holdings accepts that itought to have known that the Property was "sensitive land" and ought to have knownthat there were restrictions on overseas persons acquiring sensitive land under the Act.[22] Counsel advise that the Regulator accepts that at the time West Drury Holdingacquired the Property, West Drury Holding believed that Mr Yin was not an overseasperson under s 7(2)(a) of the Act, because he had held a New Zealand residence classvisa, and that West Drury Holding itself was not an "overseas person" under s 7(2)(c)of the Act. The Regulator accepts, therefore, that the breach of s 42 of the Act wasinadvertent. The Regulator considers, however, that West Drury Holdings should havemade explicit enquiries about its obligations under the Act.[23] Counsel advise that the Regulator accepts that West Drury Holding has notmade any quantifiable gain from its acquisition of the Property. An independentvaluation report dated 9 October 2020 valued the property at $ 9,220,000, and WestDrury Holding has incurred net costs of approximately $435,000 since the Property'sacquisition. However, the Regulator considers that West Drury Holding has received9 Carbon Conscious, above n 1, at [24]; in Tang, above n 2, at [19]; Agria, above n 3, at [40]; inHong, above n4, at [19]; and in FFG Investment, above n 6, at [18].10 Tang, above n 2, at [19]; Agria, above n 3, at [36]; BCH Investments, above n 5, at [8].a non-quantifiable benefit by gaining an interest in the Property for almost four yearswithout obtaining consent.[24] Counsel for the Regulator submit that the decisions in Hong,11 BCHInvestments12 and FFG Investment,13 which involved the acquisition of equitable andlegal interests in land by companies without any quantifiable gain, may assist the Courtin evaluating an appropriate penalty range. Having regard to those decisions, counselsubmit that an appropriate penalty starting range is $160,000 to $170,000, which is anuplift from the starting point of $130,000 adopted for the two individuals in Hong butlower than the $300,000 starting point adopted in BCH Investments.[25] Counsel for the Regulator are not aware of any aggravating factors and submitthere should be a discount of 25 per cent to recognise West Drury Holding'scooperation with the Regulator in an early admission of liability and agreement to paya civil pecuniary penalty.[26] Counsel for the Regulator advise that West Drury Holding has agreed to pay$15,000 to the Regulator as a contribution to its costs, with costs to lie where they falloutside of that figure.Defendant's submissions on penalty[27] Mr Bisley, counsel for West Drury Holding, accepts the Regulator'smethodology in determining the quantum of the civil penalty sought and the end result,and generally adopts the Regulator's submissions.[28] Mr Bisley submits, however, that West Drury Holding's failure to makeexplicit inquiries about its obligations at law should not be viewed as an unusualfeature of breaches of the Act and notes that in other comparable cases such as CarbonConscious and Tang lower penalties were imposed than have been agreed in this case.That said, Mr Bisley accepts that Hong, BCH Investments and FFG Investment are themost closely comparable decisions.11 Hong, above n 4.12 BCH Investments, above n 5.13 FFG Investment, above n 6.DiscussionAppropriate starting point[29] By comparison to the six previous decisions involving unconsented overseasinvestments in sensitive land, the value of the Property, $9,220,000, is second only tothat in BCH.14 That in itself justifies a higher starting point than Carbon Consciousand Tang where the value of the property at issue was significantly less.15[30] While the extent of the breach in the present case was moderately serious giventhe size of the Property (23.3 ha) and amount paid, it was only a single breach relatingto one property and not part of a larger scheme, unlike FFG, where there was a failureon two separate occasions to obtain the required consent.[31] It is accepted that the breach was inadvertent rather than deliberate. Mr Yin'sfailure to appreciate that his residence class visa did not make him "ordinarily residentin New Zealand" when he had not been living in New Zealand is understandable, evenif the mistake should have been avoided by undertaking appropriate enquiries.[32] As both sets of counsel accept, the relevant previous decisions are FFGInvestment, Hong, and BCH Investments.(a) In FFG Investment, a starting point of $103,000 was adopted withrespect to an acquisition of 2.87 ha of residential land which wassensitive because it adjoined a reserve, unlike the land in the presentcase which is sensitive by virtue of its own qualities and significance;(b) In Hong, a starting point of $130,000 was adopted for breaches of s 42in acquiring a farm of 79 ha for $4,480,000 and a lodge valued at$2,550,000 through conduct that was negligent or careless, rather thandeliberate;14 Two properties totalling almost 5 ha valued at $12,950,000.15 $80,000 in Carbon Conscious, above n 1; $5.128 million in Tang, above n 2.(c) In BCH Investments, a starting point of $300,000 was adopted withrespect to the purchase of a property of 5 ha valued at $12,950,000 onwhich it was intended to carry out a residential subdivision anddevelopment, with the potential for significant financial gain, incircumstances where company's legal advisors had failed to alert BCLto its legal obligations.[33] West Drury Holding has purchased a property much larger in size than any ofthese cases, and currently worth $9,220,000. Although the breach of the Act wasinadvertent, West Drury Holding has had the benefit of title to the property for almostfour years. These factors suggest that a higher starting point than Hong and FFGInvestment are appropriate. By contrast, a lower starting point than the maximumpenalty of $300,000 adopted in BCH Investments is appropriate as there is lesspotential for financial gain from this property than in that case.[34] Accordingly, I am satisfied that the starting point of $160,000 to $170,000adopted by the Regulator is within the proper range.Adjustment of penalty to reflect specific factors[35] There are no aggravating factors and West Drury Holding has cooperated withthe Regulator. It agreed to the summary of facts; it accepted liability at an early stageand it agreed to pay the civil pecuniary penalty.[36] In Carbon Conscious, a discount of 50 per cent was given to reflect admissionsof liability and co-operation with the Regulator.16 However, subsequent cases havesuggested that where the defendant has not deliberately breached the Act but has notacted on erroneous legal advice, culpability is higher and a 25 per cent discount ismore appropriate.17[37] I am satisfied that a 25 per cent discount is appropriate, and, as a consequence,that a civil pecuniary penalty of $125,000 is appropriate.16 Carbon Conscious, above n 1, at [56] – [57].17 Hong, above n 4, at [32]; see also FFG Investment, above n 6, at [25].[38] I am also satisfied that it is appropriate for West Drury Holding to pay $15,000towards the Regulator's costs and to make no other award of costs.Result[39] For its breach of s 42 of the Overseas Investment Act 2005, I order West DruryHolding to pay:(a) A final civil pecuniary penalty of $125,000; and(b) $15,000 towards the Regulator's costs.______________________G J van Bohemen J