In its first case considering sentencing under the Fair Trading Act 1986 (FTA), the Court of Appeal has significantly reduced the fines imposed by the High Court in Commerce Commission v Steel & Tube Holdings Ltd [2020] NZCA 549.
The FTA penalties are a significant deterrent for businesses given the quantum of potential fines imposed on a breach basis. Interestingly, the Court of Appeal noted that a totality adjustment may be necessary in cases where the court has calculated the sentence for each offence separately, but in cases like this, a totality assessment should not be necessary as the sentencing was conducted on a global basis.
Although the Court of Appeal declined to make a guideline judgment for sentencing, it was recorded that the guideline proposed in the High Court should not be followed. The Court of Appeal did note that the judgment "will inevitably be looked to by sentencing judges", and proceeded to set out the factors that would be considered.
Background
Between 1 March 2012 and 5 April 2016, Steel & Tube Holdings Limited (Steel & Tube) sold its "seismic grade" SE62 steel mesh (SE62), representing that it was 500E grade – meaning that it complied with the AS/NZS 4671:2001 building standard (Standard) – and had been tested independently.
Steel & Tube relied on its technical manager (who was a senior employee and was a member of the joint committee that developed the Standard) to ensure SE62 complied with the Standard. Steel & Tube only conducted testing internally, and such testing was not compliant with the Standard.
Consequently, in March 2016, the Commerce Commission (Commission) opened an investigation into Steel & Tube's representations around SE62, engaging two independent agencies to test whether sheets of SE62 it had purchased were compliant with the Standard – they failed testing on multiple grounds. When presented with these test results, Steel & Tube cooperated with the Commission's investigation and took remedial measures including:
- engaging independent laboratories to conduct testing;
- investing in new software to record, store and produce test certificates and monitor long-term quality data;
- providing additional training for staff; and
- hiring an additional quality manager.
The Commission then brought proceedings and Steel & Tube plead guilty to 12 charges under section 10 of the FTA and 12 charges under section 13(e) of the FTA.
Section 10 of the FTA:
"No person shall, in trade, engage in conduct that is liable to mislead the public as to the nature, manufacturing process, characteristics, suitability for a purpose, or quantity of goods."
Section 13(e) of the FTA:
"No person shall, in trade, in connection with the supply or possible supply of goods or services or with the promotion by any means of the supply or use of goods or services make a false or misleading representation that goods or services have any sponsorship, approval, endorsement, performance characteristics, accessories, uses, or benefits."
The District Court imposed fines totalling $1,885,000. On appeal by both parties, the High Court increased the fines to a total of $2,009,280. Both parties then appealed to the Court of Appeal.
The Court of Appeal's Findings
With regard to section 45(1) of the FTA, the state of mind of Steel & Tube's technical manager was a relevant consideration for sentencing purposes, even if it was not required to establish the strict liability offences. State of mind will be a necessary consideration where it materially affects a sentence. In the absence of section 45 of the FTA, common law rules of attribution would apply to achieve a similar result.
In light of the purpose of the FTA, relevant considerations in relation to the offending itself are likely to include:
- the importance, falsity and dissemination of the untrue statement;
- the extent and duration of any trading relying on it;
- whether the offending was isolated or systematic;
- the state of mind of any servants or agents whose conduct is attributed to the defendant and the seniority of those people;
- any compliance systems and culture and the reasons why they failed;
- any harm done to consumers and other traders; and
- any commercial gain or benefit to the defendant.
When considering the remedial steps taken or mitigating factors, relevant considerations are likely to include:
- any past history of infringement;
- guilty pleas;
- co-operation with the authorities;
- any compensation or reparation paid; and
- commitment and steps taken to ensure future compliance.
In this case, the Court of Appeal found that Steel & Tube's offending related to a product that had an important use, and the product's compliance with the Standard was vital. Additionally, the offending was on a large scale and over a significant period of time.
In Steel & Tube's favour, it undertook a number of remedial steps and its misleading representations were neither intentional nor made for gain. Steel & Tube also believed its testing processes complied with, and were superior to, those in the Standard. These mitigating factors were taken into account by the Court of Appeal when imposing the total fine.
Result
The Court of Appeal found that the fines imposed by the High Court were "manifestly excessive". After considering previous sentencings under the FTA and the aggravating and mitigating factors mentioned above, the Court of Appeal adopted a starting point of $1.5 million for the compliance representations and $900,000 for the independent testing representations. Applying the 35 per cent discount set in the District Court, the Court of Appeal imposed a total fine of $1,560,000. The reduction took into account the early guilty plea and mitigating factors.
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