Reducing fines on statutory liability RMA offending, where both a company and employee are charged
Insurers may be able to save money on fines under the Resource Management Act 1991 (RMA), where Councils pursue charges against both small companies and employees. If insurers systematically argue the corporate veil should be lifted to avoid double punishment of people closely associated with small companies, that may result in reduced fines.
Councils often charge both the company alleged to have committed the offence, and the employee responsible under the RMA. That is permitted even when the company is a one-person operation. As many statutory liability policies provide cover against RMA fines, insurers may end up paying out twice for the same breach. Typically, insurers seek that the charge against one defendant is withdrawn if the other pleads guilty. This article deals with the situation where the Council will not withdraw any charges.
The courts have recognised that despite the difference in maximum penalties, the election to charge both parties results in a real risk of double punishment for the same breach. It has been accepted by the courts that in assessing culpability and to avoid double punishment of the people closely associated with family-based companies, it is appropriate to lift the corporate veil to identify who was actually responsible, and how the penalties for that offending should be borne. The parties’ affairs may be so intermingled that the defendants are effectively each other’s alter egos, so that a fine against one comes out of the pocket of the other.
In particular, for example, the courts have observed that in the case of a husband and wife company, it is sensible to look at the economic realities by lifting the corporate veil as far as necessary to ensure that justice is administered justly and accurately. In some situations the courts have considered it a relevant factor that a defendant will already be sharing in the fine imposed on another party.
It is a basic principle of sentencing that a sentence should not simply be divided between defendants. However, the courts have acknowledged that the situation described above often occurs in RMA prosecutions.
The courts are not restricted to a single approach, as some situations may require an assessment of the parties’ collective liability to ensure that justice is administered accurately and to achieve the purposes of sentencing as outlined in the Sentencing Act 2002. It may also be appropriate to calculate the fines individually, but to make an adjustment to impose a fair fine that accounts for the relationship between the parties.
This approach is essentially consistent with the totality principle, which requires judges when sentencing for multiple offences to take a step back and determine whether the total sentence is appropriate in light of the offending and the offender’s culpability. In the RMA context this reflects the reality of the relationship between a company and the party who commits the offence.
While the courts accept that different approaches are acceptable, we would generally advocate for a global assessment. This is consistent with a general rule of sentencing that a judge must take a step back and decide whether the right sentence is imposed in the circumstances.
In circumstances where liability more appropriately attaches to the individual’s conduct, the end point is likely to be more favourable due to lower maximum penalties for individuals than companies.
Small businesses come in many forms, ranging from operations which are operated entirely by one individual, to family operations and other types of small business. Whether the principle discussed above will apply depends on the facts in each case, however it would likely result in decreased fines in many instances.
Ultimately it will involve an assessment as to how appropriate it may be to lift the corporate veil, keeping in mind that the court rarely invokes this power and may need to be reminded at sentencing that it has the opportunity to do so in order to achieve a just result.
For further information please contact Chris Shannon.
Disclaimer: the content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.