H & S Chisholm Farms Limited v Waikato Regional council [2018] NZHC 1885 (17 August 2018)

Last Updated: 22 August 2018

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CRI-2018-419-23 [2018] NZHC 1885

BETWEEN	H & S CHISHOLM FARMS LIMITED Appellant
AND	WAIKATO REGIONAL COUNCIL Respondent

Hearing:	3 July 2018
Appearances:	N Beadle and C Halliday for the Appellant J O’Sullivan for the Respondent
Judgment:	17 August 2018

JUDGMENT OF POWELL J

This judgment was delivered by me on 22 August 2018 at 3.30 pm pursuant to R 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

Solicitors/Counsel:

DLA Piper, Auckland

Luke Cunningham Clere, Wellington

H & S CHISHOLM FARMS LIMITED v WAIKATO REGIONAL COUNCIL [2018] NZHC 1885 [17 August 2018]

[1] The appellant, H & S Chisholm Farms Ltd (“Chisholm Farms”) has pleaded guilty to three charges of contravening the Resource Management Act 1991 (“the RMA”) by permitting a contaminant (farm animal effluent) to be unlawfully discharged onto land into water on 23 June and 7 July 2017, and by permitting contravention of an abatement notice issued against it on 27 June 2017.

[2] Following the pleas a sentencing hearing before her Honour Judge Harland commenced in the District Court at Hamilton on 4 April 2018. Submissions were presented on behalf of the prosecutor, Waikato Regional Council, and Chisholm Farms, with both parties in agreement that the appropriate sentence was a fine. The Waikato Regional Council sought a fine of $85,000 and in response Chisholm Farms submitted a fine of $50,000 was appropriate.

[3] In the course of the sentencing hearing counsel for Chisholm Farms confirmed that it was able to pay a fine, and this was not apparently questioned by the Waikato Regional Council. In addition, Chisholm Farms confirmed in answer to a question from the Court that it had insurance against the imposition of the fine. Noting that Chisholm Farms was covered by insurance Judge Harland adjourned the sentencing hearing and by minute dated 14 May 2018 directed Chisholm Farms to file the following information with the Court:¹

• (a) confirmation as to the scope of the indemnity provided to the defendant under the policy, namely whether it covers fines or remediation/reparation;

(b) the amount of cover of any excess, and how the policy interprets that is to apply (for example, if it applies to the whole of the offending incident or each charge separately);

(c) what the policy excludes that might be relevant to the particular offending upon which the sentence is to be based;

(d) any other relevant conditions of cover that might be relevant to the assessment of culpability for the offending (for example, here I was told that there are conditions of cover to take reasonable care to avoid circumstances that could result in a claim, and to take all reasonable steps to minimise any claim or further loss arising); and

1. Waikato Regional Council v H & S Chisholm Farms Ltd DC Hamilton CRN-170775007254-256, 14 May 2018 (Minute of Judge Harland in Relation to Disclosure of Insurance Details).
   • (e) information about interpretation provisions where relevant.

[4] Chisholm Farms opposed the making of the direction but Judge Harland indicated that the information was necessary for the Court to meet its obligations under the Sentencing Act 2002. The rationale was, as set out by Judge Harland:²

Under s 40(1) of the Sentencing Act, the Court “must take into account, in addition to the provisions of sections 7-10, the financial capacity of the offender”.

Two issues arise from this:

(a) the financial capacity of the offender is required to be taken into account; and

(b) financial considerations other than capacity can also be taken into account where they are relevant to the provisions of sections 7-10.

[5] As her Honour noted in her direction she had in fact explored the issue in depth in her earlier decision in Bay of Plenty Regional Council v Whitikau Holdings Ltd (“Whitikau”).³ In that case she had specifically sought submissions from all parties and appointed Mr Morgan QC as amicus curiae to address the following questions:

(a) Is it lawful for a Court to impose a fine in circumstances where it is aware that a defendant charged with an offence under the Resource Management Act 1991 is insured in respect of that fine? This question is aimed at addressing the extent to which a District Court Judge, during the sentencing hearing, can inquire into whether or not it is lawful for an insurer to indemnify a person against any fine that may be imposed on that person under the RMA on conviction.

(b) If it is lawful, is the fact that a defendant is so insured relevant to the sentencing process, and if so, where and how should it be considered and for what reasons?

(c) How does the fact a defendant is insured against fines impact (if at all) on the consideration of the purposes and principles of sentencing, and the aggravating and mitigating factors set out in the Sentencing Act 2002, and on the factors referred to in Thurston v Manawatu- Wanganui District Council and other relevant case law, with particular reference but not limited to:

(i) The purposes of accountability and deterrence.

(ii) The policy [directive] that the effects [of] environmental offending should be internalised by the defendant rather than externalised.

² At [7]-[8].

³ Bay of Plenty Regional Council v Whitikau Holdings Ltd [2018] NZDC 3850.

(iii) The general desirability of consistency in respect of similar defendants committing similar offences in similar circumstances.

(iv) Issues of parity between co-defendants where one is insured and the other is not.

(v) Applications for discharge without conviction [not relevant in this case].

(d) Should s 40(1) of the Sentencing Act apply to reflect the fact that a defendant is insured, and consequentially has a greater financial capacity?

(e) Any other matter.

[6] After hearing submissions from the parties and Mr Morgan, Judge Harland concluded with regard to the first question, that while she was “not persuaded that it is lawful for a defendant to be insured against a fine for RMA prosecutions”, her Honour nonetheless found she did “not have the power to determine this issue in a sentencing hearing”.⁴ On the second question Judge Harland noted that “where a defendant is a corporate entity the most effective penalty, apart from reparation, is likely to be a substantial fine.”⁵ Her Honour noted s 13 of the Sentencing Act enables a Court to impose a fine and s 40 provides the principles that apply to determining the amount of that fine. After considering ss 40-42 Judge Harland noted:⁶

Mr Morgan QC submitted that these provisions enable a Court, on sentencing, to enquire about the extent to which a defendant is insured, because if a Court is required to consider a defendant’s ability to pay a fine and/or reparation and it is required to ensure public policy is not offended by indemnity against a crime, it must have an inherent power to make such an inquiry. Counsel for Whitikau Holdings did not disagree with this approach

I have no difficulty in finding that a defendant is obliged to advise the Court upon sentencing if it is insured, and to provide the following material at least:

(a) confirmation as to the scope of the indemnity provided to the defendant under the policy, namely whether it covers fines or remediation/reparation;

(b) the amount of cover and of any excess, and how the policy interprets that is to apply (for example, if it applies to the whole of the offending incident or each charge separately);

⁴ At [224].

⁵ At [167].

⁶ At [171]-[172].

(c) what the policy excludes that might be relevant to the particular offending upon which the sentence is to be based;

(d) any other relevant conditions of cover that might be relevant to the assessment of culpability for the offending (for example, here I was told that there are conditions of cover to take reasonable care to avoid circumstances that could result in a claim, and to take all reasonable steps to minimise any claim or further loss arising); and

(e) information about interpretation provisions where relevant.

[7] As a result of this analysis Judge Harland concluded in relation to the second question:⁷

I have determined that I cannot resolve the question of lawfulness of the insurance cover for Whitikau Holdings, but nonetheless I have also determined that the fact it holds insurance is relevant to the sentencing process. I agree with Mr Morgan QC that the fact that a defendant is insured against a fine means that the defendant has the means to pay a fine and/or remediation depending on the cover extended to it under its policy. I have already outlined that this means that the fact of insurance and the extent of cover should be made available to the Court upon a guilty plea being entered to any charge.

[8] Applying this reasoning in the present case in her direction to Chisholm Farms her Honour noted:⁸

In relation to financial capacity, whilst a defendant can assert that it can pay the amount of a fine, the Court is entitled to enquire further to meet the statutory requirement that it “must” take into account the defendant’s financial capacity.

In this case, the Court is aware that an insurer is likely to meet the fine the Court imposes on the defendant, although without an appreciation of the circumstances where liability might be declined this cannot be assumed. In these circumstances, therefore, the Court is entitled to make an enquiry about the defendant’s financial capacity and can require a declaration to establish the means of the defendant to pay the level of fine the Court considers to be appropriate to reflect the purposes and principles of sentencing. It is worth recording that even though the Court typically accepts the range of starting points for a fine submitted by counsel to be appropriate, it is not bound to adopt them.

As well, relevant to this defendant’s means to pay a fine is the amount of the excess it would be required to pay were an insurer to accept its liability to provide cover for the fine. The Court cannot assume that this will be a small amount. For example, in Waikato Regional Council v Fulton Hogan Limited & Cambridge Excavators Limited,⁹ the Court was advised that the excess for

⁷ At [228].

⁸ Waikato Regional Council v H & S Chisholm Farms Ltd, above n 1, at [9]-[12].

⁹ Waikato Regional Council v Fulton Hogan Ltd [2018] NZDC 2711.

Fulton Hogan was $25,000. In this case there is no evidence to suggest that the defendant operates a large commercial enterprise, however it may have a number of related legal entities that operate businesses under the auspices of a global insurance policy. The point of all of this is that the Court cannot assume anything in relation to these sorts of matters.

Accordingly, in my view, the defendant’s insurance arrangement are directly relevant to its means to pay a fine.

[9] Her Honour also considered that financial considerations other than capacity were relevant and noted in particular:¹⁰

Section 40(1) does not, in my view, prevent the Court from enquiring about other relevant financial considerations that may not strictly be to do with financial capacity. This is because s 40(1) specifically states that financial capacity matters are in addition to the other matters contained in sections 7- 10 of the Sentencing Act.

Under s 7, two of the relevant purposes of the sentencing are to “hold the offender accountable for harm done to the victim and the community by the offending”¹¹ and to “promote in the offender a sense of responsibility for, and an acknowledgment of that harm”.¹² The amount of the fine the defendant (not its insurer) will pay is relevant to these two purposes of sentencing, and to the purpose of deterrence (both general and specific to the defendant).¹³

The amount of excess is also relevant to the purposes listed above if the insurer covers the fine, for example, because of the additional relevant factors outlined in the High Court decision of Thurston v Manawatu Whanganui RC.¹⁴ I referred to this case in Whitikau Holdings Limited, and found:¹⁵

In this case, I do not consider that the imposition of the fine (if it is paid by Whitikau Holdings’ insurer), when viewed in conjunction with the minimal amount expended to remediate the environmental effects caused by it, will achieve the sentencing purposes of accountability and deterrence (both general and specific), or the policy directive that the effects of environmental offending should be internalised by it rather than externalised. Nevertheless, for the reasons I have expressed, there is nothing further I can do about this.

Whilst those findings are specific to that case, in terms of accountability to the community for the offending, and the other purposes of sentencing referred to above, including the need for a sentence to impose financial costs or penalties which cause the polluter to internalise the environmental cost of the offending, in my view the amount that a defendant will actually pay towards the fine is a relevant consideration. This is a different question from the defendant’s capacity to pay a fine.

¹⁰ At [13]-[17].

¹¹ Sentencing Act 2002, s 7(1)(a).

¹² Section 7(1)(b).

¹³ Section 7(1)(f).

14. Thurston v Manawatu-Wanganui Regional Council HC Palmerston North CRI-2009-454-25, 27 August 2010.

¹⁵ Bay of Plenty Regional Council v Whitikau Holdings Ltd, above n 3, at [239].

It follows that, in my view, there are valid grounds for requiring the defendant’s insurance details to be made available under the Sentencing Act. It is therefore not necessary for me to consider the question of whether there is an inherent power or jurisdiction to do so.

The Appeal

[10] Chisholm Farms appealed the 14 May 2018 direction and there is no issue between the parties that there is jurisdiction for the appeal to proceed with the leave of the Court.

[11] The Waikato Regional Council has opposed the grant of leave on the basis that Chisholm Farms’ challenge is premature and there is no reason to delay the sentencing to enable this issue to be considered. As I indicated at the hearing it is apparent that this appeal raises important issues for the District Court and I consider it appropriate to grant leave. In particular I note that Judge Harland has set out in detail her reasons why she considers this to be a significant issue for the District Court in its RMA sentencing jurisdiction and that she was intending to issue similar directions on this issue in future cases as a result. The parties have indicated there are in fact some five extant directions of this nature issued in similar cases, and in those circumstances it is important to consider the issue of whether such directions are lawful.

Discussion

[12] At the beginning of the judgment I recorded why the District Court and in particular Judge Harland considered the information directed to be provided by Chisholm Farms was relevant. As Judge Harland noted it is relevant if a defendant is relying on insurance to pay a fine and there is some issue with the policy that would prevent the fine being paid. It is also self-evident that in assessing the imposition of a fine that will meet the purposes and principles of the Sentencing Act, the extent to which the fine will be paid by an insurance company will be relevant. Put simply whether a particular level of fine meets the purposes and principles of the Sentencing Act will depend to an extent on whether the fine is being paid by the offender personally or an insurance company.

[13] As the parties have noted r 5A.5 of the Criminal Procedure Rules 2012 sets out the contents of the sentencing memoranda by the prosecutor and defence, with
5A.5(2)(b)(vii) providing that counsel for the defendant is required to put forward “any other relevant matter” which, in a case involving determining appropriate fine, would clearly include information about the defendant’s financial capability, and in particular information touching on the payment of that fine.

[14] Accepting that information about the financial position of the defendant, including any insurance against fines held by the defendant, is relevant and therefore can be put before the Court in sentencing, the fundamental question that must be determined in this appeal is whether and to what extent a Court may direct that information be provided to the Court. The starting position must be that unless the District Court has power to require the provision of the type of information sought from Chisholm Farms in this case or a power is otherwise able to be implied, the Court will not be able to direct a defendant to provide such information.

[15] Both parties accept, as noted by Judge Harland in both Whitikau and the 14 May 2018 direction, that the only relevant statutory provisions are those contained in ss 40-42 of the Sentencing Act. Section 40 relevantly provides:

40. Determining amount of fine

(1) In determining the amount of a fine, the court must take into account, in addition to the provisions of sections 7 to 10, the financial capacity of the offender.

(2) Subsection (1) applies whether taking into account the financial capacity of the offender has the effect of increasing or reducing the amount of the fine.

...

[16] Section 40(1) makes it clear that, as Judge Harland noted, “the financial capacity of [an] offender” is relevant “in determining the amount of a fine”, with s 40(2) confirming that depending on the level of that financial capacity the ultimate size of the fine can be adjusted upwards or downwards.

[17] The meaning of “the financial capacity of the offender” is not defined in the Sentencing Act but, as Mr Beadle on behalf of Chisholm Farms points out, the heading of s 41 is in fact the “financial capacity of offender”. This section provides three options for working out the financial capacity of an offender, as follows:

41. Financial capacity of offender

(1) If the court considers that a fine of less than $100 may be an appropriate sentence, it may assume that the offender has the means to pay the fine unless evidence is presented to the contrary.

(2) If the court considers that a fine of $100 or more may be an appropriate sentence, but it is uncertain about the offender’s ability to pay the fine, the court may direct the offender to make a declaration as to his or her financial capacity in accordance with section 42.

(3) The court may decline to give a direction under subsection (2) and impose a fine without further inquiry if—

(a) the type of information referred to in a declaration is available through other means (including, without limitation, a reparation report under section 33); or

(b) in all the circumstances the court considers that a declaration is unnecessary.

[18] The critical question before the Court in this case is whether the reference to the “financial capacity of the offender” referred to in s 40(1) is limited to the types of enquiry set out in s 41 as contended by Chisholm Farms, or whether as Judge Harland concluded in Whitikau and the directions minute under appeal s 40(1) empowers a broader enquiry to be undertaken by the Court. The approach adopted in the District Court requires implying a power into s 40(1) to direct that wider information be filed with the Court, as beyond s 41(2) there is no specific power granted to request information about those wider considerations elsewhere in the Sentencing Act or indeed anywhere else.

[19] The starting point is that the meaning of s 40(1) must be ascertained from its text and in the light of its purpose, as well as its context.¹⁶ Among other reasons, words will be read into statutes by the courts to avoid absurdity or unworkability,¹⁷ to make an Act workable or consistent with the Act’s scheme and purpose,¹⁸ or if necessary to make the original powers in the Act effective.¹⁹

¹⁶ Interpretation Act 1999, s 5.

¹⁷ R v Wall [1983] NZCA 35; [1983] NZLR 238 (CA).

¹⁸ Northland Milk Vendors Association Inc v Northland Milk Ltd [1988] 1 NZLR 530 (CA).

¹⁹ New Health New Zealand Inc v South Taranaki District Council [2018] NZSC 59 at [40]. See generally RI Carter Burrows and Carter Statute Law in New Zealand (5th ed, LexisNexis, Wellington, 2015) at 319-329.

[20] In this case, having considered the position, I conclude that to read ss 40 and 41 in a way that not only requires a different interpretation of “financial capacity” in each section despite their location in the same subpart of the Sentencing Act, but implying a power to enable the Court to undertake wider enquiries of the financial position of an offender cannot be correct. Such an approach is artificial and cannot be justified when the sections can otherwise be construed so as to give effect to their terms and the purpose of the Sentencing Act without any need to imply additional powers.

[21] In light of the context provided by s 41, the most coherent interpretation is that “financial capacity” means the same thing in s 40(1) as it does in s 41. Reconciling s 40(1) with s 41 is in fact straightforward if this is accepted. This means the mandatory taking into account of “financial capacity” can only be in terms of s 41, and is achieved by the Court undertaking the requisite analysis in terms of s 41. In particular s 41(1) makes it clear that if the proposed fine is less than $100 the Court can assume the offender is able to pay. If the Court is considering a fine of $100 or above and the Court is “uncertain about the offender’s ability to pay” then in terms of s 41(2) the Court is entitled to ask for the offender to complete a declaration pursuant to s 42, in order to provide information on “all sources of income, assets, liabilities, and outgoings”. The type of information which can be directed to be provided in a s 42 declaration is clearly wide enough to include the information sought by Judge Harland in the present case. Section 41(3) goes on to provide that a Court does not have to proceed with the enquiry in s 41(2) if the information is available through other sources, or the Court otherwise determines that in all the circumstances such a declaration is unnecessary. Once the Court has completed its enquiries under s 41 it must return to s 40(1) to complete its determination of the level of fine. As noted, in terms of s 40(2) this may lead the Court to increase or reduce the fine based on the financial capacity of the offender, either identified by this process or otherwise known.

[22] This interpretation of the interrelationship of ss 40 and 41 is coherent and accommodates the sections as drafted without any need to imply further powers or to require alternative meanings for “the financial capacity of the offender” in adjacent sections. In my view it is also consistent with the purposes of the Sentencing Act and the purposes of sentencing more generally. In this regard, it should be remembered in
particular that offending under the RMA is only one category of offending to which s 40 of the Sentencing Act applies. While deterrence assumes particular significance in that context, s 40 must be fit for purpose for sentencing on a wide range of offending, for which the purposes of sentencing other than deterrence may be equally, or more, relevant.

[23] In those circumstances I cannot see how s 40(1) can be interpreted as providing the Court with a general power to require further information including information about insurance outside the s 41 procedure.

[24] For the foregoing reasons it follows that to the extent Judge Harland was relying on an inherent power or an implied power based on a wider interpretation of “the financial capacity of an offender” than that contained in s 41 in order to require Chisholm Farms to provide information with regard to its insurance policy, there was no power to do so.

[25] By the same token it is clear that the information sought by the Court in this case can be specifically requested pursuant to s 41(2) and could have formed part of a declaration by Chisholm Farms in terms of s 42, if there was uncertainty about its ability to pay a fine. This issue was addressed to an extent by Judge Harland in [9]-
[12] of her Minute of 14 May 2018 but as Mr Beadle noted in those paragraphs Judge Harland ultimately expressed no uncertainty about the financial capacity of Chisholm Farms nor its ability to pay any fine. Moreover no general declaration in terms of s 42 was in fact directed by Judge Harland, which is the prescribed statutory response to any uncertainty expressed by the Court. No general information about the financial capacity of Chisholm Farms was in fact sought at all by the Court, and Mr Beadle indicated Judge Harland had advised that the information ultimately provided about the insurance would not affect the size of any fine ordered.

[26] In the circumstances I am satisfied that the Court’s direction of 14 May 2018 was ultra vires. The appeal must be allowed and the direction set aside. It will be for the District Court to then determine whether in terms of s 41(2) it:

• (a) is in fact uncertain about Chisholm Farms’ ability to pay any fine that may be ordered; and if so

(b) whether to request Chisholm Farms to prepare a declaration in terms of s 42 including information about insurance held against fines imposed under the RMA.

Decision

[27] Leave to appeal is granted.

[28] The appeal is allowed and the direction dated 14 May 2018 is set aside.

[29] The case is remitted back to the District Court for the Court to determine:

(a) whether the Court is in fact uncertain about Chisholm Farms’ ability to pay any fine that may be ordered; and if so

(b) whether to request Chisholm Farms to prepare a declaration in terms of s 42, including information about insurance held against fines imposed under the RMA.

[30] Once any issues with regard to the financial capacity of Chisholm Farms have been resolved the District Court can proceed to sentence Chisholm Farms.

[31] Costs on the appeal are reserved. Should Chisholm Farms seek costs a memorandum is to be filed within two weeks of the date of this judgment and any response on behalf of the Waikato Regional Council is to be filed within a further two weeks. The memoranda are to be no longer than five pages each. Once the memoranda are received I will determine the issue.






Powell J