Bribery and corruption in New Zealand

February 2015  | SPECIAL REPORT: CORPORATE FRAUD & CORRUPTION

Financier Worldwide Magazine

February 2015 Issue

New Zealand is widely regarded as one of the least corrupt countries in the world. Notwithstanding that reputation, there is increasing evidence of corrupt conduct. We summarise here some of the potential criminal and civil consequences of engaging in such conduct under New Zealand law.

Criminal liability

The New Zealand courts can impose serious criminal sanctions upon those who participate in bribery or other corrupt activities. Those sanctions arise principally under the Crimes Act 1961 and the Secret Commissions Act 1910, but conceivably under the Fair Trading Act 1986 as well.

Sections 99 to 106 of the Crimes Act 1961 deal with bribery of public servants. A bribe is defined widely as any money, valuable consideration, office or employment, or any benefit, whether direct or indirect. In general terms, it is an offence to give or offer or agree to give a bribe to any person with intent to influence a New Zealand judicial officer, a Minister of the Crown or member of the Executive Council, a member of the New Zealand Parliament, a New Zealand law enforcement officer or a New Zealand official such as a civil servant, or an employee of a local body. Such offences are punishable by imprisonment for up to seven years. Receiving a bribe also attracts criminal liability and, in some instances, stiffer penalties. In one high-profile case, a former MP was sentenced to six years imprisonment for accepting plastering and tiling services in exchange for assistance with immigration applications.

Sections 105C to 105E of the Crimes Act 1961 deal with the bribery of foreign public officials. There have been no cases brought to trial in New Zealand for breach of those provisions, though the Serious Fraud Office has conducted one long-running investigation into conduct by a prominent exporter. The Organised Crime and Anti-Corruption Legislation Bill, which is presently proceeding through the New Zealand Parliament, proposes to bring New Zealand into line with international best practice by widening the application of the foreign bribery offences.

There are a number of more general provisions of the Crimes Act 1961 which could also come into play. Section 237 provides that it is an offence to blackmail a person by threatening to disclose something in order to induce him to act in a particular way. Blackmail is punishable by imprisonment for up to 14 years. Section 240 provides that obtaining by deception is also an offence. That may occur, for instance, where a person obtains a pecuniary advantage or benefit by knowingly making a false representation. Obtaining by deception is punishable by imprisonment for up to seven years.

The Secret Commissions Act 1910 deals with undisclosed commissions or gifts to agents. It is capable of applying in both public and commercial contexts. An agent is defined widely, and includes any director or officer of a company. In general terms, it is an offence to corruptly give or agree or offer to give any gift or consideration to an agent as an inducement or reward for acting in a certain way with respect to his principal’s affairs. Furthermore, it is also an offence for an agent to make a contract on behalf of his principal without disclosing the existence of a pecuniary interest he has in the contract, to give an agent a receipt or invoice or other document which is false or misleading or omits to state any commission or other adjustment (with intent to deceive his principal), or to advise any person to enter into a contract with a third person without disclosing any gift or consideration received from that third person. Such offences are punishable by imprisonment for up to two years or fines. Corrupt conduct by agents attracts similar criminal liability.

The Fair Trading Act 1986 deals with misleading conduct in trade. It is arguably capable of application in the context of bribery or corruption. For instance, section 13 prohibits making a false or misleading representation with respect to the price of any goods or services – among other things. Section 40 provides that is an offence to breach such a prohibition, punishable by fines of up to $600,000 for a company.

Civil liability

The New Zealand courts can also be asked to impose civil liability upon those who engage in corrupt conduct. Such liability could conceivably arise in contract (e.g., for breach of the terms of their supply contract, whether express or implied), in tort (e.g., for inducing a breach of contract by the employee receiving the gift), in equity (e.g., for dishonest assistance in connection with a breach of fiduciary duty by the employee receiving the gift) or under statute (e.g., for breach of sections 9 or 13 of the Fair Trading Act 1986).

Whether a party will be liable in contract will of course depend heavily on the facts and the particular agreement at issue. Even if no express term has been breached, the court may be prepared to hold that the relevant conduct contravenes an implied term. Where the innocent party was induced to enter into the contract by a misrepresentation, it may be able to sue as if that misrepresentation were a term of the contract under the Contractual Remedies Act 1979. In most cases, the court would award damages to compensate the innocent party – although exemplary, ‘restitutionary’ and injunctive relief are also possibilities. A serious breach or pre-contractual misrepresentation may also entitle the innocent party to cancel the contract under the same statute.

Where there is clear evidence of dishonesty, the innocent party may be able to sue in the tort of deceit, unless the relevant deception occurred in a pre-contractual context, in which case the Contractual Remedies Act 1979 would apply. Occasionally, the innocent party may also be able to sue for negligent misstatement. Depending on the facts, there may also be claims for inducing a breach of contract. For instance, it is conceivable that a guilty party could be sued for inducing an employee to breach his obligations to his employer. In most cases, compensatory damages would be the usual remedy, although exemplary, ‘restitutionary’ and injunctive relief may also be available.

Cases following up on instances of bribery or corruption often focus on equitable claims, especially those with a proprietary element. It will often be the case that the giver or recipient of a bribe will breach fiduciary duties, which can give rise to both claims for compensation and assertions of property rights. In one famous case, a senior employee of a foreign government received bribes offshore then used the money to purchase real estate in New Zealand. The court imposed a constructive trust over those properties in favour of his employer. Liability may also be imposed on those who provide dishonest assistance to, or knowingly receive tainted property from, parties breaching fiduciary duties.

As noted above, section 13 of the Fair Trading Act 1986 prohibits making a false or misleading representation with respect to the price of any goods or services. Section 9 is a general prohibition against misleading or deceptive conduct in trade. Both provisions could be breached where one party deals with another without disclosing a side-payment or other arrangement. Section 43 empowers the court to make a wide range of orders, including that the guilty party pay compensation or return property or that a contract be brought to an end.

Closing remarks

Bribery and corruption can give rise to myriad other complications, including employment issues, insurance problems or difficulties in complying with far-reaching and long-running criminal investigations. It is important that companies doing business in New Zealand or with New Zealand organisations are aware of their obligations and potential exposures under New Zealand law, rather than simply assuming from our reputation as a ‘clean’ country that the risk can be safely disregarded.

 

Ian Gault is a partner, Andy Glenie is a senior associate and Delia Cormack is a solicitor at Bell Gully. Mr Gault can be contacted on +64 9 916 8967 or by email: ian.gault@bellgully.com. Mr Glenie can be contacted on +64 9 916 8811 or by email: andy.glenie@bellgully.com. Ms Cormack can be contacted on +64 9 916 8650 or by email: delia.cormack@bellgully.com.

© Financier Worldwide

BY

Ian Gault, Andy Glenie and Delia Cormack

Bell Gully

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