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Chan v Marum, Registrar of Companies [2004] PGNC 241; N2524 (16 February 2004)

N2524

PAPUA NEW GUINEA

[IN THE NATIONAL COURT OF JUSTICE AT WAIGANI]

APPEAL NO. 289 OF 2002

TONY CHAN
First Appellant

And:

MARY KASSMAN
Second Appellant

And:

WILLIAM L. MARUM (REGISTRAR OF COMPANIES)
Respondent

Waigani: Injia, DCJ
2003: December 5th
2004: February 16

COMPANIES – Annual Returns- Failure to lodge – Late lodgement fee – Followed by prosecution for criminal offence – Whether fee a criminal "penalty fee " or "administrative fee " – Whether fine for criminal offence amounts to double punishment for same offence - Companies Act 1997, s 215(9) & s 411(1) (b)

APPEALS - Against excessiveness of punishment- Failure to lodge company Annual Returns for three (3) years – Two directors of company – Six (6) offences – Punishment- Fine of K4,000.00 for each offence (total of K24,000.00) – Relevant factors for consideration of punishment -Duty of Magistrate to consider relevant factors on punishment either raised or not raised by counsel – Error of law - Appeal allowed - Fine reduced to K500.00 for each offence.

Cases cited:
William Norris v The State [1979] PNGLR 605

Counsel:
Ms Eliakim for the Appellants
Ms Gavara-Nanu for the respondents

16 February, 2004

INJIA, DCJ: This is an appeal against excessiveness of penalty of fines imposed for six (6) offences under S.215(9) of the Companies Act. The appellants are directors of Silver Plate Ltd (the Company), which failed to lodge Annual Returns with the Registrar of Companies, for three (3) years, from 1998 to 2000. Each appellant was charged with three (3) offences, one for each year. The appellants pleaded guilty to their three (3) respective charges. On 3 June 2002, the District Court at Boroko, Bill Noki PM presiding, imposed a fine of K4,000 for each offence. Each appellant received a total fine of K12,000; the total between them being K24,000.00.

The two grounds of appeal are:

"1. The District Court Magistrate erred in fact and in law in defining the late penalty fee paid by the Appellants as an administrative fee when in fact, it is a penalty fee imposed under Section 411(1)(b) of the Companies Act.

2. The District Court Magistrate erred in fact and in law in the exercise of his discretion in awarding K4,000 each against the Appellants in that:-
   
   • (i) The District Court Magistrate failed to give weight to the mitigating factors as deposed to by the Appellants in their respective Affidavits sworn on 26th March 2002 and filed 27th March 2002.
     
   • (ii) The District Court Magistrate failed to take into consideration the fact that the Respondent did not and never at any one time forewarned or remind the Appellants as is the practice adopted and applied by the Investment Promotions Authority in any circumstances of Companies’ failures to lodge relevant company document as required under the Companies Act.
     
   • (iii) The District Court Magistrate failed to take into consideration the late penalty fee of K300.00 paid by the Appellants on 27th February 2002."
     

Counsel for the appellant Ms Eliakim’s main thrust of her submission is that the fine for each offence imposed on each appellant for the three offences, and the total fine imposed on both appellants were excessive in the circumstances.

In relation to the first ground, she submits that when the appellants were notified of the outstanding returns, they lodged the returns. On 27 February, 2002 the Registrar accepted the late lodgment and imposed a late lodgement fee of K300.00 ( K100.00 for each year). But on 26 February 2002, the respondent proceeded to lay charges under S.215(9). The K300 late lodgement fee was a "penalty fee" imposed by the Registrar for the same offences. The Magistrate erred in law by treating this "penalty fee" as an "administrative fee".

Ms Gavara-Nanu for the respondent submits the learned Magistrate correctly described the late lodgement fee as an "administrative fee", it was not a substitute for penalty of a fine for the statutory offence under S.215(9).

In the District Court, the appellants argued the late lodgement fee was equivalent to a "fine" for a criminal offence or "penalty fee" and the fines under S.215(9) amounted to double punishment for the same offence. In effect, they were seeking complete exoneration from liability to pay the fine under S.215(9). The learned magistrate did not specifically deal with the "double punishment" argument, but he appears to have taken the argument as an attempt by the appellants to completely exonerate themselves from penalty under S.215(9). The magistrate rejected the submission when he treated the late lodgement fee paid under S.411 (1)(b) as an administrative fee which is separate from the more serious statutory offence created by S.215(9). The pertinent part of his judgment appears on page 7 of his judgment where he says:-

"It is also important to look at the intention of Parliament, under the Companies Act 1997. The legislative intention behind the new Act is to ensure greater accountability to the companies office by imposing such penalties for late lodgement of document which are considered as administrative fees. The court should not be lenient but must be seen to be fair and just on its sentence for the statutory offences, as it would defeat the rationale for such stringent requirement of the Act."

A little later, the magistrate said:

"Section 215(9) crease an offence of failing to lodge annual returns for each calendar year and the intention of the Act is that it relates to a matter of National interest. The intention is to punish offenders who violated the provisions of the Act and not totally exonerate the defendant from criminal liability."

I am not entirely sure if the appellants are in this appeal, challenging the magistrate’s finding of "administrative fee" as a ground for nullifying the imposition of penalty on the grounds of "double punishment". If they are, it would be a misconception. The late lodgment fee under S.411(1)(b) is an administrative fee for late lodgement collected by the Registrar, over and above the normal lodgement fee. It is also not substitute for a penalty under S.215(9). A criminal prosecution and criminal conviction under S.215(9) or any other statutory offence, is for past failure to lodge an Annual Return. A late lodgement fee under s 411 (1)(b) is not a bar to criminal prosecution for an offence under S.215(9).

I do however accept Ms Eliakim’s contention that the prompt late lodgement of Annual Returns upon being notified of the default is a relevant consideration on penalty for an offence under S.215(9). This brings me to the second ground of appeal. Ms Eliakim submits the learned magistrate failed to consider or take into account in the appellant’s favour one of the main mitigating factors which was that consistent with earlier practice, they were not forewarned of the default by the registrar, that when the default was rectified promptly upon being notified, the registrar without warning laid the six (6) charges. The appellants were unaware that the annual returns were outstanding for the three (3) years and had they been notified, they would have rectified the default immediately. If the magistrate took this factor into account in favour of the appellants, he could not have imposed the heavy fine.

Ms Gavara-Nanu submits that there was no error in the exercise of the magistrate’s discretion on penalty. The magistrate properly took into account all relevant mitigating factors including those referred to above, and balance those against the intention of the legislation and interest of the community sought to be protected and imposed a deterrent punishment, which was warranted in the circumstances. The appellants as directors and shareholders should have been aware of the requirements to lodge annual returns and their failure cannot be excused. The maximum fine for each offence is K10,000 and the fine imposed on the appellants for each offence was at the lower end of this penalty, it is reasonable and it should not be disturbed.

This is an appeal against excessive of punishment for a criminal offence. The principles are settled. The appellate court will not interfere with the punishment unless the appellant shows some error of law or facts or, that the punishment is manifestly excessive in the circumstances. I prefer to adopt the statement of principle in Norris v The State [1979] PNGLR 605 at pp. 612- 613:

"So the question in practice on a sentence appeal is usually this – has the appellant shown that an error occurred which has the effect of vitiating the trial judge’s discretion on sentencing? Such an error may be identifiable: thus, the trial judge may have made a mistake as to the facts; or acted on a wrong principle of law; or taken into account matters which he should not have taken into account; or failed to take into account matters which he should have taken into account; or clearly given not enough weight to a matter he properly took into account. There will also be vitiating error if upon the proved facts and making the fullest allowance for the advantaged position of the trial judge, the sentence is obviously (and not merely arguably) excessive, although no identifiable error can be shown; for, if a sentence is out of reasonable proportion to the circumstances of the crime, even though no particular error can be identified, this Court will infer that some error must have occurred in the exercise of the sentencing discretion." (per Prentice Dep CJ).

In the present case, the learned magistrate took into account the fact that the appellants were first offenders and that they were remorseful when they pleaded guilty. He balanced these against the interest of the community who are entitled to protection against criminal behaviour of entrepreneurs and the need to give effect to the intention of Parliament in the legislation which was "to ensure greater accountability to the Companies office." I do not find any error in His Worship’s initial approach to determining the appropriate penalty.

As to the argument on forewarning, the magistrate referred to arguments raised by the parties at page 6 of his judgement, but the magistrate did not specifically deal with the arguments. It is clear to me on the face of the judgment that the learned magistrate failed to address his mind to this important submission as to the appellant’s lack of knowledge of the requirement to lodge the annual returns and lack of forewarning. In my view this is an identifiable error of law. Another identifiable error was that the magistrate failed to consider the prompt remedial action taken by the appellants to file the Annual Returns upon being notified and the payment of the late lodgment fee, which was closely followed by criminal prosecution. If these factors were taken into account and given due weight, they would have mitigated the penalty.

In terms of excessiveness of the fines, the magistrate said the late lodgement fees are administrative fees and the court should not be lenient but "seem to be fair and just on its sentence for statutory offences, for it would defeat the rationale for such stringent requirements of the Act." A little later, he considered the offence to be serious as shown by the maximum penalty. He said "the court must impose deterrent penalty as a warning to the defendants and others who may violate the provisions of the Companies Act" and the penalty he was imposing was the "lower limit of K10,000.00 which is the maximum penalty." Once again, I generally agree with these views.

In the course of submissions, I enquired of counsel what the company’s share capital was and the assets and liabilities of the Company. I was referred to the annual returns for 1997 and 1998 which shows a share capital at 10,000 shares at K1.00 each, assets at K19,078.39 and liabilities at K26,458.10. I enquired of counsel whether the total fine could have a killing effect on the Company and its directors in that the appellants or their Company (which would no doubt foot the fine bill) could be required to pay money which they may not have, which would then give rise to more serious default penalties such as imprisonment. From this evidence it is a reasonable inference that this hefty fine would be a huge burden on the small private company which, it seems to me, was struggling to survive in business.

I also enquired of counsel as to whether in the totality of the circumstances, the total punishment for the offences were excessive. This was a case where the two directors of a small private family company were charged with multiplicity of the same charges and fined substantial amounts for each offence. These matters of fact and law of course are relevant on sentence on this type of offence, but they were neither raised by counsel nor the magistrate. But a court doing justice must see it as part of is duty to raise these relevant matters and consider them in its decision on sentence. An appellate court cannot ignore these relevant matters which were in evidence before the Court below. These are relevant matters to be considered in deciding whether the court below failed to take into account matters which he should have taken into account: Norris v State, supra. They are also relevant matters to be considered in deciding whether the punishments were manifestly excessive in the totality of the circumstances.

Ms Gavara-Nanu submitted that those factors are irrelevant on the issue of reasonableness of the fine because the amounts imposed was at the lower end of the maximum amount, each director had a separate fiduciary duty to the company to lodge the returns and they knew or ought to have known their statutory duty to lodge those returns and they failed to do so three (3) consecutive periods.

It is of course important for the court to take into account the seriousness of the offence as reflected by reference to the penalty prescribed for that offence, but at the same time, it is equally important that the court take into account the seriousness of the offence in terms of the particular circumstances of the offence. A strong punitive and deterrent sentence is usually imposed where the offence is prevalent in the community and it accompanied by other factors such as elements of corrupt practices, fraudulent misrepresentation of information on company returns, company tax evasion and the like. But there was no evidence of such matters in this case placed before the magistrate. The only factual matter of some gravity was that the annual returns were outstanding for three consecutive years but there was no evidence of any fraudulent scheme to hide anything from the Registrar by withholding lodgment of these returns. In any case, these were rectified by the appellants when required to do so.

In my view, the purpose of the requirements under the Companies Act for lodgment of annual returns or other documents required to be lodged with the Registrar must be properly understood. It is not only regulatory of business but also it is facilatory of business. It is not the objective of these regulatory and facilatory provisions to discourage or kill off businesses in our free enterprise economy, with the imposition of high and unaffordable fees or penalties for offences. The penalties in fines imposed for offences under S.215(9) or any other similar offences under the Act, must be relative to the size of the business and its capacity to pay the fine, to enable the company or directors to remedy the default, learn from their past mistakes and still continue in business. It is clear to me that the fines imposed on the appellants, either individually or collectively, were manifestly excessive in the circumstances, having regard to all these factors together with other factors including the fact that they were first offenders, that they promptly remedied their default by lodging the outstanding returns and paid late lodgement fees. These factors were not considered at all or were considered but given little or no weight. I am satisfied in these circumstances, that the magistrate erred in law in the exercise of his penalty discretion.

For these reasons, I allow the appeal, quash the individual fines imposed for each offence, and substitute a fine of K500 for each offence to be paid within one (1) month. This means each appellant will pay a total of K1,500 each. The total fine is K3,000. The respondent shall pay the appellant’s costs of this appeal.
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Lawyers for the Appellant : Maladinas Lawyers
Lawyer for the Respondent : Ms Gavara-Nanu