High Court upholds that directors and companies can both be convicted
4 October 1996
The Christchurch High Court today upheld an earlier District Court judgment that if a company breaches the Fair Trading Act, then individuals, including directors, can be convicted as well as the company.
The High Court rejected appeals against convictions by Christchurch lawyer John Rutherford and a company of which he was a director, Rural Management Ltd.
Commerce Commission Chairman Dr Alan Bollard said this is an important message for all business people. If, because of their decisions, their company breaches the Fair Trading Act, then business people cannot hide behind the company.
"They are responsible and accountable for their actions, and can be convicted" Dr Bollard said.
The Commission prosecuted Mr Rutherford and Rural Management last year for falsely advertising "fully serviced titled sections" at Wainui sub-division near Christchurch. The District Court found them guilty of two charges each.
Stage 1 of the sub-division was not fully serviced as there were no arrangements in place for disposal of sewage. Anyone buying a section would have had to make their own arrangements for sewage disposal and have them approved by the District Council before even getting a building permit.
Titles were not available for sections in stage 2 of the sub-division.
The High Court rejected Mr Rutherford and Rural Management's arguments that the claims made in advertising were not false.
"Not a single section came within the description," Justice Tompkins said. He also said there could be no doubt that Mr Rutherford knew that the claims made in the advertisement were not correct.
Significantly, he rejected arguments that if the company was convicted, then it was inappropriate to convict Mr Rutherford for the same advertisement.
"I am unable to see any reason why convictions should not be entered against a director, servant or agent of a company, as well as against the company on whose behalf the director, servant or agent were acting," Justice Tompkins said.
The level of penalty, $20,000 in total, was also appealed.
Justice Tompkins said that taking into account the circumstances of the case, including that a full refund had been paid to the property buyer after the Commission began its investigation, he considered total fines of $13,000 to be appropriate.
He reduced the fines against Rural Management from $7,500 on each charge to $5,000, and those against Mr Rutherford from $2,500 to $1,500.
Media contact: Legal Services Manager Mike Chapman
Phone work (04) 498 0918, home (04) 568 3477
Communications Officer Vincent Cholewa
Phone work (04) 498 0920, home (04) 479 1432