KEITH HENRY BURNS V ATTORNEY-GENERAL IN RESPECT OF THE CHIEF EXECUTIVE OF THE INLAND REVENUE DEPARTMENT CA CA155/02

KEITH HENRY BURNS V ATTORNEY-GENERAL IN RESPECT OF THE CHIEF EXECUTIVE OF THE INLAND REVENUE DEPARTMENT CA CA155/02 30 June 2003IN THE COURT OF APPEAL OF NEW ZEALAND CA155/02BETWEEN KEITH HENRY BURNS Appellant AND ATTORNEY-GENERAL IN RESPECT OF THE CHIEF EXECUTIVE OF THE INLAND REVENUE DEPARTMENT Respondent Hearing: 30 April 2003 Coram: Gault P Keith J Glazebrook J Appearances: K H Burns in person, assisted by P Hill A A Couch and A L Rapley for the Respondent Judgment: 30 June 2003JUDGMENT OF THE COURT DELIVERED BY KEITH J[1] Mr Burns, the appellant, was employed by the Inland Revenue Department for nearly 30 years. Since the events which are the subject of his employment proceedings, he has taken voluntary redundancy. While he raises no issue in respect of that matter, he has raised many other issues relating to his employment in the proceedings which are the subject of this appeal and also, we were told, in other proceedings. [2] Mr Burns must appreciate the limits of the judicial process and in particular of the matters that can be raised on appeal under s135 of the Employment Contracts Act 1991. An appeal to this Court under that provision is by a party dissatisfied with a decision of the Employment Court as being erroneous in point of law. It is not enough to identify an alleged error of law somewhere in the text of the decision; itmust also have affected the decision of the Employment Court to the appellant's disadvantage. [3] In respect of a range of employment matters arising before he took redundancy, Mr Burns brought two proceedings which were heard together in the Employment Court. The first was based on a personal grievance and the second on a common law action for damages for breach of contract. The first concerned the actions of the Commissioner of Inland Revenue up to 14 April 1998 and the second on his actions after that date. In all Mr Burns claimed $120,000. [4] A preliminary issue relating to the personal grievance proceeding was decided in Mr Burns' favour by a full Employment Court. In the words of the Chief Judge giving the judgment under appeal, the Full Court ruled at that earlier stage thatan employer cannot discipline an employee in respect of the way in which the submission of a personal grievance is expressed if, in the employer's perception, that contains serious or "unacceptable" allegations against the employer. Thus the hearing before me commenced on the footing that the law had already been determined and the facts were not greatly in dispute.[5] The reason for seeking the earlier ruling and the reference to the facts not being greatly in dispute are to be related to, and explained by, a letter of 4 April 1998 which the Commissioner wrote to the appellant. We set out in turn that letter, a related letter of 8 June 1998, the Chief Judge's ruling on them and his ruling on the remedies for the breaches he found. The passages which Mr Burns challenges are, for convenience, bolded and numbered by reference to his points on appeal as they are discussed in this judgment. [6] On 14 April 1998 the Commissioner wrote as follows:On 11 February 1998, you wrote to me and accused me of "failing to act with integrity" in my dealings with you, equating that term with dishonesty or the telling of lies. Later in the same letter, you accused me of having "defied the law, Parliament and Crown Policy". On any view of it, these are very serious allegations and I totally reject them. As you will be aware, I am your employer. It is an essential aspect of the relationship between an employer and an employee that they have trust and confidence in each other. Your allegations suggest that you no longer have trust and confidence in me as your employer, and I regard your allegations ashaving seriously undermined my trust and confidence in you as an employee. I believe that the level of trust and confidence necessary to sustain the employment relationship between us can only be restored if you unreservedly withdraw the allegations made in your letter of 11 February. You are therefore asked to do that in writing no later than 30 April 1998. If you fail to do so, your continued employment will be at risk.[7] On 8 June, the Commissioner, having received Mr Burns' response, returned to the matter:On 14 April 1998, I wrote to you regarding the serious allegations you made about me in your letter of 11 February. In that letter I expressed my view that those allegations had seriously undermined the necessary relationship of trust and confidence between us. You responded in a letter dated 28 April 1998 in which you agreed that your allegations were very serious ones but refused to withdraw them. You purported to justify your refusal to withdraw the allegations on two grounds. Firstly, you referred to section 37 of the Employment Contracts Act. Secondly, you suggested that, because your allegations were made in the course of submitting a personal grievance, you could not be held accountable for them. I have taken legal advice on those issues. I have been advised that section 37 of the Employment Contracts Act has no application in these circumstances. I therefore do not accept that this section relieves you of responsibility for the allegations you have made. As to those allegations having been made in the context of submitting a personal grievance, I have been advised that the gravity of your allegations is such that there is very little if any scope for the suggestion you have made. The essence of the grievance you submitted in your letter of 11 February was that you believed you had been disadvantaged because I had delegated Carson McNeill responsibility for responding to one of your earlier grievances. The submission of that grievance did not require the making of personal allegations of dishonesty against myself and such allegations must therefore be seen as gratuitous. In any event, you have now delayed more than 3 months in pursuing this grievance. Your claim that you should not be held responsible for the allegations you have made because they formed part of the submission of a personal grievance depends entirely on the grievance being genuine. Your failure to pursue it further suggests very strongly that the grievance is not genuine and that there is therefore no basis on which you should not be accountable for your allegations. On 15 April Carson McNeill wrote to you generally regarding your many outstanding grievances and disputes. In that letter, he told you that any grievances or disputes then submitted and not referred to the Employment Tribunal by 30 May 1998 would be regarded as having been settled. If the grievance submitted in your letter of 11 February 1998 is not referred to the Employment Tribunal, I will regard that grievance as not only having beensettled but also require you to unreservedly withdraw the allegations of dishonesty and lack of integrity made in that letter. If you do not do so by 21 June 1998 I will then consider whether your employment can continue.[8] In his decision, the Chief Judge said this about the letters:Although written on legal advice, they strike me as quite inappropriate letters for a chief executive of a Government department to have written to an employee. They amounted respectively to a demand that a personal grievance be abandoned and to an attempt to control its content and timing. It seems entirely understandable that Mr Burns was alarmed by the explicit statements about his future at IRD or lack of it should he fail to do as the Commissioner required. As Mr Couch [for the IRD] conceded, such statements disadvantaged Mr Burns at least to the same extent as a final warning. That concession was properly made. It probably does not go far enough. Had Mr Burns not taken the action, unpalatable to him, of complying with the Commissioner's demands, the threat hanging over his head would almost certainly have been carried out and he would have lost his job at once along with accrued service entitlements. It follows from the full Court judgment that the pressure applied to Mr Burns to withdraw his personal grievance in part was improper. That action that disadvantaged him was unjustified. If the statutory personal grievance procedure was defective or contained elements that were inconvenient for the IRD because it caused uncertainty, its correct course was to lobby Ministers for a change to the law. It was not open to it to visit its displeasure with the system on Mr Burns who was as much caught up in its net as the IRD. [4] The Commissioner's action was also in breach of implied and express terms of the employment contract, including the term requiring the IRD to deal fairly and reasonably with Mr Burns and to be a good employer. However, he can recover only once. [2] I have not been persuaded that Mr Burns contributed, by any reprehensible action, to the situation that gave rise to his personal grievance or, if he did, that it would be fair to reduce his recovery on account of his having used stronger language than the Commissioner thought necessary to support the grievance. I do not find it necessary to say anything about the Commissioner's opinion, except perhaps that the Commissioner's reactions to his personal grievances in early 1998 may well have left Mr Burns with the impression that they were not being treated seriously. It is perhaps not surprising that he expressed himself with an emphasis consistent with his obvious perception that his immediate supervisor was treating him badly and more senior managers were condoning his actions.[9] The Chief Judge then turned to remedies:The IRD knew it had an employee of unusual sensitivity, yet it acted in a way that was likely to exacerbate his sense of grievance. It adopted a strategy of winding him up when he was already tense. It is to its credit that it let the matter drop when he withdrew such of his allegations as were objected to but the damage had been done. The relationship was thereafter doomed. For a considerable time Mr Burns had the sword of Damocles suspended by the faintest of threads above his head. He would have beenentitled to resign and bring a claim of constructive dismissal but he chose instead to affirm the contract. That does not prevent him from recovering damages for past breaches or compensation for past grievances (but not both where they overlap). In my view, the result is the same from either perspective. Some robust persons might not be affected by the treatment meted out to Mr Burns but he is not robust. The threats to his family's financial security and to his job satisfaction had the effects he describes. I am satisfied that he was deeply distressed and suffered much worry and some sleepless nights. He had to swallow his pride and back down. There is little guidance in the cases about a proper level for the award as the circumstances are quite unique. The breach was serious and the IRD cannot shelter behind legal advice but must accept responsibility for its actions.[6] I accept that this is not a case for exemplary damages because the prime motivation was not to injure Mr Burns. It was to save the IRD trouble and expense by adopting an aggressive strategy. However, the actions border on indifference to Mr Burns' situation, rights and feelings and thus are at the higher end of the injuries that can be inflicted. [1] The most that was open to the chief executive was to express dismay at the allegations impugning his integrity and the hope that Mr Burns might see his way clear to withdrawing them. He went much further, causing Mr Burns avoidable acute distress. For this Mr Burns is entitled to be compensated. Taking into account all the matters I have mentioned, I fix compensation at $7,500. This figure acknowledges the magnitude of the injury suffered by Mr Burns when his personal grievance rights were curtailed and their exercise controlled by his employer. The right to submit a personal grievance against unjust treatment is central to the employment relationship in New Zealand. Before the personal grievance remedies were instituted 30 years ago, a quarter of all work stoppages were due to managerial decisions affecting employees. Such stoppages are now virtually unknown. This is because of the integrity of a reliable process for the resolution of grievances. In this case, Mr Burns' employment rights were undermined to the detriment of his job satisfaction and sense of job security.[10] The Chief Judge reserved costs. Following written submissions, he gave a costs judgment entitling the appellant to recover his disbursements and making no order in favour of the respondent. He did that notwithstanding the respondent making two Calderbank offers which exceeded the amount the appellant was awarded. [11] Mr Burns appeals against the substantive judgment and the Crown appeals against the costs judgment.1 The lawfulness of the employer's request to withdraw an alleged personal grievance[12] Mr Burns challenges the passage numbered 1 in para [9] above. The rights of the employer in this respect had been ruled on by the Full Court, favourably to Mr Burns. At the point the Chief Judge makes the comment, he is ruling on remedies. The comment does not relate to a live issue which can be the subject of an appeal. We also note that in the following sentences the Chief Judge reinforces the ruling in favour of Mr Burns. This ground of appeal fails.2 The relevance of Mr Burns' conduct[13] Mr Burns challenges this passage which appears early in the Chief Judge's judgment:Mr Couch pointed out that I had to decide the case in equity and good conscience and that I therefore could and should take into account all the surrounding circumstances, including Mr Burns' conduct. His view that there was no contributory conduct on his part was too narrow a view.[14] At this point, the Employment Court was summarising the Commissioner's argument relating to the extent or quantum of the disadvantage suffered by Mr Burns. (The submission proceeded on the basis that the Commissioner did not argue that Mr Burns was not disadvantaged.) [15] A Court cannot be making an error of law when it simply sets out the argument of one of the parties. Moreover, the Employment Court in passage 2 in para [8] above rejected the argument. Mr Burns complains that this passage indicates that the Chief Judge appeared to be in two minds whether Mr Burns did in fact engage in reprehensible conduct. We do not read the passage in that way and in any event, so far as the decision of the Court is concerned, it has no negative effect on Mr Burns. This ground fails.3. The making of findings relating to facts occurring before the personal grievance of 11 February 1998[16] Mr Burns asks this Court to make a statement of principle that such findings "are void". The argument does not identify any such findings. Early in his judgment the Chief Judge mentions some background matters that relate to earlier events but, while those matters provide context, we cannot see that they are taken into account in the actual decision in any way to Mr Burns' detriment. This ground of appeal also fails.4 The failure to address separately the two proceedings about different causes of action separated in time[17] This argument relates to the distinctness of the two proceedings, one based on the letter of April and the other on the letter of June 1998 (paras [6] and [7] above). Mr Burns says of passage 4 in para [8] above that the Chief Judge was correct in law in saying that he could recover only once, but that he had not attempted to recover twice. Mr Burns submits that the Chief Judge nevertheless should have addressed the causes of action separately. As that argument shows, the appellant was not disadvantaged in the result by the Chief Judge's deciding the proceedings in that manner. Further, the events do form a continuous sequence as appears, for instance, from the references back and forth in the parties' correspondence including that set out above. It was entirely appropriate to consider the two matters together. There was no error of law in that. [18] This ground of appeal also cannot succeed.5 The making of a global award of damages and the failure to address certain of the employer's obligations and the appellant's distress.[19] The complaint about the global award has been partly answered under the preceding heading: the award is based on the sequence of events. A further element of the complaint is that the making of a single award prevents the appellant, this Court and others from knowing whether the amount of the award was outsideestablished patterns. While there is force in the submission that single awards should not relate to distinct matters - such as procedural breaches and substantive ones – that is not this case. The present award is based on the breaches of the employer's obligations caused by the two closely related letters. The global sum falls well within the area of judgment properly to be exercised in such cases as this, as indicated for instance by this Court in Andrews v Parceline Express Ltd [1994] 2 ERNZ 385, 398. [20] The next complaint is that the Employment Court did not address some of the issues raised in the statement of claim. The issues relate to many of the particular matters Mr Burns raised in correspondence with the Commissioner, but to which there was no particular response. The Chief Judge in his judgment did summarise some of the evidence and the submissions bearing on those matters. When it came to reaching his decision he did not refer to that set of issues. But he did plainly hold that the Commissioner had in any event breached his obligations in the ways indicated in the passage set out in para [8] above. Finally under this heading, the Court did consider the distress which Mr Burns suffered : see the italicised passage in para [9] above. [21] This ground of appeal also fails.6. The failure to apply the correct test for exemplary damages[22] Mr Burns submits that the Chief Judge applied an incorrect test in respect of exemplary damages in passage 6 in para [9] above. He had sought exemplary damages in his contract action. The Employment Court failed to consider whether the employer was subjectively aware of the risk, arising from an unsafe system, to which his conduct exposed Mr Burns, contrary to the test stated by this Court inAttorney-General v Gilbert [2002] 2 NZLR 342 para [116]. Since the Chief Judge gave his decision the Judicial Committee has said the following about exemplary damages in negligence in "A" v Bottrill [2002] UKPC 44:63. For these reasons their Lordships consider that under the common law of New Zealand the court's jurisdiction to award exemplary damages in cases of negligence is not rigidly confined to cases where the defendantintended to cause the harm or was consciously reckless as to the risks involved. 64. That said, their Lordships cannot over-emphasise what has already been indicated more than once. The cases where it is appropriate to make an award of exemplary damages are exceptional. The cases where it is appropriate to make an award of exemplary damages in the absence of intentional wrongdoing or conscious recklessness will be exceptional and rare indeed. It must always be kept in mind that compensation is not the purpose of exemplary damages. A perceived need for compensation, or further compensation, is not a proper basis for making an award of exemplary damages.[23] The gloss on the final sentence is of course that the prospect of exemplary damages is to punish the defendant; the conduct is to be truly outrageous. While we have no basis for disagreeing with the Chief Judge's conclusion that the two letters (the second being at the heart of the contract claim with which we are concerned at this stage) were "quite inappropriate", we can see no basis at all for a finding that the employer's conduct could, as a matter of law, approach the level contemplated by the cases as justifying exemplary or punitive damages. [24] This ground of appeal fails and it follows that the appeal as a whole fails.Cross appeal on costs[25] The cross appeal is against the refusal of the Chief Judge to make an order of costs in its favour while allowing Mr Burns to recover his disbursements. The cross appeal is based on two Calderbank offers which exceeded the award of $7,500 actually made. The first offer of $10,000 was made shortly before the Full Court hearing in early September on the preliminary issue and the second of $15,000 was made in February 2002, more than three months before the substantive hearing. In rejecting Mr Burns' argument that the offers did not specify how much of the award related to each of the two proceedings, the Chief Judge said there was no need for any such technical formality in Calderbank offers that were free from ambiguity. "I have no difficulty in holding that Mr Burns clearly understood what was being offered and what was not."[26] Mr Burns in late September 2001, following the ruling in his favour on the preliminary issues, set out the terms of settlement acceptable to him. They included the Commissioner making statements to the staff and the public and a payment to him of $100,000. While that was not acceptable to the IRD, it wished to explore settlement through mediation. That was agreed to and was tried, but without success, in February 2002. [27] The Chief Judge gave these reasons for his decision on costs:21. It is to the department's credit that it explored settlement possibilities more than once but it must also be acknowledged that it was doing so partly out of self-interest. It is also to its credit that the offers were not made in an offensive or condescending way but courteously and the amounts offered were by no means derisory. It seems significant that the plaintiff, in formulating the terms of settlement that would be acceptable to him – which, it is true, included a very high figure for compensation – asked also for an acknowledgement by the chief executive that his predecessor had acted unlawfully and for a statement to be issued to the media and staff that settlement had been reached. This shows that vindication was an important part of the case for the plaintiff, particularly as he had been threatened with a disciplinary process intended to end his long career with the department for reasons that, as this Court subsequently held, could not have supported such an action. 22. For this reason alone it is not possible to give full effect to the Calderbank letters in the way suggested by Mr Couch. The judgments in the plaintiff's favour show a not inconsiderable invasion of his rights. Because of the unusual nature of this invasion, particularly in the State sector, I hesitated long about the amount of the award but in the end applied moderation. However, I could easily have awarded more, and another Judge may have. As it seems to me, what was operating on Mr Burns' mind was a thirst for justice and for vindication of his position as a victimised employee. No doubt that is what is behind his determined progress towards what many would see as the luxury of confirmation of those rights by the Court of Appeal; he is seeking an even more authoritative statement than he obtained from the full Court of this Court and, in the interests of completeness, it is necessary to mention that he is also attempting to secure the opening of a door to exemplary damages. There is no doubt that the element of vindication in this case was fuelled by the defendant's actions. The chief executive for the time being took personal offence at the implications for him of the allegations Mr Burns was making as opposed to the implications for him as the head of department. He should have distanced himself from the action or threats being made. Had he not taken a personal position, the threats and other demands might not have been made. But they were made and as a result the equities do not favour the IRD. It cannot be heard to say Mr Burns should have taken the money and run when his perception was that he was the altruistic standard bearer for other employees who might be similarly attacked when seeking to advance personal grievances. Though the IRD made these offers, its overt position continued to be that it had not acted improperly. I have considered whether Mr Burns contributed by not filinghis personal grievances earlier than he did but he was understandably reluctant to involve himself in litigation while still in employment. Rather, he lowered himself and went under the yoke, withdrawing his allegations as the chief executive had required and going as far as to apologise for them though this further step had not been demanded. It is scarcely to be wondered at that he launched his proceeding when his employment ended, at a time that made economic sense to Mr Burns having regard to the investment he had in his career with the IRD. 23. It is also not surprising that, absent an apology, he was unprepared to let go, though his pecuniary expectations turned out to be beyond reason (but there was no precedent to guide him). It may be that, if the IRD had agreed to his condition that the settlement be made public within the IRD along with an apology, his monetary demands may have undergone dramatic modification.[28] Mr Couch, for the IRD, acknowledges that the cross appeal is against the exercise of a discretion and that in terms of s135 of the Employment Contracts Act, he must identify errors of law made by the Chief Justice which led to his decision. [29] As Mr Couch notes, there is no scope for payment into Court in the Employment Court legislation. Calderbank offers accordingly have an enhanced role and as this Court said in Aoraki Corp v McGavin [1998] 3 NZLR 276, 300:The discretion as to costs is a judicial one to be exercised according to what is reasonable and just to both parties and the public interest in the fair and expeditious resolution of disputes requires that full weight be given to the extent to which costs were properly incurred subsequent to the non- acceptance of an offer of settlement at a figure above the amount eventually awarded in the litigation.[30] Against that background, the IRD contends that the Chief Judge had regard to irrelevant factors and that his decision was plainly wrong. [31] The argument before us focussed on the Chief Judge's references to vindication and to his process of fixing the amount of the award in the substantive proceedings. Mr Couch submits that vindication is irrelevant since Mr Burns sought only monetary remedies. That is so, but on one important issue of principle – about the rights of the parties to an employment contract in relation to a personal grievance – he was seeking a statement of principle which he in fact received (see similarlyBinnie v Pacific Health Ltd CA65/02, 1 April 2003, when the damages in fact exceeded the Caldebank offer). There is however real force in Mr Couch's further submission that by the time of the second offer that vindication had already beenachieved through the ruling of the Full Court (see the Chief Judge's comment set out in para [4] above). [32] To consider vindication as "an important part" of Mr Burns' case by the time of the substantive hearing is accordingly, we consider, to make a reviewable error of principle. [33] Another reason for setting aside the decision is the Chief Judge's related consideration of the "moderate" character of his award. It is not in accordance with principle to make a costs award with the purpose of increasing a damages award which has already been determined and which the Court making the costs direction has no power to alter. [34] We accordingly conclude that the cross appeal succeeds and that the costs decision is to be set aside. Mr Couch in his written submissions proposes that in that event we remit the matter to the Chief Judge. The parties have already made detailed written submissions to him about quantum. He would be able to consider the submissions and fix costs in accordance with any direction given by this Court. While it does seem unfortunate further to prolong this matter we do so order. [35] The matter appears to be appropriate for decision on the papers by the Employment Court (as happened with the earlier costs order). The assessment of an appropriate proportion of the IRD's costs should relate only to its costs subsequent to the Full Court decision for the reasons given earlier on the vindication point (paras [31]-[32]).Result[36] The appeal is dismissed. The cross appeal is allowed in the terms indicated in para [35]. The respondent is entitled to costs in this Court of $5,000 and reasonable disbursements including travel and accommodation costs of counsel, to be fixed by the Registrar in the absence of agreement.Solicitors: Corporate Legal Advisor, Inland Revenue Department, Wellington