RAPPONGI EXCURSIONS LIMITED v FERNANDEZ [2020] NZCA 37

RAPPONGI EXCURSIONS LIMITED v FERNANDEZ [2020] NZCA 37 [3 March 2020]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA462/2019[2020] NZCA 37BETWEEN RAPPONGI EXCURSIONS LIMITEDApplicantAND CLEITEST PETER FERNANDEZRespondentCourt: Brown and Clifford JJCounsel: M C Donovan and J M Lapthorne for ApplicantR M Harrison for RespondentJudgment:(On the papers)3 March 2020 at 3 pmJUDGMENT OF THE COURTA The application for leave to appeal is declined.B The applicant is to pay the respondent costs for a standard application ona band A basis and usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Clifford J)[1] Between 1988 and June 2017 the respondent, Cleitest Fernandez, worked forthe Denny's restaurant business in New Zealand owned by the applicant,Rappongi Excursions Ltd, and its principals. From late 2015 until his dismissal byletter on 15 June 2017, Mr Fernandez had been exploring with Rappongi various waysin which he might set up his own restaurant and, at that point, leave his employment.Initial difficulties were caused by Mr Fernandez entering a lease of the proposedpremises at Lincoln Road, Auckland, before all arrangements had been agreed.Those difficulties were resolved by Rappongi agreeing Mr Fernandez could operate aDenny's sub-franchise at the Lincoln Road premises. Mr Fernandez did just that fromNovember 2016 onwards. Matters came to an abrupt halt, however, when Rappongi'sfranchisor, Denny's USA, concluded that Mr Fernandez did not meet the requirementsto be a franchisee in New Zealand.[2] The 15 June 2017 dismissal letter was issued to Mr Fernandez by one ofthe United States representatives of Rappongi. Around the same time he was also toldthe franchise deal was off. It was following those events that Mr Fernandez broughtproceedings in the Employment Court alleging breach of a term of employment andunjustified dismissal.[3] In an amended statement of claim Mr Fernandez sought a declaration hisdismissal was unjustifiable; reimbursement for lost remuneration; compensation of$35,000 pursuant to s 123(1)(c)(i) of the Employment Relations Act 2000; and adeclaration he was entitled to receive a 10 per cent interest in Rappongi or anequivalent amount as a term of his employment.[4] Rappongi counterclaimed, including for damages for breach of good faith andbreach of obligations of confidence and fidelity.[5] At a hearing concerning issues of liability only, Judge Perkins found forMr Fernandez.1 In doing so, the Judge proceeded on the basis that all aspects of thedispute between Mr Fernandez and Rappongi, including those relating to his claim toa share of the business and Rappongi's counterclaims, arose out of the employmentrelationship. Hence, they all fell within the Employment Court's jurisdiction.2[6] The Judge concluded that Mr Fernandez had been unjustifiably dismissed.3That finding was essentially based on the consensual dealings between Mr Fernandez,Rappongi and United States representatives of Denny's prior to the summarytermination in June 2017. Rappongi does not challenge that finding. The Judge also1 Fernandez v Rappongi Excursions Ltd [2019] NZEmpC 99.2 At [1].3 At [81].found that Mr Fernandez was, as he had claimed, entitled to a 10 per cent share inRappongi's business, or the fair value thereof.4 Rappongi does not challenge thatfinding either. The value of the 10 per cent share in the business was to be determined.As best as we understand matters, that process for that is underway, albeit incompletebecause of this application.[7] The Judge then turned to Rappongi's counterclaims. As the way in whichthe Judge dealt with those counterclaims gives rise to the points of law said to meritan appeal, some detail is called for. The Judge was critical both of the lack ofsubstance of those claims, which he characterised as Rappongi's attempts to reducethe value of Mr Fernandez's claim for 10 per cent of the business, and of the obviouslack of understanding Rappongi's United States representatives had of New Zealandlabour law.5 It emerged during cross-examination that they were quite ignorant of therequirement to act as a fair and reasonable employer in all the circumstances.6[8] Mr Fernandez accepted he owed amounts to Rappongi which would need to betaken account of. Given the events that had occurred, in particular as a result ofMr Fernandez having run the Denny's business at Lincoln Road for a period of time,an accounting between the two parties would be reasonably complex.[9] Rappongi's first monetary counterclaim was for $30,000 Mr Fernandez wasalleged to have taken from Rappongi without consent or authority.7 The claim wasinitially said to relate to legal fees Mr Fernandez had reimbursed himself aftersuccessfully defending fraud charges which arose from a complaint arising out of theordinary course of Rappongi's Denny's business. It was subsequently specified as aclaim for special damages, being an overpayment of bonuses. Rappongi disputed anyliability to indemnify Mr Fernandez for those legal fees. The Judge rejected thatargument, based on the principles enunciated in Attorney-General v Jones.8 WhilstMr Fernandez had not himself claimed for those legal fees, the Judge observed:94 At [58].5 At [82]–[84].6 At [76]; citing Employment Relations Act 2000, s 103A.7 At [89].8 Attorney-General v Jones HC Wellington M73/79, 16 June 1981.9 Fernandez v Rappongi Excursions Ltd, above n 1, at [92].While the counterclaim relating to the legal fees was withdrawn during thecourse of the hearing when counsel were apprised of the principles in Jones,the Pandora's box has been opened. This issue has not been properly resolvedby simply withdrawing this part of the counterclaim. If there is to be a properaccounting between Mr Fernandez and Rappongi as part of the employmentrelationship problem, which has been referred to the Court, what transpired inrespect of the criminal proceedings against Mr Fernandez and the costs heincurred need to be further investigated and taken into account. This iscertainly so if he has lost the benefit of bonuses he would otherwise havereceived.[10] The Judge, rejecting Rappongi's attempts to bring further evidence on theissue, ruled that the matter required quantification in the account which was to be takenbetween the parties.10[11] After considering Rappongi's other counterclaims, many of whichMr Fernandez did not dispute, the Judge turned to quantification. In summary:11(a) as noted, the value of the 10 per cent share in the business was to bedetermined;(b) as to unjustified dismissal, the Judge said he would not set the level ofcompensation at that stage but that it would "fall within themiddle-band category of such claims as enunciated in the decision ofWaikato District Health Board v Archibald";12 and(c) as to the loss of income associated with the unjustified dismissal,a reasonable period of notice of six months was set by the Judge andthe order made that Mr Fernandez should be "reimbursed together withinterest accordingly".13 The Judge did not accept Mr Fernandez'sclaim for loss of business income in his restaurant business associatedwith the way matters turned out. Mr Fernandez was, the Judgeconcluded, determined to run the Lincoln Road restaurant as his own ifit was not to be a Denny's. The subsequent loss of income associated10 At [93].11 At [101]–[103].12 At [102]; citing Waikato District Health Board v Archibald [2017] NZEmpC 132, [2017]ERNZ 791.13 At [103].with the termination of the Denny's franchise was not, therefore,caused by the unjustified dismissal.Proposed appeal[12] Rappongi says the Judge's liability findings, as summarised above, give rise toquestions of law which it formulated in its submissions as follows:(a) If it is determined that an employee has a personal grievance forunjustifiable dismissal, can legal costs incurred by an employee indefending criminal charges be awarded to that employee ascompensation for a loss of a benefit under s 123(1)(c)(ii) [ofthe Employment Relations Act]?(b) Can legal costs incurred by an employee in defending criminalcharges be awarded to that employee in circumstances where a causeof action seeking those costs as a remedy is not pleaded?(c) Can an employee be indemnified by their employer for legal costsincurred in defending criminal charges where there is insufficientevidence those costs were incurred by the employee as an agent of theemployer in the reasonable performance of the employee's duties?(d) Can an employee who is unjustifiably dismissed be reimbursed, withinterest, for a reasonable period of notice without regard to theemployee's duty to mitigate their loss or their actual loss suffered?[13] Leave may only be granted from a decision of the Employment Court on apoint of law and then if that point of law is one that, by reason of its general or publicimportance or for any other reason, ought to be submitted to this Court for decision.14Rappongi says the questions of law it advances meet that threshold because:(a) The Employment Court's judgment suggests a broad application of theremedy provided for under s 123(1)(c)(ii), which provides for paymentfor loss of any benefit which the employee might reasonably haveexpected to obtain absent the grievance. Appellate guidance to clarifyin what circumstances the remedy is available would be beneficial.(b) The question of whether a remedy may be awarded though not pleadedaffects all parties that appear before that Court.14 Employment Relations Act, s 214(3).(c) The question of what evidence is required to establish an employee wasacting in the reasonable performance of their duties so as to entitle themto indemnification for their legal costs in defending criminal charges isof importance for employers and employees.(d) Whether the Employment Court's approach of ordering payment forreasonable notice without establishing an employee's actual loss orsteps in mitigation was correct is a question of general importance foremployment disputes.Analysis[14] We are satisfied that none of the proposed questions of law merit a grant ofleave.[15] The first three questions of law relate to the Employment Court's finding thatRappongi was to reimburse Mr Fernandez for the cost of defending criminal charges.Although not pleaded by Mr Fernandez, the point arose because Rappongi madevarious counterclaims against him. The Judge considered the claims should be dealtwith as part of broader "wash-up" exercise that would have taken place at the end ofhis employment:15Mr Fernandez has, appropriately in my view, agreed that matters validlyarising from the counterclaims (subject to quantification disputes) should beconsidered in arriving at the appropriate exit payment to him. Similarly, thereare matters such as a remaining issue relating to indemnification ofMr Fernandez's legal costs in criminal proceedings and reimbursement of thesub-franchise approval fee upon the failure of the sub-franchise application.These should be included in the equation. It would be unfair to consider suchof Rappongi's counterclaims as are considered valid in isolation from benefitsand entitlements Mr Fernandez may have. As it has been determined thatMr Fernandez has a personal grievance, these claims can be consideredpursuant to s 123(1)(c)(ii) of the Act.[16] Rappongi first contends that s 123(1)(c)(ii) of the Employment Relations Actis purely prospective and any entitlements in relation to reimbursement had, by thatpoint, already arisen and therefore fell outside the scope of the section.16 We see little15 Fernandez v Rappongi Excursions Ltd, above n 1, at [88].16 See Telecom South Ltd v Post Office Union (Inc) [1992] 1 NZLR 275 (CA) at 284.in this point. While the need for an accounting exercise can be traced to events thatpreceded the personal grievance, it was Mr Fernandez's hasty dismissal that precludedthe expected "wash-up" payment. Mr Fernandez's benefits under the accountingexercise were therefore not the continuation of an existing benefit (such asremuneration) but one that he anticipated would arise in time when his relationshipwith Rappongi was wound up.[17] Rappongi next argued that the Judge erred in awarding reimbursement of thelegal costs where they were not pleaded (at least by Mr Fernandez). As recordedabove, the issue arose because Rappongi counterclaimed for approximately $30,000that the company advanced to Mr Fernandez to help defray legal fees, though it didnot cover the total bill, which was nearer $80,000.17 Again, we do not see a reasonablyarguable error. An accounting between the parties was clearly required. AlthoughMr Fernandez did not expressly plead for recovery of his legal fees, it would havebeen wholly artificial for the Judge to have excluded them from determination of theappropriate settlement amount when assessing Rappongi's counterclaim.[18] Turning to the proposed third question of law, it is clear from the premiseembedded within it that Rappongi's real challenge to the Judge's reasoning is that hedid not have enough evidence before him to reach the conclusion that Mr Fernandezwas acting in reasonable performance of his duties. There is no real suggestion thatthe Judge misinterpreted Jones or that there is a question of broader legal significancethat ought to be resolved. Rappongi did not provide us with an explanation of whatinformation the Judge had before him and what evidence (if any) suggestedMr Fernandez had acted in breach of his duties or was negligent. The Judge assessedthat there was none.18 It is difficult to identify any arguable error in his analysis, andmoreover, we are not prepared to grant leave on what is a largely factual issue.[19] Finally, Rappongi challenged the Judge's decision to award Mr Fernandez sixmonths' notice plus interest. Considering Mr Fernandez was a very senior employeemanaging Denny's New Zealand operations for nearly 30 years, we do not see suchan award as falling outside the Judge's discretion. As to the questions of mitigation17 Fernandez v Rappongi Excursions Ltd, above n 1, at [89] and [91].18 At [92].and actual loss, we note that the Judge did in fact give careful attention toMr Fernandez's attempts to operate what was to be his new Denny's as an unbrandedfamily restaurant, which ultimately struggled and went into liquidation. AlthoughRappongi was not ultimately responsible for all the losses suffered by Mr Fernandez,19we understand that the evidence before the Judge was that Mr Fernandez sufferedsignificant loss of income as a result and ultimately used the unemployment benefit tosupport himself. In any case, we again see this as an attempt by Rappongi to reopenwhat is a primarily factual issue inappropriate for reconsideration on appeal tothis Court.Result[20] The application for leave to appeal is declined.[21] The applicant is to pay the respondent costs for a standard application on aband A basis and usual disbursements.Solicitors:Duncan Cotterill, Auckland for ApplicantHarrison Stone, Auckland for Respondent19 At [103].