LAWTON v STOCK [2022] NZCA 194

LAWTON v STOCK [2022] NZCA 194 [1 June 2022]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA727/2021[2022] NZCA 194BETWEEN REEGAN PAORA LAWTONApplicantAND ORMOND BRIAN STOCKRespondentCourt: Miller and Dobson JJCounsel: P A McBride and S P Radcliffe for ApplicantK T Dalziel for RespondentJudgment:(On the papers)1 June 2022 at 11.00 amJUDGMENT OF THE COURTThe application for leave to appeal is declined.____________________________________________________________________REASONS OF THE COURT(Given by Dobson J)[1] This judgment deals with an application for leave to appeal from a decision ofthe Employment Court.1 That judgment was a first instance decision in respect of thedispute, which had been removed from the Employment Relations Authority(the Authority) to the Employment Court.2 The application for leave to appeal isgoverned by s 214 of the Employment Relations Act 2000 (the Act). Pursuant to s 214,a party seeking leave to appeal a decision of the Employment Court must satisfy this1 Lawton v Steel Pencil Holdings Ltd (in liq) [2021] NZEmpC 199 [Employment Court decision].2 Lawton v Steel Pencil Holdings Ltd (in liq) [2021] NZERA 92.Court that the appeal involves a question of law that, by reason of its general or publicimportance or for any other reason, ought to be submitted to this Court for decision.[2] The applicant (Mr Lawton) was a director and employee of Steel PencilHoldings Ltd (the company). Throughout the period to which the dispute relates,Mr Lawton was in charge of a subsidiary company operating in the Philippines.Family trusts operated by him and the respondent (Mr Stock) were the shareholders ofthe company. Mr Stock was also a director and employee of the company, based inNew Zealand. In the period up to July 2014, the directors made agreements to transfersome of the shares from Mr Stock's family trust to Mr Lawton's, leaving Mr Stock incontrol of a bare majority of the company's shares. Mr Lawton was to pay for hisfamily trust's acquisition of additional shares by debiting his family trust's loanaccount within the company with the agreed cost for the shares and thereafter creditingthat loan account with salary entitlements earned by him as an employee.[3] The company was under financial pressure and did not prosper. After variousattempts to resolve terms on which Mr Lawton would exit from all his connectionswith the company, he and Mr Stock concluded an agreement in May 2020(the Agreement). The Agreement was described as an "agreement for sale andpurchase of shares" but included an acknowledgement that the agreement was in fulland final settlement of the issues between the parties as to shareholding and associatedliability, to the maximum extent permitted by law. The Agreement recordedMr Lawton's resignation of his employment (he having previously been removed as adirector in April 2020) and committed the company to paying his salary up to theeffective date of resignation of 31 May 2020 plus two months thereafter in lieu ofnotice.[4] Mr Lawton served a statutory demand on the company in July 2020 claimingarrears of annual leave entitlements and referring to additional sums that were notquantified in respect of annual leave and/or holiday pay. The demand was not met andMr Lawton filed a statement of problem with the Authority. The claims filed with theAuthority extended to amounts he claimed as owing for wages, holiday pay andexpenses. The claim was brought against both the company and against Mr Stock whowas cited as a respondent to the claim as a person involved in a breach of employmentstandards.3[5] The company was placed in liquidation on 26 February 2021 and Mr Lawtonindicated his intention to proceed with his claim against Mr Stock, the company'sliquidator having indicated that he required a stay of proceedings against the company.[6] The Authority removed the proceedings to the Employment Court in March2021, recognising as a preliminary question of law whether Mr Stock could be heldliable in the absence of a finding by the Authority against the company. The Ministryof Business, Innovation and Employment sought leave to intervene in the EmploymentCourt proceedings, attributing general importance to the preliminary question of lawidentified by the Authority.[7] Judge Holden held that Mr Stock could be held liable in circumstances wherethe claimant could not proceed against the employer, upholding the approach urged onthe Court by the intervener as well as by Mr Lawton.4 However, the Judge also heldthat the Agreement was binding on Mr Lawton as quantifying the extent of entitlementthat he could make out in relation to his former employment with the company.5The Judge also found, after analysis of the evidence, that there had been amiscalculation of the entitlements recognised in the Agreement. Mr Stock was foundliable to pay Mr Lawton the eight per cent allowance for outstanding holiday pay thatought to have been included in the final pay up to May 2020 and the two months'salary in lieu of notice under the Agreement.6 In other respects, the claims failed.[8] Mr Lawton seeks leave to appeal the Employment Court's decision. He arguesthat the Employment Court erred in its findings, which he would describe in thefollowing terms:(a) That the parties were able lawfully and effectively to contract out ofMr Lawton's minimum statutory entitlements to receive unpaid wages3 Employment Relations Act 2000, s 142W.4 Employment Court decision, above n 1, at [38].5 At [75] and [77]–[78].6 At [81].and annual leave, notwithstanding statutory provisions precluding thecontracting out of employees' statutory entitlements.(b) (In obiter dicta) that statutory entitlements to holiday pay were notenforceable where the relevant leave had not been taken, and that avariation to the employment agreement reducing Mr Lawton's level ofremuneration was valid and enforceable notwithstanding the failure tocomplete the variation agreement in a manner complying with statutoryrequirements.(c) That Mr Stock would not be personally liable as a person involved inthe breach of employment standards because an element of mens rea orintention to breach was required and was not made out.[9] The articulation of the proposed question of law in (a) above mischaracterisesthe Judge's reasoning on the status of the Agreement. The Agreement did not denyMr Lawton's right to advance any of his statutory entitlements as an employee.What it achieved, as part of Mr Lawton's disengagement from all capacities in whichhe was connected with the company, was to provide a compromised quantification ofthe overall settlement that would be honoured by the company, with financialassistance from Mr Stock.[10] In evidence, both Messrs Lawton and Stock had agreed, effectively withoutqualification, that the Agreement resolved all matters between them including inrelation to Mr Lawton's wages and holiday pay.7 The Judge held that s 131(2)of the Act (which maintains an employee's statutory entitlements notwithstandingacceptance of payments at a lower rate) did not preclude parties reaching an agreementas to the extent of disputed entitlements between them. Here, the Agreement coveredemployment matters, notwithstanding that the principal relationship betweenMr Lawton and Mr Stock was as shareholders of the company (through theirrespective family trusts) and their employment relationship with the company wassecondary. The Agreement thus reflected a global settlement including shareholding7 At [67]–[70].and employment matters and such an agreement was held not to be precluded bys 131.8[11] We note that the Judge had regard to the Agreement notwithstanding that it hadnot been expressly pleaded as a defence to Mr Lawton's claims. The Judge did so onthe basis of the equity and good conscience aspect of the Employment Court'sjurisdiction.9 Although Mr Lawton criticised the Judge for invoking equity and goodconscience, no separate question of law was proposed in relation to that aspect.We consider that omission by Mr Lawton was appropriate. We are of the view thatthe Judge was entitled to consider the Agreement as a matter of equity andgood conscience.[12] The relevant reasoning on the character of the Agreement is fact-dependent.We are not persuaded that question (a) of those proposed for an appeal raises a questionof law. Even if the issue was capable of being cast as a question of law, we can see notenable question of law that might have general or public importance, in thecircumstances of this relationship. The Agreement was a composite resolution forMr Lawton's exit from the company as a shareholder and an employee. Arguably, hadhe negotiated for a larger sum on account of employee entitlements, then the companyand Mr Stock may have insisted on a corresponding reduction in his exit as ashareholder. He reached the Agreement as a final settlement — it "wraps upeverything".10 We are therefore not persuaded that question (a) qualifies for leave.[13] The remainder of the proposed questions would be moot, given the lawfuleffect of the Agreement. Even if they stood alone, we are not persuaded that theywould justify granting leave. Given the circumstances of Mr Lawton's variouspositions with the company, and the facts pertaining to his claims, we are notpersuaded that the claims for unused annual leave and for an invalid variation of hisemployment agreement raise questions of law of general or public importance.8 At [77].9 Employment Relations Act, s 189.10 Employment Court decision, above n 1, at [68].[14] The third proposed question of law as to the circumstances in which a personwould be liable for involvement in a breach of employment obligations by an employerhas been addressed recently in this Court's decision in A Labour Inspector v SouthernTaxis Ltd.11 To the extent that decision lowers the threshold for attributing liability topersons alleged to be involved in a breach of employment obligations, the reasoningin that judgment applies on its own terms. No question of general or public importancecould arise in using an appeal in the present case to add a gloss to it.[15] For these reasons, the application for leave is dismissed.Solicitors:McBride Davenport James, Wellington for Applicant11 A Labour Inspector v Southern Taxis Ltd [2021] NZCA 705.