Wellington Regional Council v Edwards CA165/96 [1997] NZCA 325; [1997] 2 NZLR 129; [1997] ERNZ 100 (24 February 1997)

Last Updated: 5 February 2019

IN THE COURT OF APPEAL OF NEW ZEALAND CA 165/96

BETWEEN WELLINGTON REGIONAL COUNCIL

Appellant

AND JOHN ANTHONY EDWARDS Respondent

Coram Richardson P Gault J

Henry J Thomas J Blanchard J

Hearing 13 February 1997

Counsel J M T Salter and T C Stephens for Appellant

Respondent in person

_{Judgment 24 February 1997}

_{JUDGMENT OF THE COURT DELIVERED BY RICHARDSON P}

The primary question in this appeal from the Employment Court under s 135 of the Employment Contracts Act 1991 is whether s 6 of the Finance Act (No 2) 1941 bars the appellant Council from paying the respondent, Mr Edwards, a retirement sum or from granting him retirement leave to which he was otherwise entitled in terms of his contract of employment with the Council. Numerous issues of fact and law were canvassed before the Employment Tribunal and the Employment Court but the essential facts, which are common ground for the purposes of the appeal, can be set out quite briefly, as can the material reasoning and conclusions of the Employment Tribunal and the Employment Court.

The factual background

Mr Edwards qualified as an engineer and worked in various local government and central government positions from 1956 until his retirement in 1991. He entered into the employment of the then Wellington Regional Council on 27 October 1981, his immediately previous employment being with the Upper Hutt City Council. In

1989 as part of the local government restructuring, and with effect from 1 November

1989 (Local Government (Wellington Region) Reorganisation Order 1989), the appellant Council was constituted as the regional council for the Wellington region in place of the previous council which was dissolved, and with the functions, duties and powers set out in cl 16 of the order. Mr Edwards was appointed to a senior engineering position in the new council with effect from that date, 1 November 1989.

At the time of his retirement in 1991 Mr Edwards' conditions of employment were prescribed by the Wellington Regional Council Administrative, Clerical, Professional, Technical and Other Employees Agreement, Document 2130 (1990) and by the Wellington Regional Council Staff Regulations 1985, the latter being described as applicable to all salaried officers appointed to the Council except in so far as incompatible with awards or industrial agreements. Clause 16 of the Agreement provided that on retirement an officer "who has had at least ten years' current continuous service with the same employer, shall be entitled to a grant at the rate of one week's salary for each year of service to a maximum of 26 weeks". The expressions "same employer" and "continuous service with the same employer" were not defined in the Agreement. However the 1985 Regulations dealt with the counting of previous government and local body service for leave purposes, as had the preceding 1980 Regulations. It is sufficient for present purposes to set out clauses J1 and F7 of the 1985 Regulations:

J1 Subject to the provisions of the Finance Act (No 2) 1941 employment with the New Zealand Government, a Local Authority, or other employer prior to commencement of

employment with the Council is to be treated as continuous service with the Council, for the purposes of assessing entitlements under the Staff Regulations governing sick leave, annual leave, long service leave and retiring leave or gratuity, provided that:

(1) The Officer concerned has been recruited direct from Government service or another local body or other employer and joined The Wellington Regional Council within one month of ceasing his/her previous employment;

(2) The service is "like for like" and the previous experience is of definite value to the Council;

(3) The service can be verified, carried with it a sick leave entitlement and the sick leave record is available;

(4) The Officer concerned obtains a certificate from his/her previous employing authority that he/she has in fact had the service claimed, the certificate to show:

(a) Dates employed;

(b) Capacity in which employed; (c) How service was terminated;

(d) Resigning or retiring leave or gratuity granted; (e) Comments on conduct and performance of duty.

(5) Sick leave, long service and resigning or retiring leave or gratuity granted in previous employment as certified under (4) above will be taken into account.

...

F7 On retirement, an Officer who has had at least 10 years N.Z.

Government or local authority service as defined in Clause J1 of these Regulations, and who is precluded by the provisions of the Finance Act (No 2) 1941 from being granted a retiring gratuity, shall be entitled to Retiring Leave at the rate of one week's leave for each year of qualifying service up to a maximum of 26 weeks such leave.

Mr Edwards retired on 24 January 1991, that date being subject as a matter of law to extension if cl F7 applied. At the time of his appointment to the old Wellington Regional Council Mr Edwards and the Council agreed that all his previous government and local body service would be recognised in relation to service entitlements. However, when he came to retire the Council eventually took

the view that the earlier service with territorial local authorities and central government did not count and that accordingly he was short of the 10 years' service requirement under the Finance Act (No 2) 1941. The Council did not pay either a "retirement grant" (cl 16) or provide Mr Edwards with "retiring leave" (cl F7).

Mr Edwards commenced an action in the Employment Tribunal. The Statement of Claim sought payment of the retirement grant specified in cl 16 or alternatively payment to cover retirement leave. While it was then disputed by the Council, it is now accepted that on the face of the documents comprising the employment contract Mr Edwards was entitled to 26 weeks' salary on his retirement as a retiring payment in some form.

The statutory provisions

Section 6 of the Finance Act (No 2) 1941 reads:

6. Local authorities may make grants to employees on their retirement - (1) For the purposes of this section the term "local authority" means a Borough Council, County Council, Town Council, District Council, Regional Council, United Council, Harbour Board,

... or Tramway Board, or any body possessing rating powers over any district.

(2) On the retirement from the service of any local authority of any employee whose total length of service with the local authority has been not less than 10 years the local authority may pay to him by way of gratuity an amount not exceeding an amount equal to 6 months' pay at the rate payable to him at the time of his retirement.

(2A) On the death of any such employee (whether before or after his retirement, but before he has received a gratuity under subsection (2) hereof) the local authority may pay to his dependants or any of them by way of gratuity an amount not exceeding an amount equal to 6 months' pay at the rate payable to him at the time of his retirement or (if he died before retirement) at the time of his death.

(3) For the purposes of this section service with a local authority shall be deemed to include service with any other local authority being the predecessor of the first-mentioned local authority; and a local authority shall be deemed to be the predecessor of another local authority in any case where, on its dissolution or in any other circumstances, its functions or any of its functions have been transferred to such other local authority.

(4) The power conferred by this section shall be deemed to include power to make a payment as aforesaid to any such employee who has retired before the passing of this Act, but not earlier than the 1st day of January 1938.

The Local Authorities (Employment Protection) Act 1963 deals with the transfer of employees in the restructuring of local authorities. Where a local authority is dissolved and its undertaking or functions transferred to a new authority, employees become employees of the new authority and their previous contracts of service continue in force as if made with the new authority (s 3(2) and (6)). Of particular importance is s 3(6) which provides:

The period of continuous service with one or more local authorities immediately preceding the date of transfer of any person so transferred shall upon that transfer be counted as service with the local authority of the new or other district for the purposes of any Act or of any regulation or bylaw or of the terms and conditions of any staff agreement or of any award or ... agreement or of any contract of apprenticeship.

The Employment Tribunal decision

On 13 September 1994 the Employment Tribunal dismissed Mr Edwards' claim. It concluded that his period of service with the Upper Hutt City Council, which preceded his joining the old Wellington Regional Council, was not with the same employer, namely the Wellington Regional Council, as required under Document 2130. While the old Council was the predecessor of the present Council for the purposes of s 6(3) of the 1941 Act, the Upper Hutt City Council was not. The Employment Tribunal applied Lower Hutt City Council v Martin

[1987] NZHC 75; [1987] 1 NZLR 321 where Heron J held that the 1941 Act contained an implied prohibition against payment of a gratuity where the employee had not completed

10 years' qualifying service whether the payment was made pursuant to a contract of employment or without consideration of any kind. It also rejected the argument for Mr Edwards that in that regard the 1941 Act was overridden by the Local Authorities (Employment Protection) Act. The latter Act was not intended to enhance employees' rights beyond those which existed before it was enacted. Further, as a general Act its provisions were subject to the specific provisions of the 1941 Act.

The Tribunal also accepted the submission for the Council that cl F7 of the Regulations was a device to avoid the provisions of the 1941 Act. Clause J1 was essentially a payment for past services; labelling other than as a gratuity did not alter the application of the 1941 Act; and retirement leave was a payment made without any requirement on the employee to work.

The Employment Court decision

It would be difficult to summarise the 68 page judgment of the Employment Court delivered by Judge Palmer on 20 June 1996. Fortunately it is unnecessary to do so. Focussing on the crucial issue of interpretation of the legislation, particularly the 1941 Act, and its application to the essential facts does not call for discussion of numerous matters which were canvassed in the Employment Court judgment.

Judge Palmer concluded that Mr Edwards' service from November 1956 to

1991 was continuous qualifying employment service within clauses J1 and F7 of the

1985 Staff Regulations. As to the applicability of the 1941 Act, the Judge agreed with Lower Hutt City Council v Martin but distinguished that case on two grounds. First, Ms Martin had only 8½ years' service with the City Council and there was no

question of other qualifying service: Mr Edwards had earlier service which was to be contractually treated as continuous service with the Council for the purposes of assessing leave entitlements including retiring leave or gratuity. Second, unlike the respondent in Martin, Mr Edwards was subject to the Local Authorities (Employment Protection) Act and the effect of s 3(6) of that statute was to impliedly repeal to that extent the provisions of s 6 of the 1941 Act. The Judge went on to hold that the Regulations were not incompatible with the Agreement (Document 2130); that the expression "with the same employer" in cl 16 had to be read along with the description of continuous employment service in cl J1; and that accordingly Mr Edwards was entitled on retirement to a gratuity quantified at the maximum permitted level of 26 weeks' salary or paid retirement leave of that duration.

Section 6 of the 1941 Act

In considering the scope of s 6 the first and obvious point is that a local authority such as the appellant Council is not a sovereign body and can only do such things as are expressly or impliedly authorised by Parliament (Hazell v Hammersmith and Fulham London Borough Council [1992] 2 AC 1; Mackenzie District Council v Electricity Corporation of New Zealand Ltd [1992] 3 NZLR 41, 43). It is a statutory creation exercising the functions and powers conferred by Parliament.

Second, an express power limited in its scope may by implication exclude the continued existence of any implied powers under earlier statutory provisions. Baroness Wenlock v River Dee Company (1885) 10 App Cas 354 is the leading case. Earlier statutes providing for the respondent company to recover and preserve the navigation of the River Dee neither expressly forbade nor authorised the company to borrow. The subsequent statute conferred express power to borrow not more than

£50,000 secured by bond or mortgage. Any implied power to borrow was held to be negatived by the express power to borrow not more than £50,000. Lord Watson said at 362:

The qualification attached by the legislature to the borrowing powers sanctioned by the Act of 1851, was, in my opinion, fatal to the continued existence of any implied power which the company had under their previous statutes. ... The provisions of

14 & 15 Vict c lxxxvii, s 24, constitute, if not an express, at least a very plainly implied prohibition against the company exercising for the future, in addition to the powers given by that Act, any power of borrowing derivable by implication from the terms of any previous Act.

It was common ground in Lower Hutt City Council v Martin that s 6(2) of the

1941 Act was the only relevant empowering provision for payment of gratuities and that none of the other legislation relating to local bodies was helpful. However, in an earlier case under the 1941 Act, Waimairi County v Rutherford [1947] NZGazLawRp 152; [1948] NZLR 300, 305, Fleming J, applying Cyclists Touring Club v Hopkinson [1910] 1 Ch 179 and Wimbledon and Putney Commons Conservators v Tuely [1931] 1 Ch 190, had held that a local authority had implied power to make provision for or pay gratuities to retiring workers. But the payer had to anticipate advantage in doing so, and so a local authority or corporation which was discontinuing its business had no implied power to give gratuities to its workers. The amounts involved in the Waimairi Council case did not exceed the limits under s 6 and Fleming J did not discuss Baroness Wenlock v River Dee Company and whether s 6 excluded the continued existence of any implied powers. In Martin, however, and applying Baroness Wenlock v River Dee Company, Heron J concluded (at 325) that the

1941 Act amounted to an implied prohibition against paying gratuities whether, he added, as part of the contract of employment or without consideration of any kind.

That then led on to the obvious question of whether the payment was a gratuity within the meaning of the 1941 Act or at all.

Apart from the difficulty that the contract refers to it as a gratuity it seems to me it is as much a payment without a reciprocal obligation to be employed, as a payment made gratuitously at the end of a period of employment made without earlier commitment and without a reciprocal obligation to be employed. It remains in both cases essentially a payment for past services. An obligation to pay does not render a payment made in respect of past services not a gratuity. See Re Ward [1897] 1 QB 266. It would be surprising if a distinction was made from truly gratuitous payments made at the end of the period of employment, and gratuities committed in advance by virtue of a contract of employment made at the time the party undertakes the employment. A contractual commitment to pay a gratuity in recognition of past services lacks the spontaneity of a true gratuity on retirement, and must be made irrespective of the way in which the contract of employment has been performed, save that it must have been performed adequately enough so as not to warrant dismissal. I think, however, that I must view the section as an attempt by central government to protect ratepayers by preventing the payment of employees other than for the work that they perform and not for past services, except in those cases provided by the statute. I see no reasons in logic or policy for distinguishing between contractual commitments and pure gratuities.

The crucial point in this case is whether the contractual provisions entitling Mr Edwards to a retiring grant or alternatively, if not legally available because of s 6, to retiring leave, were in breach of s 6.

The meaning of gratuity in s 6

The question is whether the expression "gratuity" as used in the context of s 6 is apt to cover a payment or provision made and received as of right. In ordinary usage "gratuity" means payment without a claim of right. In The Oxford English Dictionary the relevant meanings are: "2 a gift or present (usually of money) and often in return for favours or services, the amount depending on the inclination of the giver ... 3 spec a. a bounty given to soldiers on re-enlistment, retirement, or discharge". The dictionary refers to the meaning "Payment; wages" as obsolete. Australian and New Zealand dictionaries reinforce the conclusion that that is the

standard meaning of the word in New Zealand. The Tasman Dictionary and The Macquarie Dictionary both define "gratuity" as "1. a gift, usu. of money, over and above payment due for service; tip. 2. that which is given without claim or demand.

3. a bounty given to soldiers". The Heinemann, New Zealand Dictionary definition is "something given freely, especially a gift of money, such as a tip or a payment to an employee on retirement".

Holloway v Poplar Corp [1940] 1 KB 173, McGibbon v Ruff (1969) 69 VR 468 and Re Vladicka and Board of School Trustees of Calgary School District (1974) 45 DLR 3d 442 are examples of cases in different jurisdictions and different areas of the law where in the particular statutory context gratuity was given its ordinary meaning of a voluntary payment. There may be circumstances in which the context requires a different meaning to be accorded. The context may show that the standard meaning was not intended. As Campbell J said in Gasparetto v Gasparetto (1988) 15 RFL 3d 401, 408 of the section in that case, "Although it is called a gratuity it is not a gratuity but a payment as of right based on the collective agreement." Again, the employment of a composite expression may point to a non-standard usage. Thus in Re Ward [1897] 1 QB 266, to which Heron J referred in the passage from Martin cited earlier, W was entitled under the Royal Warrant of

1887 to receive on retirement "a gratuity or retired pay according to the following scale". And as was emphasised in CIR v Smythe [1981] 1 NZLR 673, where the statutory expression included "all sums received or receivable by way of bonus, gratuity, extra salary or emoluments of any kind", although each term used may convey somewhat different connotations or overtones, there may be points of overlap. But this is not a case where "gratuity" may take colour from its association in the section with other expressions. In s 6 "gratuity" stands alone as the subject. The short question then is whether there is any other justification derived from the statutory context for reading the word as extending beyond its ordinary meaning of a voluntary payment.

In our view there is nothing in the scheme and language of s 6 to justify extending the meaning. On the contrary, on its face, subs (2) is directed to the circumstance where, on the retirement of an employee, he or she is not entitled to a retirement payment or retirement leave. Where there is no preceding contractual entitlement, the local authority "may pay to him by way of gratuity" an amount not exceeding an amount calculated in terms of the subsection.

Next, there is nothing in the subsection to indicate an intention to prohibit contracting for payment or leave on retirement. Salary packages often contain various elements and sums payable in the future may properly be characterised as deferred compensation for current services. In Martin the District Court Judge accepted, as did it seems Heron J, that the provision on retirement in question should be regarded as normal commercial practice in engaging staff and encouraging faithful and continuing service. And s 66(1) of the Municipal Corporations Act 1933 empowered the Council to appoint such officers and servants and pay them such salaries and allowances as it thought fit. Section 119B of the Local Government Act

1974 contains like power to pay such remuneration and allowances as the Council thinks fit. Clearly too, this element of the employment arrangements was proffered as an inducement by the Council to Mr Edwards to enter into the contract and to continue in its employment on those terms. Finally, s 6(2A) empowers a local authority to pay a gratuity to dependants where an employee has died before receiving a gratuity, and in doing so employs essentially the same permissive language as in subs (2).

Heron J discerned in the section an attempt "to protect ratepayers by preventing the payment of employees other than for work that they perform and not for past services, except in those cases provided by the statute". We respectfully disagree. There is nothing in the section itself to warrant that inference and the

Minister's second reading speech did not mention any such considerations

((1941) 260 NZPD 1212).

For the reasons just given, the contractual provision may properly be characterised as a deferred reward for entering into the contract and for continuing services. And the legislation may reasonably be seen in policy terms as allowing local authorities to make voluntary payments up to the specified limits in those cases where there is no contractual entitlement.

For the reasons given we hold that s 6 is not directed to payments made on retirement or payments in respect of retirement leave where the relevant payments and/or retirement leave form part of the employee's contractual entitlement. Further, we do not agree that the provision for retirement leave under cl F7 should be seen as a device and characterised as coming within the expression "by way of gratuity". Given the uncertainty created by Martin, the parties were entitled, should in the event it be necessary to ensure that the employees would gain the stipulated advantage, to extend the term of the contract by providing for retirement leave. Finally, the nomenclature employed in cll J1 and F7 cannot convert what is undoubtedly a contractual entitlement into a voluntary payment provision.

Result

It follows that the appeal must be dismissed. Accordingly it is unnecessary to decide whether, as Judge Palmer held, that for the purposes of the 1941 Act the provisions of the Local Authorities (Employment Protection) Act 1963 extend the period of continuing service in the present case back to include Mr Edwards' earlier local body and central government service; or that, as Mr Edwards submitted, the provisions of the Income Tax Act 1976 relating to assessability of retirement

payments and the Joint Council for Local Authorities Services Act 1977 repealed pro tanto the 1941 Act. We are inclined to the view that the 1963 statute, which made provision for the protection of the employment rights of local authorities on local body restructuring, but not for their enhancement, can be read consistently with the

1941 Act and was not intended to cut down its reach in that way. And neither the income tax legislation nor the 1977 statute is directed to the particular subject matter with which the 1941 statute is concerned.

The appeal is dismissed. Mr Edwards conducted his own case and is entitled to any reasonable disbursements in relation to the appeal as fixed by the Registrar.

Solicitors

Simpson Grierson, Wellington, for appellant