Transmissions and Diesels Ltd v Matheson [2002] NZCA 63; (2002) 6 NZELC 96,595; [2002] 1 ERNZ 22 (6 March 2002)

Last Updated: 16 December 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA 97/01

	BETWEEN	TRANSMISSIONS & DIESELS LIMITED
		Appellant

	AND	DIANE MARGARET MATHESON
		Respondent

Hearing:	26 February 2002
Coram:	Richardson P Gault J McGrath J
Appearances:	A A Couch and B K Pizzey for Appellant S M O'Sullivan and A J Lawton for Respondent
Judgment:	6 March 2002

JUDGMENT OF THE COURT DELIVERED BY RICHARDSON P

[1] This appeal is against a decision of the Employment Court, reported at [2001] NZEmpC 46; [2001] ERNZ 1, upholding a claim by the respondent, executor of the will of Mr Matheson, for damages for constructive dismissal at common law and unjustifiable dismissal under s40 of the Employment Contracts Act 1991. The appeal extends to the subsequent decision of the Employment Court ordering the employer company, Transmissions & Diesels Limited ("T & D") to pay costs of $65,000 and expenses of $42,645.40.
[2] Mr Matheson committed suicide the day after his employment terminated. The statement of claim sought damages for loss of remuneration until the expected date of retirement and other employment related benefits. Those claims for future income losses were barred by the Law Reform Act 1936 s3, and the only claim that could properly be pursued was for stress damages, which the Employment Court fixed at $50,000 additional to the $10,000 which T & D had paid to Mrs Matheson as a gratuity following Mr Matheson's death.

Immediately relevant facts

[3] Mr Matheson, a mechanic by training and aged 50 at his death, took up the position of Branch Manager, Wellington, for T & D in February 1997. The company had its head office at Christchurch. It had set up the Wellington Branch in 1996, primarily as a parts and services operation. Mr Matheson worked very long hours, including long hours at night over and above the branch managerial responsibilities, servicing the engines of "Seacat", an inter-island ferry.
[4] Summarising the factual background, Judge Shaw referred to what she described as three significant events.
[5] The first was in August 1998. When an employee left in July 1998 another employee became parts manager at Wellington, reporting to head office. A complaint to Mr Matheson by Mr Wooff, a director of T & D, about a parts purchase upset Mr Matheson who said he would resign. But Mr McLaughlin, another director, phoned Mr Matheson to ensure that he did not do so. In August, following concerns about management difficulties at the branch, Mr Wooff and Mr McLaughlin flew to Wellington and met Mr Matheson at the airport. Mr Matheson was tense and in tears. The directors made it clear that they did not want him to resign. They discussed staffing issues and then at the Wellington Branch talked to the staff individually. Mr Matheson's mood lightened.
[6] Late in December there were further difficulties. While at the Wellington Branch for a Christmas function, Mr Wooff spent most of the day talking individually to the staff about Mr Matheson's relationships with them. Mr Matheson was upset at being left out and talked to his wife of resigning. Only days later Mr McLaughlin was told by Mr Wooff that a particular staff member, Ms McAdam, said that Mr Matheson was intolerable to work with and that she and another employee were thinking of leaving. Mr McLaughlin told Mr Matheson to do something or there would be no staff left and to hire another mechanic.
[7] On 5 February 1999 Ms McAdam told Mr Matheson and Mr Hodgson, the parts manager, that she was resigning. The Judge's narrative continues:

Mr Matheson left shortly after to see a customer. Matt Hodgson rang Christchurch and informed Mr McLaughlin who rang Ms McAdam. He wanted to find out what it would take to keep her at T & D. She told him she could not work with Mr Matheson any more. He also spoke to Chris Tamarua and Jim Garters who both said they would be leaving as soon as they could. As a result of this Mr McLaughlin immediately flew to Wellington. He said he wanted to stop Ms McAdam from going to the competition. He arrived unannounced at the Wellington branch not wanting a repeat of the tearful conversation at the airport that he had with Mr Matheson on 6 August. He had not warned Mr Matheson of his arrival. When he arrived he could see that Mr Matheson had been crying and was uncharacteristically quiet and sombre.

Mr McLaughlin went into Mr Matheson's office and said "you know what I'm here for. What are we going to do about all of this?" Although he agreed he was upset, Mr McLaughlin said his tone was resigned rather than angry or aggressive. He described what happened next.

He [Mr Matheson] started crying very soon after I sat down in the office. After a very short time, possibly in the first minute, he said something like "I guess I had better do the decent thing and resign". I think that this was after all I'd said was "what are we going to do about this?" I think that those were his exact words, and that he had caused enough grief. I was surprised by this. I was expecting him to say that Angela was no good, that we could afford to lose her. I decided on the spot that accepting his resignation was an option and so my reply was, I believe, "OK. That may be for the best". Mr Matheson then broke down some more and cried a lot. I think he hadn't expected his resignation to be accepted. I tried to comfort him.

Mr McLaughlin said he spoke to Mr Matheson to encourage him to try and find another position more suited to his excellent technical skills. But Mr Matheson began sobbing uncontrollably and asked if there was anything else for him at T & D. Mr McLaughlin said there was not and told the Court that he didn't think it would be appropriate or wise for Mr Matheson to take a mechanic's position at T & D. He didn't see that working out.

Mr McLaughlin denied emphatically that he had dismissed Mr Matheson or forced him to resign.

...

Mrs Matheson said that her husband had a very bad headache and had difficulty breathing when he got home. He had told her that he had been put off. He also told her that Ms McAdam had resigned because of him and that she had rung Mr McLaughlin. He was also humiliated about the way Mr McLaughlin had met him in his office so that when he left the premises he had to go out past the other staff. At about 4pm Mrs Matheson received a call from Mr McLaughlin. She said that he inquired how Mr Matheson was and then said "It was the hardest thing I have ever had to do". The couple returned after work hours to collect Mr Matheson's personal possessions.

...

Mrs Matheson spoke to Mr McLaughlin at about 8.30am to tell him that Mr Matheson was not well and was staying in bed. She says he again said that it was the hardest thing he had ever had to do. She said she expressed some anger to him about how hard Mr Matheson had been working. Although all this evidence is hearsay I accept that it is a very reliable account and consistent with other relevant evidence.

When Mrs Matheson returned home that afternoon she discovered that her husband had committed suicide. He left two records behind, a note to his wife and a floppy disk.

[8] The note to his wife asked her to give the floppy disk on which he had recorded an "insight to [his] frustrations" to Mr McLaughlin. That letter dwelt particularly on his frustrations with Ms McAdam, the burden of the mechanical work, particularly for Seacat, and ended:

In summary Alister, I would like to thank you for your support over the last two years and sincerely apologize for the continual grief I have caused you.

I still say I was set up as you were very quick to point out that the Company was restructuring and that you did not have a position for me. It seems to be convenient that a saving of $50,000 pa plus Southern Cross, vehicle etc was a controlling influence in the decision. Surely skill is something you don't buy, I must have been some use even if I worked in the Fuel Room. I have that skill too you know.

Liability findings

[9] On the first cause of action, wrongful dismissal, and for the reasons she gave, on her assessment of the evidence the Judge concluded that Mr McLaughlin did not dismiss Mr Matheson. Rather, Mr McLaughlin "accepted his resignation with alacrity when it was tended to him". As well, the Judge was not satisfied that the very real pressure he was under in servicing the Seacat was as a direct result of deliberate actions of T & D. The directors knew he was working hard but encouraged him to employ more staff to ease the pressures. She also found that, while T & D was financially worse off during 1998 than the directors had hoped it would be, that concern was not conveyed to Mr Matheson so as to make him work hard on the Seacat to save money for the company.
[10] Judge Shaw went on to hold that Mr Matheson was constructively dismissed by reason of T & D's breach of duty. Breach of duty had been pleaded on two bases. The first, to which a substantial part of the evidence and argument was addressed, was that the employer had breached the duty to provide a safe and healthy work environment for Mr Matheson. The Judge was not satisfied on the evidence that that breach had been established. It was not the fault of the employer that led to Mr Matheson's long hours. They were self-imposed pressures on his part.
[11] The second duty was the duty of T & D to act fairly and reasonably in its treatment of Mr Matheson. Judge Shaw was satisfied on the evidence that T & D breached that duty. She focussed on the behaviour of the company beginning in August 1998 which, she found, reached an unacceptable level in December when Mr Matheson was "obviously becoming increasingly fragile ... and was getting increasingly off-side with staff". The Christmas party day events were predictably going to make an already stressed man feel extremely vulnerable:

At the very least, knowing of the problems in staff relations at Wellington, T & D should have taken control, insisted on Mr Matheson receiving some assistance in the management area, and provided him with some support from that time. Both Dr Walls and Professor Taylor told the court that they would have recommended that course of action.

...

Then, moving on to February:

This time [5 February], faced with the imminent loss of Ms McAdam and the possible resignation of two other valued staff members, Mr McLaughlin had to make some serious decisions. His immediate and unquestioning acceptance of Mr Matheson's resignation indicates that he seized the opportunity for what appeared to be an immediate solution to his problems. While this is understandable his acceptance was not reasonable in the circumstances. Mr Matheson was completely out of control. He was sobbing and inconsolable. His resignation cannot be said to be the reasoned actions of a man who had had the opportunity to properly consider his position. That he immediately asked to be considered for other positions is the clearest evidence of his desire to continue working for T & D and raises doubts as to the genuineness of his resignation.

Therefore, I am satisfied that, based on prior behaviour, Mr McLaughlin could have anticipated a resignation. He went into the meeting without affording Mr Matheson a chance to be supported or to do anything to avert the undoubted crisis at the Wellington branch.

[12] Then, when discussing the personal grievance, the Judge found that T & D:

η failed actively to provide Mr Matheson with any real support to help him solve his management problems. The only support offered was to make it clear that Mr Matheson could employ more staff. While that would have helped with Mr Matheson's extreme but self-inflicted workload it would have been unlikely to have solved the staff relations problems;

η failed properly and constructively to alert Mr Matheson to inquiries its directors were making, notably Steve Wooff, about staff relations. Instead, Mr Wooff's inquiries were undertaken in the physical presence of Mr Matheson without involving him.

The cumulative effect of these two failures meant that the procedure adopted by Mr McLaughlin on 5 February 1999 was inevitably flawed.

...

At least he was entitled to have the opportunity to calm down, take some advice, or get some support before and during the meeting with Mr McLaughlin.

Mr McLaughlin's ready acceptance of Mr Matheson's desperate offer of resignation was unfair in all these circumstances.

The dismissal was therefore unjustified.

[13] In concluding her discussion of the first cause of action the Judge also expressly found:

On the balance of probabilities Mr Matheson was constructively dismissed as a result of the breach of [T & D's] duty to act fairly and reasonably to him. Mr Matheson suffered undue stress and humiliation as a result of that breach.

The challenge to the liability findings

[14] The appeal to this court from the Employment Court is confined to questions of law (s135). In essence, Mr Couch's argument was that the Judge erred in two respects. First, in assessing whether Mr Matheson's resignation had been caused by a breach of duty on the part of the employer, the Judge had taken into account the incidents of August and December which were too remote, she also took into account actions which could not amount to a breach of duty and she made no findings as to causation linking breach of duty on 5 February with the resignation. Second, in assessing whether Mr Matheson's resignation was reasonably foreseeable by T & D (Auckland Electric Power Board v Auckland Provincial District Local Authorities Officers IUOW Inc [1994] 1 ERNZ 168 and Business Distributors Ltd v Patel (CA 220/00, judgment 13 August 2001) the Judge failed to apply the test of foreseeability to the same breaches of duty she found had caused the resignation.
[15] We are satisfied that the challenge to the liability findings must fail. The Judge correctly identified the governing principles involved. The two legal issues, causation and reasonable foreseeability, were given separate headings and there was further discussion under the heading, "Personal grievance". But the factual assessment she made overlapped and, in particular, she made causative findings in the course of discussion under each of the three headings. As well, there were overall findings as to liability at the end of the discussion of each cause of action. We are satisfied that taken together the Judge expressly, or by necessary implication, made the essential findings to meet the legal test and there was no error of principle in that regard. There was ample evidence to justify her factual findings. She was entitled to find an ongoing failure to treat Mr Matheson fairly and that his resignation was tendered, and accepted with alacrity, when he was known to be in an extremely vulnerable state. The challenge on the appeal is in reality to the factual assessment and involves yet another case where an appellant has sought to develop questions of fact into alleged errors of law.

Distress damages: the Employment Court judgment

[16] In terms of s40(1)(c)(i) where the Employment Court determines that an employee has a personal grievance it may order payment of compensation for humiliation, loss of dignity and injury to the feelings of the employee. Section 40(2) goes on to require the Employment Court in deciding the extent of the remedy to "consider the extent to which the actions of the employee contributed towards the situation that gave rise to the personal grievance". Judge Shaw observed, and it is common ground, that the same factual basis applied to each cause of action, constructive dismissal at common law or unjustifiable dismissal under the Employment Contracts Act, and there was no reason why the quantum of compensation should differ. She continued:

The extent to which the estate can claim damages under this head must be limited to the extent of suffering endured by Mr Matheson. I find from the evidence before the Court that the stress and humiliation felt by Mr Matheson and caused by the defendant was as profound as it could possibly be. His suicide is testimony to that and shows that it went far beyond the usual disappointment of an employee over the loss of a job.

Aside from his suicide, however, the evidence shows that his distress was palpable from the moment Mr McLaughlin began to speak to him. This is explicable only by the cumulative acts of the defendant already described. It was compounded in his mind by having to walk past other employees to leave the office at a time when they already knew that his employment was over. Mrs Matheson's description of his physical and emotional state when he returned home and over the next few hours was also testimony to the deep feelings of hurt that Mr Matheson suffered. He is entitled to a significant sum to compensate him for that suffering, albeit short-lived.

A final matter to be considered is the $10,000 which the defendant paid to Mrs Matheson as a gratuity following Mr Matheson's death. Taking all these factors into account the plaintiff is awarded the sum of $50,000.

Distress damages: the submissions

[17] Mr Couch for T & D submitted that the award was manifestly excessive. It was, he said, inconsistent with the pattern of awards in the Employment Court and this court, particularly given that on the Judge's approach the award would necessarily have been much higher had Mr Matheson failed in attempting suicide and so his distress had endured. It also failed properly to take into account that many factors other than the loss of the job contributed to Mr Matheson's distress.
[18] Mr O'Sullivan for the respondent submitted that the Employment Court was best placed to reflect the profound distress suffered by Mr Matheson; that the unique facts of the case necessarily differentiated it from others; and that the Employment Court could not be said to have acted on a wrong principle of law or to have set the award so high as to make it an entirely erroneous estimate of the injury Mr Matheson suffered, although that suffering was short lived.

Distress damages: discussion

[19] Judge Shaw recognised that compensation could be awarded only for the distress suffered by Mr Matheson himself from the constructive dismissal and unjustifiable dismissal. The assessment of that compensation had to take into account both the duration and the intensity of that distress. In assessing the duration the Judge focussed particularly on the short period from 5 to 6 February but she was well entitled to find, as she did, that Mr Matheson's vulnerable and already stressed state on 5 February was affected by the developing pressures over previous weeks. In short, the continuing breach by T & D of their duty to act fairly and reasonably towards Mr Matheson and provide him with proper support in his employment contributed to his vulnerability and so to his responses and decision to resign when taxed by Mr McLaughlin: "You know what I'm here for. What are we going to do about all of this?" (para [7] above).
[20] Giving full weight to those factors, we are nevertheless satisfied that the Judge erred in setting the distress damages at $60,000. First, the Judge erred in finding that the stress and humiliation felt by Mr Matheson were "caused by the defendant". There were other substantial causes for which T & D were not responsible. Judge Shaw had earlier found that the pressure of the long hours worked by Mr Matheson was self-imposed, not the fault of T & D (para [10] above), and s 40(2) required the Employment Court to consider the extent to which Mr Matheson's own actions contributed towards the situation that gave rise to the personal grievance. His fragile state on 5 February 1999 was due in part to those self-imposed pressures and, as well, there were other personal factors operating on him referred to in the note he left for Mrs Matheson and in the Employment Court judgment [2000] NZEmpC 5; ([2000] ERNZ 1, 24). The Judge erred in not expressly assessing the relative significance of each of the various factors which may have contributed to his resignation and so to his employment related distress.
[21] Second, it is well settled that reasonable consistency in awards for distress is required and established patterns should not be departed from without good and enunciated reasons. For a recent decision in this court see Attorney-General (In respect of the Chief of the New Zealand Defence Force) v N (CA 4/01, judgment 7 November 2001), paras [21]-[22].
[22] The Judge must be taken to have gone beyond the pattern established in the awards referred to in para [21] in that case, where it was accepted that there had been few awards over $20,000, and in the other cases referred to by counsel. We have regard, too, to the Judge's recognition that the profound suffering that Mr Matheson endured ended with his death, and to Mr Couch's submission that the Judge's award would have to have been much higher had Mr Matheson lived.
[23] Giving generous weight to the Judge's assessment subject to those qualifications, we have concluded that the damages should not be more than $35,000, that is $25,000 in addition to the $10,000 gratuity and, in the particular circumstances of this case, should be fixed at that figure.

Costs

[24] Mr Couch challenged the costs and disbursements order on two major grounds. First, he submitted that the award of $65,000 was excessive. Mrs Matheson's actual costs totalled some $135,500. The Judge, Mr Couch said, made no findings as to what costs were reasonably incurred by Mrs Matheson, or as to how the $65,000 was arrived at. And thus the Judge did not, in reaching the decision, expressly allow for the substantial time and costs attributable to the health and safety, the safe system of work issue, and the actual allegation that Mr Matheson was actually dismissed, on which Mrs Matheson failed. The award, Mr Couch submitted, was well in excess or the norm for comparable cases in the Employment Court and as a guide a proper calculation under the High Court Rules would yield an award of some $40,000. He noted that the award of costs here equated to a rate for the seven day hearing of $9,285 per day, as compared with the range (with one exception) of $3,800 to $6,400 per day of hearing in the cases analysed by Judge Travis in Richardson v Board of Governors of Wesley College [1999] 3 ERNZ 199, 229-230.
[25] Second, he submitted that the Judge erred in allowing the whole of the expert fees for Professor Taylor ($35,465 for 242.5 hours at $130 plus GST), given that the majority of that work related to the health and safety issue on which Mrs Matheson failed. The Judge explained his reason for rejecting that second submission as follows:

Professor Taylor's evidence was relied on in the decision. His evidence supported the conclusion that Mr Matheson was accumulating fatigue debt and this was one of the factors relevant to the decision that there was a breach of duty by the defendant towards Mr Matheson. Professor Taylor's evidence did not persuade the Court that the defendant failed to provide a safe and healthy work environment for Mr Matheson, nonetheless I am satisfied that his evidence was necessary to the successful outcome of the plaintiff's case. Normally, expert witness fees are treated as a disbursement and are generally ordered to be paid in full. In the circumstances of this case I find no reason to depart from this principle.

[26] We can deal with the second matter very shortly. Both parties engaged expert witnesses and in the end we are not persuaded that we must differ from the trial Judge's essentially factual assessment in this area.
[27] But we are satisfied, and for the reasons reflected in Mr Couch's submissions, that the Judge erred in the assessment of costs and that the $65,000 must be regarded as excessive. We allow the appeal in this respect and fix the costs at $40,000.
[28] In closing, we repeat the observation in Victoria University of Wellington v Alton-Lee (CA 294/00, judgment 30 July 2001, para [65]) that the parties and those practising in this field should always have in mind the importance of conducting litigation with proper focus on the issues and what is truly at stake and on the containing of costs. In short, as a matter of proportionality, litigation in this field should not become so expensive as to unreasonably deter parties in employment disputes from exercising their rights.

Result

[29] The appeal is allowed in part. The quantum of distress damages is reduced to $35,000 ($25,000 additional to the $10,000 gratuity already paid to Mrs Matheson) and the award of costs is reduced to $40,000. T & D are entitled to an award of costs on the appeal which are fixed at $2,500 together with disbursements, including the travel and any accommodation expenses of one counsel, as fixed, if necessary, by the Registrar.

Solicitors
Weston Ward & Lascelles, Christchurch, for appellant
Phillips Fox, Wellington, for respondent