Warwick Henderson Gallery Ltd v Weston CA80/04 [2005] NZCA 272; [2006] 2 NZLR 145; (2006) 7 NZELC 98,115; [2005] ERNZ 921; (2005) 2 NZELR 661 (14 November 2005)

Last Updated: 15 January 2018

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IN THE COURT OF APPEAL OF NEW ZEALAND

CA80/04

BETWEEN WARWICK HENDERSON GALLERY LIMITED
Appellant

AND EMMA LOUISE WESTON
Respondent

Hearing: 26 October 2005

Court: Hammond, Baragwanath and Potter JJ

Counsel: C H Toogood QC for Appellant
C L Kimpton and A M Clark for Respondent

Judgment: 14 November 2005

JUDGMENT OF THE COURT

A The question posed is answered “no”.
B The appeal is dismissed.

100. The appellant must pay the respondent costs of $8000 and usual disbursements.

____________________________________________________________________

REASONS

(At the invitation of Hammond J, Baragwanath J delivered
the first judgment, being that of himself and Potter J.)

Baragwanath and Potter JJ [1]
Hammond J [40]

BARAGWANATH AND POTTER JJ
(Given by Baragwanath J)

Table of Contents

Para No
Introduction [1]
Background [6]
Submissions on appeal [9]
For appellant [9]
For respondent [14]
Discussion [15]
Section 65(1)(a) [16]
Immediate context of s 65(1)(a) [21]
The scheme of the Act [25]
Object of the Act [31]
The appellant’s further arguments [34]
The need for certainty [34]
The purposes of allowing an employee to read and consider the
agreement and take advice [35]
Lowe Walker Paeroa Ltd v Bennett [36]
Other potential forms of claim [37]
Decision [38]

Introduction

[1] This appeal is by way of case stated on a question of law under s 214 of the Employment Relations Act 2000 (“ERA”).
[2] On 5 April 2004 Judge Shaw in the Employment Court gave judgment in favour of the employee allowing an appeal from a decision of the Employment Relations Authority. On 5 July 2004 the judgment was revised to result in a total judgment in favour of the employee of $16,475.95 together with interest.
[3] Section 65(1)(a) of the ERA provides:

65. Terms and conditions of employment where no collective agreement applies

(1) The individual employment agreement of an employee whose work is not covered by a collective agreement that binds his or her employer–

(a) must be in writing;...

[4] The employer sought and on 5 March 2005 was given leave to appeal to this Court on the question:

Whether an individual employment agreement that is entered into without complying with section 65(1)(a) of the Employment Relations Act 2000 is unenforceable and cannot be sued upon. In particular, is an oral term of employment (that has not been acted on by the parties during the employment) invalid and unenforceable?

[5] For the reasons that follow the answer is “no”.

Background

[6] Ms Weston began parttime employment with Warwick Henderson Gallery on 9 March 2001. The parties signed an individual employment agreement under which she was entitled to an hourly rate which was later increased. She was also entitled to 10% of the gallery’s commission on paintings which she had sold on its behalf.
[7] Towards the end of 2001 Ms Weston and Mr Henderson, the principal of Warwick Henderson Gallery, agreed that she should work fulltime from 1 December 2001. The Employment Court held that the parties orally agreed that from that date Ms Weston should receive a salary in lieu of payment on an hourly rate, an allowance for use of her cellphone, a car and associated expenses and 10% of the gallery’s commission not only on the sales which she effected on its behalf but on all sales by the gallery together with holiday pay on all commission payments.
[8] In the Employment Court Warwick Henderson Gallery argued that the parties intended not to be bound by the agreement until it was reduced to writing. The Court found that although both parties wished to have the employment agreement reduced to writing it took effect as an oral agreement according to its terms. We were told that the question on which leave has been given to appeal to this Court was raised late in oral submissions; it was not dealt with by the Employment Court.

Submissions on appeal

For appellant

[9] For the appellant employer Mr Toogood QC submitted that an individual employment agreement entered into orally and not in writing, and thus failing to comply with s 65(1)(a), is unenforceable. He relied upon the scheme of the Act including the first part of Part 6 which is headed “Individual employees’ terms and conditions of employment”:

60 Object of this Part

The object of this Part is–

(a) to specify the rules for determining the terms and conditions of an employee’s employment;...

(b) to require new employees, whose terms and conditions of employment are not determined with reference to a collective agreement, to be given sufficient information and an adequate opportunity to seek advice before entering into an individual employment agreement;...

We would add that s 60 goes on to provide:

(c) to recognise that, in relation to individual employees and their employers, good faith behaviour is–

(i) promoted by providing protection against unfair bargaining; and

(ii) consistent with the implied term of mutual trust and confidence in the relationship between employee and employer.

[10] Mr Toogood submitted:

• the requirement in s 65(1)(a) for writing reflected the first purpose, stated in s 60(a), of certainty as to the terms and conditions of employment enabling employees to know at any given time what their terms and conditions are for the purposes of enforcement;
• the requirement for writing additionally gives effect to the second purpose, stated in s 60(b), allowing a new employer to read and consider the employment agreement and, if necessary, taking independent advice before signing it;
• if oral employment agreements were enforceable the policy of allowing adequate opportunity for an employee to seek independent legal advice would be defeated.

Implicit in his argument was that if oral agreements are enforceable, employers could take improper advantage of them against employees.

[11] Mr Toogood relied on Cotton v CDF Corporation [1965] NZLR 992 (CA) and Industrial Steel and Plant Ltd v Smith [1980] 1 NZLR 545 (CA). Both are however distinguishable: the first concerned the operation of Regulation 10 of the Hire Purchase and Credit Sales Stabilisation Regulations 1957 and the second s 4(1) of the Hire Purchase Act 1971, each of which expressly rendered certain transactions unenforceable.
[12] The appellant’s written submissions finally relied on the decision of this Court in Lowe Walker Paeroa Ltd v Bennett [1998] 2 ERNZ 558 which held that for the variation of a collective employment contract (Employment Contracts Act 1991 s 23) to be effective it must be in writing. That policy is expressly stated in s 54(1) of the Employment Relations Act 2000. The appellant invites this Court to apply the same policy to an individual employment agreement.
[13] In oral argument Mr Toogood submitted that if we were to accept his construction of the effect of s 65(1)(a) and hold that an oral employment agreement is not enforceable by an employee who had performed his or her obligations under an oral agreement in good faith, the employee would not be without a remedy. Recourse could, he submitted, be had by the employee by way of personal grievance claim to ss 102, 103 and 123 and alternatively to a claim for a compliance order under s 137; or else the employee could claim under the disputes provision (s 129) which permits pursuit of the dispute in accordance with part 10 by application to the Employment Relations Authority which (under s 162) will apply the ordinary law of contract.

For respondent

[14] The submissions for the respondent are substantially adopted in the following discussion.

Discussion

[15] We are satisfied that the appellant’s submissions are inconsistent with the language and policy of the ERA construed in accordance with standard principles of statutory interpretation, and indeed, with the employee’s entitlement under article 23 of the Universal Declaration of Human Rights to just, as well as favourable, conditions of work.

Section 65(1)(a)

[16] First, viewed in isolation s 65(1)(a) does not say or suggest that an individual employment agreement which is not in writing is unenforceable. To require the agreement to be in writing does not make an oral agreement illegal so as to engage ss 6 and 7 of the Illegal Contracts Act 1970.
[17] Mr Toogood submitted that in s 65(1)(a):

‘Must’ is mandatory. It does not mean ‘may’.

But appellate courts have repeatedly cautioned against posing the question whether a provision is mandatory or directory and:

...fitting [the] particular case into one or other of mutually exclusive and starkly contrasted compartments...

London and Clydeside Estates Limited v Aberdeen District Council [1979] UKHL 7; [1980] 1 WLR 182, 190 per Lord Hailsham.

In R v Secretary of State for the Home Department, ex parte Jeyeanthan [1999] EWCA Civ 3010; [2000] 1 WLR 354, 360 Lord Woolf MR echoed that warning and held that it is “much more important to focus on the consequences of the noncompliance”.

[18] A-G’s Reference (No 3 of 1999) [2001] 2 AC 91 (HL) concerned s 64 of the Police and Criminal Evidence Act 1984 which provided:

(1) If – (a) fingerprints or samples are taken from a person in connection with the investigation of an offence; and (b) he is cleared of that offence they must... be destroyed as soon as practicable after the conclusion of proceedings...

(3B) Where sections are required to be destroyed under subsection... (1)... information derived from the sample... shall not be used –

(a) in evidence against the person so entitled; or

(b) for the purposes of any investigation of an offence.

(Emphasis is added in this and later citations)

[19] But as Lord Cooke pointed out at page 120:

...the Court of Appeal fell into the trap (and they were in good company in doing so) of treating the issues to be resolved according to whether section 64(3B)(b)... should be classified as mandatory or directory. That it is in ordinary language mandatory there can be no doubt. In clear terms it provides the certain categories of samples required to be destroyed shall not be used for the purposes of any investigation of an offence. Use in breach of this prohibition is plainly unlawful. But paragraph (b), in contrast with paragraph (a), does not go on to provide that, in the event of such unlawful use, the results of the investigation shall not be admissible in evidence against the person who was entitled to this construction of the sample. Nor does it provide that an unlawful investigation shall be null and void or deemed never to have occurred – provisions which would indeed read rather oddly in relation to an investigation.

The House of Lords held that the results of the use of the information for the purposes of investigation were to be admitted.

[20] The point of present relevance is that the use of mandatory language does not itself determine what is to happen if it is not complied with. That requires a deeper enquiry.

Immediate context of s 65(1)(a)

[21] In the present case when one looks beyond s 65 the answer becomes obvious. Section 64 in its then form provided:

64. Opportunity to seek advice for new employee where no collective agreement applies

(1) This section applies to an employee if no collective agreement binding his or her employer covers the work done by the employee.

(2) Before the employee enters into an individual employment agreement with the employer, the employer must–

(a) provide to the employee a copy of the intended agreement that complies with section 65(2); and

(b) advise the employee that the employee is entitled to seek independent advice about the intended agreement; and

(c) give the employee a reasonable opportunity to seek that advice.

(3) Every employer who fails to comply with subsection (2) is liable to a penalty imposed by the Authority.

(4) Failure to comply with subsection (2) does not affect the validity of the individual employment agreement concerned.

(5) In this section, employee means a prospective employee.

(emphasis added)

[22] Section 65 was in the following terms:

65. Terms and conditions of employment where no collective agreement applies

(1) The individual employment agreement of an employee whose work is not covered by a collective agreement that binds his or her employer–

(a) must be in writing; and

(b) may contain such terms and conditions as the employee and employer think fit.

(2) However, the individual employment agreement–

(a) must include–

(i) the names of the employee and employer concerned; and

(ii) a description of the work to be performed by the employee; and

(iii) an indication of where the employee is to perform the work; and

(iv) an indication of the arrangements relating to the times the employee is to work; and

(v) the wages or salary payable to the employee; and

(vi) a plain language explanation of the services available for the resolution of employment relationship problems, including a reference to the period of 90 days in section 114 within which a personal grievance must be raised; and

(b) must not contain anything–

(i) contrary to law; or

(ii) inconsistent with this Act.

(emphasis added)

[23] So in its immediate context s 65(1)(a) follows immediately s 64 which, by subsections (2) and (3), imposes on the employer an obligation to provide the employee with a copy of the intended agreement and subjects the employer to a penalty for failure to do so. Even more importantly, subsection (4), provides that failure to comply with subsection (2) [to provide the employee with a copy of the intended agreement] does not affect the validity of the individual employment agreement concerned. It would be an extraordinary result if, while breach of s 64(2) does not affect the validity of the individual employment agreement, a result explicitly stated by the section, that very agreement should somehow by implication from s 65(1)(a) become unenforceable as not being in writing.
[24] No doubt the legislation could be better expressed; the explanation for the absence from s 65 of the explicit language of s 64(4) seems to be that the two provisions appeared as one in the Bill and were separated during the legislative process. But the construction for which the appellant contends is simply impossible.

The scheme of the Act

[25] That conclusion is confirmed by the general scheme of the Act. The employee’s claim was for the commission, holiday pay and expenses due to her under the terms of an oral agreement. Such arrears are recoverable under s 131:

(1) Where–

(a) there has been default in payment to an employee of any wages or other money payable by an employer to an employee under an employment agreement...

[26] Section 5 defines an employment agreement as a contract of service. It is not limited to a contract reduced to writing and includes, although is not limited to, an individual employment agreement. Butterworths New Zealand Law Dictionary (5^th ed) at 64 describes a contract of service as:

A contract under which one person (the employee) agrees to work for another person (the employer) in return for some benefit or remuneration from the employer.

[27] As Mr Kimpton and Ms Clark submit, a contract of service or employment is not a document but a legal concept that defines a special and personal relationship:

no contract of employment can ever be so comprehensively recorded in writing that the writing establishes a complete code leaving nothing to terms which are otherwise expressed... it would be difficult to conceive of a contract of employment evidenced in a single comprehensive document, which embraced all such implied or statutory terms and conditions...

a contract of service or of employment is a legal concept. It is not a document. Rather, what may be in writing is the evidencing of some of the provisions of that legal relationship.

Northern Local Government Officers Union v Waitakere City Council [1991] NZEmpC 14; [1991] 2 ERNZ 753 at pp 766-7

[28] An “individual employment agreement” is defined by s 5 as:

An employment agreement entered into by 1 employer and 1 employee who is not bound by a collective agreement that binds the employer.

[29] We do not accept the concession for Ms Weston that the fact that an individual employment agreement is not in writing means it is only a contract of service and not an employment agreement. Nor, with respect, do we agree with the opinion of Chief Judge Goddard in Baker v Armourguard Security [1997] NZEmpC 323; [1998] 1 ERNZ 424, 432 that:

It is elementary to employment law that there is an important distinction between the formation of the employment contract itself and the formation or articulation of its terms.

At common law a contract is the sum of its terms. While the ERA focuses on employment relations and adds to other contractual terms the obligation of good faith expressed in s 4, both the common law and the contract statutes referred to in s 162 have application to employment agreements including the individual employment agreement in the present case. As observed in Laws of New Zealand: Contract at 162:

In the ordinary case, the law does not require a contract to be made in any particular form, nor according to any particular formalities. Thus in most cases a contract may be valid if it is made either orally or in writing, or partly orally and partly in writing.

So in Xu v McIntosh [2004] NZEmpC 125; [2004] 2 ERNZ 448 Chief Judge Goddard found an oral employment agreement to be enforceable.

[30] While collective agreements have no effect unless in writing there is no such provision in relation to an individual employment agreement. Having recorded in s 54 (unwritten collective employment agreements) what kinds of agreement are without effect, by saying so expressly, the obvious inference is that where in s 65 it deals with other kinds of agreement (unwritten individual employment agreements) Parliament refrains from making a similar statement, there can be no inference that the latter should lack effect. As Professor Burrows puts it in Statute Law in New Zealand (3^rd ed) 143:

[While t]he expressio unius [est exclusio alterius] rule is not often cited by its Latin name any more,...its premise, that a list of specifics is exhaustive is such a natural part of our process of understanding the written word that it will continue to be with us in substance if not in name.

Object of the Act

[31] A further point, of particular weight, is the respondent’s submission that the whole thrust of the Act is to protect employees from abuse, as article 23 of the Universal Declaration of Human Rights requires. Section 3 at the time provided:

3 Object of this Act

The object of this Act is–

(a) to build productive employment relationships through the promotion of mutual trust and confidence in all aspects of the employment environment and of the employment relationship–

(i) by recognising that employment relationships must be built on good faith behaviour; and

(ii) by acknowledging and addressing the inherent inequality of bargaining power in employment relationships; and

...

(iv) by protecting the integrity of individual choice; and

...

(vi) by reducing the need for judicial intervention;...

[32] Section 4, applicable to employment relationships between an employer and an employee employed by that employer provided:

4. Parties to employment relationship to deal with each other in good faith

(1) The parties to an employment relationship...–

(a) must deal with each other in good faith; and

(b) without limiting paragraph (a), must not, whether directly or indirectly, do anything–

...

(ii) that is likely to mislead or deceive each other.
[33] For an employer to accept an employee’s work in terms of an oral agreement, and then to plead lack of writing as a defence, would defy such obligation. That Parliament is concerned with substance rather than technicality is apparent not only from the very change of the name of the statute to “Employment Relations” from the “Employment Contracts” of the 1991 Act, but from such provisions as s 6. That defines “employee” as meaning:

...any person of any age employed by an employer to do any work for hire or reward under a contract of service...

and provides:

(2) In deciding for the purposes of subsection (1)(a) whether a person is employed by another person under a contract of service, the Court or the Authority (as the case may be) must determine the real nature of the relationship between them.

(3) For the purposes of subjection (2), the Court or the Authority–

(a) must consider all relevant matters, including any matters that indicate the intention of the persons; and

(b) is not to treat as a determining matter any statement by the persons that describes the nature of their relationship.

The appellant’s further arguments

The need for certainty

[34] It is true, as Mr Toogood submits, that a purpose of s 65(1)(a) is to provide certainty. But for the reasons stated in the passage cited at [26] above, total certainty can never be achieved. If the appellant’s argument were accepted it would mean than every oral advice to an employee of a salary increase would be unenforceable by a simple claim for breach of contract.

The purposes of allowing an employee to read and consider the agreement and take advice

[35] Again it is true that the purposes of allowing an employee to read and consider the agreement and take advice are important. But that obligation falls on the employer which in the event of breach is subject to a penalty under s 64(3). Even apart from the explicit language of subs (4) there could be no reason to visit the employer’s breach on the employee the provision is designed to protect.

Lowe Walker Paeroa Ltd v Bennett

[36] In addition to the reasons already given for rejecting the argument based on Lowe Walker Paeroa Ltd v Bennett, there is a fundamental difference between a collective agreement, which may bind numerous parties who have had no opportunity for individual negotiation of the terms of their contract, and an individual agreement where the opposite is the case. There is good sense in requiring the certainty of a written agreement in the former case; there is none in the latter.

Other potential forms of claim

[37] It is unnecessary to lengthen this judgment by following the various courses that might be available to the appellant as the remedy for breach of an oral contract if a simple claim under s 131 is prohibited, as its argument would have it. It is sufficient to say that any alternative would make more complex and therefore more expensive what should be a simple and efficient statutory procedure to deal with “the inherent inequality of bargaining power in employment relationships” recorded in s 3(a)(ii).

Decision

[38] The question posed having been answered “no” the appeal is dismissed.
[39] The appellant having failed in an appeal that is without merit must pay the respondent costs of $8000 and usual disbursements.

HAMMOND J

[40] I agree with Baragwanath and Potter JJ, and substantially for the reasons given by them, that the fact that this agreement was not in writing does not render it unenforceable. I add some further brief observations.
[41] On the construction point, we were advised from the Bar that many thousands of individual employment agreements in New Zealand are not in fact in writing. That being so, any doubt about the construction of the provision in issue should be resolved by preferring an interpretation which does not produce the extraordinary result that these agreements are all invalidated at a stroke. As Bennion, Statutory Interpretation (3^rd ed.) puts it, a “consequential construction” should be given in such a context (at 670 et seq). That said, as the Employment Court itself has rightly emphasized, the “prudential” course is for there to be a written contract. See Clarke v Norske Skog Tasman Ltd, AC 42/03 and Mazengarb, Employment Law at A/909.
[42] If, contrary to the view this Court has reached, writing had been required by the statute in this instance, I would have been minded to resort to the principle that “equity will not allow a statute to become an instrument of fraud”. It is sometimes thought that this principle is confined to writing in support of contracts for the sale of land. But it is broader than that. In my view, the reach of the principle is put accurately in Meagher Gummow and Lehane, Equity Doctrines and Remedies (4 ed), at [12105]: “This principle is not confined to the Statute of Frauds, but will apply to any statute which requires observance by the parties of a particular form as a precondition to enforceability at law; if the statute raises an illegality then different questions will arise” (italics added). Here the Court below found - and it is not in issue before us - that there was an oral contract. It was (at least) part performed, and the doctrine could be applied.
[43] Finally, it is difficult to imagine how this appellant could ever have anticipated a successful outcome to this litigation. For, even if there had not been an oral contract as found, given that substantial work was undeniably performed, the respondent would likely in any event have been entitled to a quantum meruit. Such an award may be made where one party does work for another during negotiations which are expected to lead to a contract, but which falls through before being concluded (see Treitel, Contract (9 ed.) at 952; and s 162 Employment Relations Act 2000, which preserves general contract remedies).

Solicitors:
Richard Harrison, Auckland for Appellant
Kensington Swan, Auckland for Respondent