White v Auckland District Health Board [2008] NZCA 451; (2009) 9 NZELC 93,029; [2008] ERNZ 635 (30 October 2008)

Last Updated: 5 January 2012

IN THE COURT OF APPEAL OF NEW ZEALAND

CA103/2008 [2008] NZCA 451

BETWEEN HARVEY DOUGLAS WHITE
Appellant

AND AUCKLAND DISTRICT HEALTH BOARD
Respondent

Hearing: 22 October 2008

Court: Robertson, Randerson and Heath JJ

Counsel: H B Rennie QC and P A Swarbrick for Appellant
C H Toogood QC and R M Larmer for Respondent

Judgment: 30 October 2008 at 3 pm

JUDGMENT OF THE COURT

A The appeal is allowed.

2. The issue of costs in the Employment Court is remitted to that Court for reconsideration in the light of this Court’s judgment.

100. The respondent must pay the appellant costs for a standard appeal on a band A basis and usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Randerson J)

Introduction

[1] The appellant is a senior physician who has been employed by the respondent Board or its predecessors since 1977.
[2] In February 2005 the Board was alerted by an employee to the existence of inappropriate material held on the appellant’s workplace computer. When confronted with the issue the appellant acknowledged the wrongful nature of his conduct and promised he would not offend in this way again. The Board nevertheless dismissed him from its employment on 18 April 2005. Within a few weeks, the appellant was reinstated on an interim basis by order of the Employment Relations Authority. The appellant’s application for permanent reinstatement and associated remedies was removed to the Employment Court. The Board strongly contested the appellant’s proceeding. The hearing before Chief Judge Colgan occupied some ten days in November and December 2005.
[3] By a judgment delivered on 23 February 2007 Judge Colgan:

• Found that the appellant’s dismissal was unjustified both procedurally and substantively.
• Made an order for permanent reinstatement of the appellant.
• Declined to grant any remedy by way of compensation under s 123(1)(c) Employment Relations Act 2000 (“ the ERA”).
• Declined to make an order for permanent suppression of the appellant’s name.
• Formally reserved the issue of costs while expressing some views on that subject which we analyse later in this decision.

[4] Various appeals against this decision were lodged but have all now been disposed of and we need not refer to them further.
[5] In a decision issued on 15 October 2007 Judge Colgan dismissed the appellant’s claim for costs, directing that costs should lie where they fall.
[6] On 21 February 2008, this Court granted leave to appeal under s 214 ERA on the following question of law:

Was the Employment Court right in its approach to the issue of costs in this case?

[7] Although no reasons were given for granting leave, we were told that the Court granting leave was influenced by a concern that the costs decision may have been in error because the Judge had taken into account the appellant’s conduct prior to the issue of proceedings, contrary to the decision of the Supreme Court in Paper Reclaim Ltd v Aotearoa International Ltd [2007] 3 NZLR 169 at [40] and [41]. Neither counsel pressed this issue before us. They accepted that the decision of the Supreme Court was concerned with the current costs regime applying in the High Court which is much more prescriptive than that prevailing in the Employment Court.

Grounds of Appeal

[8] Mr Rennie QC raised the following grounds in support of the appeal:

• The Judge erred in addressing the issue of costs as a remedy rather than as a discrete issue.
• The Judge failed to apply established legal principles.
• The Judge failed to adequately consider and give weight to a pre-trial letter from the appellant and a Calderbank offer made part way through the trial.

[9] The principal issue to determine is whether, as Mr Rennie submitted, the Judge wrongly took into account contributory behaviour by the appellant both in declining remedies under s 123 ERA and in determining the issue of costs. For the Board, Mr Toogood QC submitted there was no error in the Judge’s approach since his findings as to contributory behaviour necessarily dictated the outcome of the appellant’s claims. Since both sides had achieved a measure of success, the Judge had rightly taken the outcome into account in declining to order costs in the appellant’s favour.
[10] In order to determine the issue, it is necessary to examine in more detail the Judge’s findings in his substantive decision and to analyse his reasoning in the costs decision.

The substantive decision

[11] The Judge’s substantive decision runs to over 60 pages and contains a detailed analysis of the evidence, and the relevant statutory provisions. After dealing with the evidence and making some factual findings, the Judge addressed the appellant’s allegations of unjustified disadvantage grievances in terms of s 103(1)(b) ERA. Some of these were upheld and others not. The Judge concluded that in those cases where the appellant had established unjustified disadvantage the proper approach was to consider them as part of the assessment of the justification for the appellant’s dismissal.
[12] Addressing the issue of the appellant’s dismissal, the Judge found that the Board’s flawed and unfair investigative and decision-making process led to an unfair and unreasonable dismissal, applying each of the separate tests under s 103A ERA. The Judge found that the Board had misled and deceived the appellant from the outset of its inquiry into the complaint against him. There was a breach of the Board’s duty of good faith in a number of respects. The Board was found to be in breach of s 4(1A)(c) ERA, its own policies and fundamental principles of fairness in employment law. These breaches were serious and repeated. The Judge also found that the appellant’s dismissal was in breach of contract, the Board having failed to adhere to its own delegated authority policy.
[13] He found that the issue of whether the appellant’s actions amounted to “serious misconduct” in terms of the Board’s employment policies was “not a clear-cut decision”. Nevertheless viewed objectively, a fair and reasonable employer would not have dismissed the appellant. Rather, it would have taken measures to ensure the same misconduct would not recur.
[14] A claim by the appellant that the Board was improperly motivated in dismissing him was not upheld.
[15] The Judge then turned to address the issue of remedies. In addition to an order for permanent reinstatement, the appellant had claimed compensation for financial losses and substantial distress under s 123(1)(c)(i) ERA. The amounts claimed totalled $60,000 made up from $10,000 for unjustified disadvantage in employment and $50,000 for the non-pecuniary consequences of his dismissal. The Judge noted there was little or no remuneration loss sustained by the appellant since the Employment Relations Authority had promptly reinstated him.
[16] Under a heading in his judgment “Contributory Conduct” the Judge concluded that in terms of s 124 ERA the appellant’s misconduct had contributed substantially to the circumstances that gave rise to his dismissal. He was critical of the appellant’s conduct describing it as “adolescent and frankly stupid”. At other points in his decision, the Judge described the appellant’s behaviour as “abhorrent” and “bizarre”. The Judge considered the appellant’s conduct defied rational explanation.
[17] On the contributory conduct issue, the Judge concluded:

[188] All of these factors require a significant reduction in the remedies to which the plaintiff might otherwise have been entitled. On the other hand, in my assessment, they cannot negate all remedies because the defendant's lack of justification for what it did and how it did it, is significant and pervasive.

[18] After observing that reinstatement was an “all-or-nothing remedy” the Judge determined that the appellant’s reinstatement (which he later ordered) would not be affected by s 124 ERA “but his other remedies will be”.
[19] In two critical passages, the Judge then stated:

[190] So although I accept that the process leading to and of dismissal caused the plaintiff substantial upset, humiliation and distress for which he might otherwise have expected to have been compensated monetarily, by making no award for these consequences, I think the Court can thereby reflect appropriately the plaintiff's contributory conduct. Also reflecting the need for reduction of remedies as a result of contribution, I do not think it would be just in all the circumstances to require ADHB to contribute to the costs of purchase of the plaintiff's mobile telephone and another laptop computer as he has claimed as a loss of benefit and this is not allowed.

[191] Although I will, at the request of counsel for the parties, reserve costs, I should make clear also that any award may also reflect contributory conduct on the plaintiff's part if I am required to fix costs.

[20] The judgment then dealt with the application for a permanent reinstatement order noting that reinstatement was undoubtedly “the most important remedy for the plaintiff [appellant]”.
[21] After weighing the competing evidence and arguments on the reinstatement issue, the Judge said:

[227] A unique combination of remedies must be crafted to both meet the justice of a finding of unjustified dismissal and the statute's requirement for contributory conduct to sound in remedy reduction. In these circumstances the plaintiff will be reinstated but should have no other remedies.

[22] Dealing with the issue of publication of the appellant’s name, the Judge concluded:

[236] The way to achieve the balance between the plaintiff's right to reinstatement that I am satisfied he has, and legitimate concerns of patients, is to allow details of the plaintiff's identity to be published in the usual way.

[237] As I have already addressed in relation to remedies, there is the additional consideration in an employment case of the requirement under s 124 of the Employment Relations Act 2000 that the Court must consider the extent to which the actions of the employee contributed towards the situation that gave rise to the personal grievance and, if those actions so require, to reduce the remedies that would otherwise have been awarded accordingly. Although, as already noted, orders for non-publication of parties' identities under cl 12 of Schedule 3 to the Act are not remedies as enumerated in s 123, a permanent order prohibiting publication of his identity is claimed in a remedial sense by the plaintiff. Put another way, he says that among the orders the Court should make to remedy his unjustified dismissal is that there should not be publicity about it and the case, that identifies him.

[238] In that sense, therefore, I consider that the ends of justice are best met by declining that application for a permanent order for non-publication.

[23] Finally, dealing with the issue of costs, the Judge said:

[240] I have already indicated that, on the very detailed case heard by me and, as one element of setting appropriate remedies and taking into account contributory conduct, my inclination is that although the plaintiff may be seen to have been successful, he should meet his own costs of representation in the proceedings without contribution from the defendant. I am conscious, however, that these cases sometimes include offers made without prejudice except as to costs that are not revealed to the Court before judgment but may affect significantly the incidence of costs. In these circumstances I do not propose to make a final order but, if either party wishes to apply, he or it should do so by written memorandum filed and served within 28 days of the date of the judgment, with the respondent to such an application having a further period of 28 days within which to reply by memorandum.

The costs judgment

[24] The Judge began his costs decision with a conventional statement of the approach to costs prevailing in the Employment Court:

[2] The power to award costs is set out in clause 19 of Schedule 3 of the Employment Relations Act 2000 and vests in the Court a very broad discretion to deal with costs as the interests of the case may determine. Although costs will frequently follow the event in that a successful party can expect to have at least some of the party’s costs of representation reimbursed, that is not inevitable. In some cases, and this is among them, both parties have succeeded in some measure and it is then a question of balancing those successes to determine costs.

[25] The Judge then summarised those claims which had succeeded and those which had failed and stated:

[4] I have concluded the questions of costs should, in this case, also be considered not in isolation of the other outcomes of the case but in light of them and in the round.

[26] The Judge went on to record that the appellant was claiming a total including disbursements of $195,556.47, being 80 per cent of his actual solicitor and client costs. The Judge went on to repeat the first sentence of [240] of his substantive decision which we have quoted above.
[27] Referring to a submission on behalf of the appellant that contributory conduct should not be taken into account both to reduce remedies under s 123 and in relation to costs (based on the decision of the Labour Court in O’Connor v Wellington City Council [1990] 3 NZILR 653, at 656), the Judge said:

[9] In this case, however, it would not be a second reduction that had already been reflected in lesser remedies because the assessment of monetary compensatory remedies made in the principal judgment included, as one of the express elements, a prospective nil costs award. The O’Connor case is therefore distinguishable.

[28] Most of the remaining part of the costs decision is a recitation of the detailed arguments provided by each party, the Judge then finally concluding:

[49] Dr White contributed to the circumstances that gave rise to his dismissal in the ways already outlined in my primary judgment. The determination of justification for dismissal and of the remedy of reinstatement that was granted were not an open and shut question as the primary judgment reflects.

[50] Taking into account all of the above submissions, I still consider that the interests of justice would be met by not making an order that the defendant contribute to the plaintiff’s legal costs. To deal with the question of reserved costs on the removal application, I now consider that these also are best left to lie where they fell.

[51] Although the presence of an insurer, as the plaintiff has frankly acknowledged in his submissions in support of costs, has relieved him of personal liability for representational expenses, the consequence of any order in the plaintiff’s favour would be the same for the defendant irrespective of the presence of an insurer. Having considered the position absent an insurer, I have concluded that I would not have decided Dr White’s claim for costs any differently.

[52] I consider that, consistently with the remedial elements of the Court’s decision, the interests of justice dictate that neither party should contribute to the costs of legal representation of the other and Dr White’s claim for an award is therefore dismissed.

[29] No issue was taken in this Court with the Judge’s conclusion that the presence of an insurer who met the appellant’s legal costs was not material.

First Issue – Did the Judge err in addressing the issue of costs as a remedy rather than as a discrete issue?

[30] Mr Rennie’s submission under this heading can be briefly stated. He submitted that the ERA and the general law both draw a clear distinction between remedies and costs. In his submission, the Judge wrongly conflated these issues and this led him into error. In particular, it was submitted that the Judge was not entitled to take into account the issue of contributory conduct on the part of the appellant both in relation to remedies and costs.
[31] Mr Toogood submitted that the Employment Court did not address costs as a remedy. It did no more than hold that all of the circumstances of the case, including the degree to which the appellant succeeded or failed in his claims, should be taken into account. Having necessarily reduced the remedies to which the appellant would otherwise have been entitled on the basis of his misconduct, the Employment Court was entitled to take account of the appellant’s resulting failure to succeed in his claims when exercising the costs discretion. The Judge’s approach was not punitive and did not involve any double counting of misconduct.
[32] We have concluded on this issue that the Judge has fallen into error by failing to deal separately with the discrete issues of remedies and costs. Remedies are dealt with in ss 123 to 128 of the ERA. At issue in the present case were the key issues of the appellant’s reinstatement under s 123(1)(a) and monetary compensation under s 123(1)(c). Neither s 123 nor any of the other remedies provisions make reference to the costs of the proceedings. Nor, as the Judge accepted, does it deal with name suppression.
[33] The Court’s power to order costs is separately provided for in cl 19 of Schedule 3 of the ERA:

19 Power to award costs

(1) The Court in any proceedings may order any party to pay to any other party such costs and expenses (including expenses of witnesses) as the Court thinks reasonable.

(2) The Court may apportion any such costs and expenses between the parties or any of them as it thinks fit, and may at any time vary or alter any such order in such manner as it thinks reasonable.
[34] Section 124 of the ERA makes it mandatory for the Employment Relations Authority and the Employment Court to consider the issue of the employee’s contributing behaviour in relation to the nature and extent of remedies to be provided where a personal grievance is established. That section provides:

124 Remedy reduced if contributing behaviour by employee

Where the Authority or the Court determines that an employee has a personal grievance, the Authority or the Court must, in deciding both the nature and the extent of the remedies to be provided in respect of that personal grievance,—

(a) consider the extent to which the actions of the employee contributed towards the situation that gave rise to the personal grievance; and

(b) if those actions so require, reduce the remedies that would otherwise have been awarded accordingly.
[35] Section 124 is explicit in limiting consideration of an employee’s contributing behaviour to the issue of whether remedies should be reduced by reason of that behaviour: see the discussion by this Court in Salt v Governor of Pitcairn and Associated Islands [2008] 3 NZLR 193 at [79].
[36] The general law has long recognised the distinction between remedies and costs. In Television New Zealand Ltd v Keith [1994] 2 NZLR 84, this Court noted the distinction between damages and costs when considering a jury award in a defamation action which purported to award damages for “All legal fees”: see the discussion at pp 86-88.
[37] In the costs decision in this case, the Judge sought to distinguish the decision of the Labour Court in O’Connor v Wellington City Council (above at [27]). There, it was held that where the employee’s conduct had contributed to his dismissal and had been taken into account in reducing an award for reimbursement of wages under the Labour Relations Act 1987, it was not appropriate to take that conduct into account a second time in assessing his entitlement to legal costs.
[38] We do not see any valid point of distinction between the principle stated in O’Connor and the present case. Our analysis of both the substantive and costs decisions shows that the Judge endeavoured to fashion a package of remedies which essentially included permanent reinstatement, no monetary compensation, publication of his name and no order for costs. In doing so, the Judge took into account the appellant’s contributory conduct both in relation to remedies and costs. That is clear from [191], [227] and [240] of his substantive costs decision which we have referred to above.
[39] When approaching his costs decision, the Judge began by referring to the general principles governing the award of costs in the Employment Court. No exception is taken to his summary of those principles. But, it is clear from [9], [49] and [50] of the costs decision that he was adhering to the view provisionally reached in the substantive decision. That view was that the appellant’s contributory conduct should be reflected both in remedies and in costs.
[40] The statutory scheme confines the issue of contributory behaviour in terms of s 124 to the issue of remedies under s 123. It was open to the Judge to decline to award compensation to the appellant by reason of his contributory behaviour in relation to the circumstances of his dismissal but it was not permissible for him to refuse the appellant costs by reason of the very same behaviour.
[41] It was not suggested that the appellant’s conduct of the litigation was at issue, for example, by his unnecessarily or unreasonably prolonging it. This is an aspect of a party’s behaviour which might have been taken into account in reducing or refusing the appellant costs if it had existed.
[42] In reaching our conclusion we do not overlook Mr Toogood’s submission that the Judge may have reached the same conclusion on costs having regard to overall outcomes and on the basis that each side achieved some level of success. However, we cannot be confident that the Judge would have reached the same conclusion on this basis if he had confined the issue of the appellant’s contributory conduct to the issue of remedies.
[43] Mr Toogood also relied on the equity and good conscience jurisdiction of the Employment Court under s 189 ERA but we accept Mr Rennie’s submission that the jurisdiction under that section cannot be exercised in a manner inconsistent with the scheme or terms of the ERA. The ERA requires that the issues of remedy and costs be considered separately. Contributory conduct by the employee may only be taken into account in relation to remedies.
[44] Both counsel accepted that if this ground of appeal were to succeed, the proper course was to allow the appeal and remit the matter to the Employment Court for reconsideration. But we nevertheless deal with the other two grounds of appeal lest any issue should arise in the Employment Court in relation to them.

Second Issue – Did the Judge fail to apply established legal principles?

[45] We record that there was no material dispute about the costs principles which normally prevail in the Employment Court. They are similar to those which existed in the High Court prior to the major changes introduced in that Court with effect from 1 January 2000. While the Employment Court has a broad discretion as to costs, it is to be exercised judicially. The award of party and party costs should generally follow the event and amount to a reasonable contribution to costs actually and reasonably incurred. What is a reasonable contribution depends on all the material circumstances: Binnie v Pacific Health Ltd [2002] 1 ERNZ 438 at [13] and [14] (CA).
[46] It has been recognised by this Court however that where the parties have achieved mixed success, it is not necessarily easy to determine who won the case so as to be entitled presumptively to costs. In such cases, where both parties have achieved a measure of success at trial it may be appropriate for no order for costs to be made: Health Waikato Ltd v Elmsly [2004] 1 ERNZ 172 at [39] and [40] (CA).
[47] Mr Rennie submitted that the Judge had failed to follow these established costs principles. He submitted that the appellant was successful in his claim for reinstatement and that he had no option other than to litigate to achieve that result. Mr Rennie emphasised the conclusion of the Judge that reinstatement was the most important remedy for the appellant. By taking into account the issue of the appellant’s conduct, it was submitted that the Judge had failed to apply the principle that costs follow the event. To the contrary, Mr Toogood submitted that the Judge was entitled to decline to award costs on the basis of the established principles.
[48] Given our conclusion on the first issue, it is not appropriate for us to express any views on the application of the general principles and we refrain from doing so.

Third issue – Did the Judge fail to adequately consider and give weight to a pre-trial letter from the appellant and the Calderbank offer?

[49] In his written submissions, Mr Rennie drew attention to two letters written on behalf of the appellant to the Board which he submitted were relevant to the issue of costs. The first was a letter dated 26 September 2005. The second was a Calderbank letter dated 11 November 2005 sent at the end of the first week of the hearing.
[50] Mr Rennie did not press this issue in oral argument. He was right not to do so since the first letter simply amounted to a warning to the Board that the appellant would seek solicitor and client costs if his claim succeeded. And it is clear that the relief the appellant sought in the second letter significantly exceeded the outcome he achieved by the substantive judgment of the Employment Court. We are satisfied that neither letter has any particular bearing on the issue of costs.

Conclusions

[51] In summary, the Judge was in error in failing to deal separately with the discrete issues of remedies and costs. Having taken into account the appellant’s contributory behaviour in denying him a remedy in compensation, he was not entitled to take into account that same behaviour in declining to award the appellant costs.
[52] Whether the Judge might have reached the same conclusion on costs by applying the usual costs principles is not clear to us. It follows that the issue of costs must be remitted to the Employment Court for reconsideration in the light of this judgment. It will be a matter for the Employment Court to determine the process it will follow on this issue but we expect that the parties will have the opportunity to make further submissions to the Employment Court in the light of this judgment.
[53] The respondent must pay the appellant costs for a standard appeal on a band A basis together with usual disbursements.

Solicitors:
Swarbrick Beck MacKinnon, Auckland, for Appellant
Kiely Thompson Caisley, Auckland, for Respondent