TUV v Chief of New Zealand Defence Force

• Jurisdiction: New Zealand
• Judge: Winkelmann CJ,Glazebrook,O'Regan,Ellen France,Arnold JJ
• Judgment Date: 03 June 2022
• Neutral Citation: [2022] NZSC 69
• Docket Number: SC 14/2020
• Court: Supreme Court

Between

TUV

Appellant

and

Chief of New Zealand Defence Force

Respondent

[2022] NZSC 69

Court:

Winkelmann CJ, Glazebrook, O'Regan, Ellen France and Arnold JJ

SC 14/2020

IN THE SUPREME COURT OF NEW ZEALAND

I TE KŌTI MANA NUI O AOTEAROA

Employment — appeal decision which declined to set aside a settlement agreement for a personal grievance for unjustified dismissal on the basis of incapacity because the respondent had not known and was not put on notice as to her incapacity — application of the Protection of Personal and Property Rights Act 1988 — Employment Relations Act 2000

Counsel:

A J Douglass and A S Butler for Appellant

A L Martin, J P A Boyle and E G R Dowse for Respondent

J S Hancock for Human Rights Commission as Intervener

The appeal was dismissed.

• A The appeal is dismissed.

• B The Courts below were correct not to set aside the settlement agreement in this case on the grounds of mental incapacity.

• C There is no order as to costs.

JUDGMENT OF THE COURT

REASONS

	Para No
Glazebrook, Ellen France and Arnold JJ	[1]
Winkelmann CJ and O'Regan J	[78]
GLAZEBROOK, ELLEN FRANCE AND ARNOLD JJ (Given by Ellen France J)

Table of Contents

	Para No
Introduction	[1]
Factual background	[7]
Employment Relations Authority	[19]
Employment Court	[22]
Court of Appeal	[25]
Does s 108B apply to settlements approved under s 149?	[30]
The relevant provisions	[31]
The parties' submissions	[39]
Our approach	[43]
The statutory scheme and relevant concepts of the ERA	[45]
The institutions	[59]
Conclusions	[63]
Application to this case	[69]
Postscript	[70]
Non-publication orders	[74]
Result	[76]

Introduction

1 The appellant claims she was bullied and harassed whilst employed by the New Zealand Defence Force, and wants to pursue a claim for unjustified dismissal against the respondent. She accepts she entered into a settlement agreement with the respondent in respect of those claims but argues that the settlement agreement should be set aside because she lacked capacity to enter into that agreement at the relevant time. The settlement agreement was signed by a mediator as provided for by s 149(1) of the Employment Relations Act 2000 (the ERA). In signing such an agreement, the mediator does not provide advice to the parties about the content of the agreement but, rather, must explain to the parties the “final and binding” nature of the settlement as provided for in s 149(3). Under s 149(2) the mediator must “be satisfied that, knowing the effect of” s 149(3), “the parties affirm their request” that the mediator sign the agreement.

2 In considering the appellant's claim, the Employment Relations Authority (the Authority) accepted that s 149(3) was not a bar to setting aside the agreement where a party lacked capacity. 1 The appellant's claim nonetheless foundered because the Authority found that she did not lack the capacity to enter into the settlement and, in any case, there was nothing to put the respondent on notice of her incapacity.

3 On appeal to the Employment Court 2 and then to the Court of Appeal, 3 both Courts agreed that a s 149 agreement could be set aside on the basis of lack of capacity. The Employment Court found the appellant did not have capacity at the time she entered into the agreement but the agreement was not set aside because the Court concluded that the respondent did not know and was not put on notice as to her incapacity. The Court of Appeal took the same approach.

4 In concluding the agreement should not be set aside, both Courts applied the test in O'Connor v Hart that a contract is not voidable for mental incapacity unless the other contracting party has actual or constructive knowledge of the incapacity, or equitable fraud is established. 4 The application of O'Connor v Hart in the employment context gave rise to the issues on which leave was granted in this Court, namely: 5

• (a) Does the test in O'Connor v Hart apply in the employment jurisdiction, in particular, to a settlement agreement that has been certified under s 149 of the ERA?

• (b) If not, what is the relevant test and should the settlement agreement have been set aside in this case on the grounds of mental incapacity?

5 However, after hearing the appeal, the Court considered it was necessary to address whether s 108B of the Protection of Personal and Property Rights Act 1988

(the PPPRA) in fact governed the position. Section 108B had not been referred to by the parties but it requires a court to approve a settlement of claims for money or damages where one of the parties is not capable of managing his or her own affairs. The Court sought and obtained further submissions on this aspect and held a further hearing

6 The initial question for the Court now is whether s 108B is dispositive of the case. As we see it, that question turns on whether s 108B applies at all given the scheme of the ERA, including in particular s 149. We turn to that question first after setting out the background.

Factual background

7 The appellant began working for the respondent in 2002. She gave evidence before the Employment Court that in 2014 she began to feel the effects of what she believed was bullying conduct toward her. This included performance management processes which she alleges were unjustified and part of a campaign by her managers to force her to leave as she neared the age of 65.

8 From February 2015 the appellant was on sick leave, an absence supported by medical certificates which attributed her unwellness to stress resulting in “moderate to severe depression and anxiety” and “significant disability”. At the respondent's instigation, the appellant underwent a neuropsychological assessment in June 2015. The resulting report expressed the view that the appellant's overall intellectual function was intact but that she exhibited mildly impaired attention and some difficulties with verbal memory. The report observed a return to work for the respondent was unlikely to be successful and recommended that the parties negotiate an appropriate way forward as soon as practicable.

9 The appellant's employment came to an end in December 2015, when a settlement agreement was entered into between the appellant and the respondent. The settlement process was initially handled for the appellant by her union representative, but in September 2015 the appellant engaged her own lawyer.

10 We adopt the Chief Judge of the Employment Court's summary of the process that followed in relation to the settlement agreement: 6

The agreement followed a number of long-distance negotiations, which took place between the [appellant's] (then) lawyer on her behalf and the [respondent's] representative, either over the telephone or by way of written communication. The [appellant's] lawyer had a number of interactions with the [appellant's] son, who took an active role in communicating advice and instructions as between the lawyer and the [appellant]. He did this because he was concerned about his mother's ability to comprehend what was going on and to process information. Oral communications between the [appellant's] lawyer and the [appellant] herself were very limited. Some email exchanges between the two occurred during this time.

11 Once the terms of settlement had been agreed, the appellant's lawyer sent an email to the appellant advising of this and explaining that it meant that neither the appellant nor the respondent would be able to raise any employment-related claims against each other in the future. The lawyer also said that once the agreement had been signed, it would be sent to the Mediation Service and a mediator would contact the appellant to ask her to confirm that she fully understood and agreed to the terms of settlement.

12 The appellant and respondent signed the settlement agreement in early December 2015. As provided for by s 149 and foreshadowed by the appellant's lawyer, a mediator employed by the Chief Executive of the Ministry of Business, Innovation and Employment was contacted by the solicitor acting for the respondent and asked to sign the agreement.

13 As we have explained, when asked to sign the agreement, the mediator does not advise the parties about the terms of settlement. Rather, under s 149(2), the mediator must explain to the parties the final and binding nature of the agreement and be satisfied that, knowing the final and binding nature of the settlement, the parties affirm their request to have the settlement signed. Section 149(3)(a) provides that, where the parties affirm their request that the mediator sign the settlement agreement and the mediator signs the settlement, the terms of settlement “are final and binding on, and enforceable by, the parties”.

14 Section 149 encourages performance of the terms of the settlement by creating a jurisdiction to impose penalties for breach of the terms of the settlement, and limits the circumstances in which the settlement can be challenged.

15 At the foot of the agreement, the appellant signed her confirmation that she fully understood the effect of s 149, namely, that once the mediator signed the terms of settlement:

• 1. the settlement is final and binding on and enforceable by us; and

• 2. except for enforcement purposes, neither of us may seek to bring those terms before the Authority or Court whether by action, appeal, and application for review, or otherwise; and

• 3. the terms of the settlement cannot be cancelled under section 7 of the Contractual Remedies Act 1979; and

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