White and Others v The Reserve Bank of New Zealand

JurisdictionNew Zealand
CourtCourt of Appeal
JudgeMiller J
Judgment Date17 December 2013
Neutral Citation[2013] NZCA 663
Docket NumberCA404/2012
Date17 December 2013

[2013] NZCA 663

IN THE COURT OF APPEAL OF NEW ZEALAND

Court:

Harrison, White and Miller JJ

CA404/2012

Between
Bruce White, Ian Harrison, Peter Katz, Peter Ledingham and David Archer
Appellants
and
The Reserve Bank of New Zealand
Respondent
Counsel:

I R Millard QC and N E Flint for Appellants

A R Galbraith QC and J B Opie for Respondent

Appeal from Employment Court (“EC”) decision which found that there was no implied term in the appellants' employment contracts requiring review of their superable salary levels — employees were retired former employees of Reserve Bank who had contributed to superannuation fund — pension was calculated using the final average earnings during the five years before retirement — Bank converted its salary packages to ascribe a cash value to benefit packages (including loans and use of cars) — set superable salary percentage and reviewed it regularly until in 1991 when it moved its senior employees onto individual employment contracts — contracts set superable percentage at specific level, “unless otherwise agreed in writing”, and also contained entire agreement clause — whether the EC erred by not considering prior history to agreements, appellants reliance on Bank's actions, and the good employer obligation — whether a term could be implied that superable salary percentage would be reviewed in accordance with market data.

Held: It was necessary to emphasise the constraints of the pleading, which did not seek to avoid the contracts, or have them rectified, or raise an estoppel, or to challenge amendments to the Fund rules.

The meaning argued for by the appellants could only be found by implication, because the contracts did not they specify that the superable salary had to be reviewed. Any attempt to imply terms confronted the express language, which specified unambiguously that superable salary could be changed by agreement, and that the contracts contained the parties' entire agreement.

The proposed implied term failed almost all of the traditional tests for implication: it was not necessary to lend business efficacy, nor so obvious as to go without saying, nor capable of clear expression, nor compatible with the express terms. Nor would the contracts be reasonably understood, when read in context, to have that meaning.

The proposed term purported to provide for agreement as required by the contract but actually denied the Bank the freedom not to agree. By compelling the Bank to offer an increase it turned the requirement for written agreement into a mere formality. Further, incorporating the ERP would squarely contradict the whole agreement clause.

It also could not be said that reviews were necessary for business efficacy, especially when the contracts provided for annual reviews of total remuneration. Finally, “market data” would not provide a clear and reliable way of gauging the Bank's obligation to “propose an increase”, especially when defined benefit schemes were swiftly becoming a thing of the past.

The Bank was obliged to be a good employer under the contracts. Assuming that this obligation was in principle enforceable in a private action for compensation, it nonetheless did not require the particular term to be imposed upon the Bank. The issue was what the bank had agreed to and this was plain from the contracts.

The complaint that the Bank led the appellants to believe that reviews would continue amounted to an allegation that the employment contracts did not reflect the parties' agreement. The appropriate remedy if one was available after all the time which had passed would have been in rectification, but this was not pleaded and would require the appellants to establish that their employment contracts did not accurately represent the mutual intention of the parties

The answer to the question of law was no.

JUDGMENT OF THE COURT

A The appeal is dismissed. B The first question is:

Did the Employment Court fail to apply orthodox interpretation principles by failing to take into account the words “unless otherwise agreed in writing” in the applicants' employment contracts and by failing to consider what was implicit in those words against the background of past dealings and the obligations of good faith that arise in the context of an employment contract?

This question is answered “no”. We need not answer the second.

C The respondent is entitled to costs and usual disbursements for a standard appeal on a Band A basis. We certify for two counsel.

REASONS OF THE COURT

(Given by Miller J)

1

The appellants are longstanding former employees, now retired, of the Reserve Bank of New Zealand, and members of its Staff Superannuation and Provident Fund. Their retirement benefits under the Fund's defined benefit division are calculated by reference to a percentage – known as “superable salary” – of their total annual remuneration before retirement.

2

The appellants sued the Bank in the Employment Court, claiming that it had breached their individual employment contracts by failing after 1994 to review their superable salary from time to time. They lost. 1

3

This appeal was brought by leave 2 on a question of law. 3 The questions were formulated by counsel as follows:

  • 1. Did the Employment Court fail to apply orthodox interpretation principles by failing to take into account the words “unless otherwise agreed in writing” in the applicants' employment contracts and by failing to consider what was implicit in those words against the background of past dealings and the obligations of good faith that arise in the context of an employment contract”

  • 2. If the answer to question one is yes, was the respondent required periodically to review the percentage of the total remuneration package that was deemed to be superable salary and to adjust the percentage having regard to the material revealed by the review.

4

The first of these is the question of law. It is settled that on an appeal under s 214(1) of the Employment Relations Act 2000 this Court may review the Employment Court's methodological approach to contract interpretation. 4 Only if that Court erred in principle may this Court interfere.

The narrative
The defined contribution superannuation scheme
5

The Reserve Bank of New Zealand Staff Superannuation and Provident Fund was established in September 1935 at the same time as the Bank itself. It is controlled and managed by a group of trustees, of whom two are Bank representatives, one Board-appointed, and two elected by eligible members. Membership was at one time compulsory for all employees.

6

The rules of the Fund provided that employees were to contribute at a rate of six per cent of their salaries. For this purpose salary originally meant cash salary – that is, exclusive of all non-cash benefits or “perks” – and later superable salary. The Bank also contributes and it must keep the Fund sound; to that end it traditionally contributed at an actuarially assessed rate of about 12 per cent of cash salaries.

7

Several retirement benefits were calculated by reference to the employee's salary at retirement. Notably, a pension was calculated using the final average earnings during the five years before retirement.

8

The trustees might amend the rules of the Fund, but not so as to affect benefits adversely.

The Executive Remuneration Paper
9

By the 1980s staff were receiving part of their overall remuneration in non-cash benefits such as low interest rate loans, company car usage, expense accounts, telephone accounts and professional club memberships. After interest rate controls ended in 1984, the loans were of substantial value to employees who were financing their houses, but of no utility to those who were not.

10

In 1988 the Bank began to reform its executive remuneration arrangements, moving to “total package remuneration”. This regime was designed to value non-cash benefits (notably the low-rate mortgages and use of cars), to increase overall remuneration packages so as to attract and retain staff, and to relate total remuneration more closely to “comparator institutions”. Accordingly, non-cash benefits were ascribed a cash value which was treated as part of total remuneration.

11

The reform was introduced in a paper entitled “Executive Remuneration” written by Richard Lang, then Deputy Governor of the Bank. It is known as the ERP. Its salient features were:

  • (a) The proposals were said to provide a “framework rather than a rigid structure” for fixing remuneration.

  • (b) The Banks's primary policy objective was identified as that of recruiting and retaining “a good quality highly motivated staff” of at least equal quality to those in comparable organisations. That meant paying remuneration at least equal to that paid for similar positions in comparable organisations.

  • (c) For the purpose of fixing retirement benefits, the paper proposed a base salary of 70 per cent (excluding bonuses) of “total package entitlement”, regardless of the form in which employees chose to structure that entitlement. The percentage would “need to be reviewed from time to time in line with market indicators”.

12

The Bank used a percentage of total remuneration packages for superannuation purposes because its liabilities for pensions and other retirement benefits were linked to salaries on retirement, and it did not want to add to those liabilities by moving to a total remuneration approach. The percentage of total remuneration that counted for superannuation purposes became known as superable salary. It was broadly equal to previous cash salaries, and it was used to calculate not only retirement benefits but also staff and Bank contributions.

Developments 1988–1991
13

The Fund rules originally defined salary as the “ordinary salary” of a member in respect of his or her service to the Bank. This definition excluded non-cash benefits. On 28 June 1988, several months before the ERP...

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