Part 3: The Events of 14-18 December 1998

Inquiry into certain events concerning the New Zealand Tourism Board.

Events Leading Up to the Resignation of the Chairperson and Deputy Chairperson

The Letters of 14 December 1998

301
The Board was due to meet on Wednesday 16 December 1998. Among other items on the agenda was a meeting with representatives of PWC to discuss its report. Before the meeting, each member received a further letter from the Minister (dated 14 December 1998 – Appendix 5, pages 107-113). The letter reiterated PWC’s criticisms about the Board’s governance and its claim that the Board was operating tactically, not strategically.

302
The Minister demanded responses from the members, collectively or individually, later in the week. His letter added:

In preparing your response you should be aware that due to the seriousness of issues raised in the report I must be prepared to consider all options to ensure that these issues are addressed by the Board if, in my view these issues are valid and of sufficient importance. These options must include all authorities available to me under the New Zealand Tourism Board Act 1991 including clause 2(1) of the First Schedule to the Act to remove members from office for neglect of duty.

303
The Minister made no reference to the concerns that senior executives of the Board had raised about the report.

304
The Minister’s letter set the tone for the Board meeting on 16 December 1998 and a dinner on the preceding evening. There was particular concern among members that the Minister was pursuing the matter in this way before members had had an opportunity to consider the report, and that the time allowed for responding to the letter was so short. But there was yet another development to come.

15 December 1998

305
The Minister had received advice from the OTSp of another matter which, in the Director’s view, gave grounds for the members’ removal from office. Put briefly, it was that, during October 1998 when the purchase agreement was unsigned and the Board’s funding was being released by the Minister only on a monthly basis, the Board had made a number of decisions – including the renewal of the lease for its office premises in Hong Kong – which, in Mr Morrison’s view, committed it to expenses which exceeded the amount of funds then released to it by the Minister.

306
The Board had not notified the Minister or sought his approval and, in Mr Morrison’s view, had breached one of the terms of the 1997-98 purchase agreement (which was still in force). After taking advice both from the Crown Law Office and from a firm of human resource consultants, Mr Morrison advised the Minister in writing that the Board’s actions were sufficiently serious for him to give immediate consideration to removing members from office.

307
On the afternoon of Tuesday, 15 December 1998, the Minister contacted three of the industry representatives on the Board (Messrs Boult, McCrae and Simm) by telephone, and informed them of this advice. This was the first that each had heard of the matter. However, each was also left in no doubt that:

  • the Minister intended to initiate removal action by letter the following day; but
  • the conflict with the Board could be resolved by the resignation of the Chairperson.

308
The three members met late on the evening of 15 December 1998, following the Board dinner. Each was of the view that something had to be done immediately to break the impasse with the Minister. They agreed that the resignation of the Chairperson was probably the only way to achieve this.

16 December 1998: the Resignation Discussions

309
Mr Boult contacted the Minister early on the morning of the Board meeting (16 December 1998) to discuss the prospect of the Chairperson resigning to enable the remaining Board to concentrate on getting its business back on track. Mr Boult told us that he sought and obtained the Minister's support for, and concurrence with, this course of action.

310
Various meetings then took place at extremely short notice, both at the hotel where the directors were staying and at the Board’s offices. The meetings involved the three members telephoned by the Minister (Messrs Boult, McCrea and Simm – "the three members"), Messrs Mogridge and Wall, and the Board’s solicitor (a partner of Russell McVeagh McKenzie Bartleet & Co – who was available because he had been invited by Mr Mogridge to brief him in advance of the Board meeting). The outcome was an agreement by Mr Mogridge that he would step down as Chairperson and as a Board member. For various reasons, which we accept, Mr Wall decided that he was "joined at the hip" with Mr Mogridge and should also go.

311
The members of the Board we interviewed about these events made clear to us that the purpose of the resignations was to break the impasse with the Minister, and to enable the Board to move ahead. We accept that this was the sole motivation of all the members who were involved at this point. The members did not accept that there was any question of performance on the part of the Chairperson or his Deputy which would have justified their removal by the Minister – either resulting from the PWC review or because of the Hong Kong lease matter. (The renewal of the lease was seen by members as a normal part of the Board’s business operations, and necessary to ensure its continued presence there. Any breach of the Board’s obligations to the Minister was, and still is, regarded by members as technical.)

312
Those concerned also repeatedly emphasised to us the context of these discussions – which included:

  • the months of conflict over the purchase agreement and other issues which had, in practical terms, virtually paralysed the proper functioning of the Board;
  • the pressure from the Minister for the Chairperson’s resignation,13 and the approach which the Minister was using to achieve that end;
  • the damaging but disputed conclusions of the PWC report; and
  • the threat of imminent removal from office by the Minister of either the Chairperson or all Board members.

313
The term most commonly used to describe the resignation proposal was that it was a commercial solution to a very difficult and sensitive problem, worked out in haste by directors who were accustomed to acting decisively. It was also emphasised to us that the members had not initiated the process but instead were responding to the Minister’s raising of the removal issue the previous day – immediately before the last Board meeting of the year. Members considered it essential that the matter be resolved quickly, and that any delay would have further extended the Board’s paralysis while also risking the dismissal of the Board (without grounds, in their view) and possible litigation.

314
As discussions progressed it seems to have become accepted by the Board members concerned that if Messrs Mogridge and Wall were to be sacrificed in the interests of the Board they should be "compensated" for their loss of office.

315
Mr Mogridge accepts that he was responsible for devising the formula under which he and Mr Wall would be compensated (on a tax-free basis) for the loss of their income as members – not only for the balance of their existing terms of office but also for a further three-year term which each believed he had an expectation of receiving.14 The three members told us that:

  • they discussed the validity of this expectation with Messrs Mogridge and Wall; and
  • both had been adamant that at the time of their appointments they had an agreement or an undertaking from the Minister that they would be given a further term.

316
Mr Mogridge made it clear to us that he put forward the formula only for consideration. The other three members took the formula as a clear and non-negotiable indication of the basis on which he and Mr Wall were prepared to sacrifice their positions. The amounts agreed were $200,000 for Mr Mogridge and $140,000 for Mr Wall. These amounts were roughly consistent with the formula, assuming that each member would have been entitled to receive fees at the maximum levels of remuneration notified by the Minister to Messrs Mogridge and Wall in July 1997 (see paragraph 406).

317
We accept that, at the time, the three members considered that payment of the balance of the existing term of office plus a further three-year term was a reasonable settlement. Neither the formula nor the amounts that were agreed, nor the tax-free status of the payments, were given any rigorous consideration at the time. The members involved told us that this was due to their belief that it was imperative to find an urgent solution to the impasse with the Minister.

318
Nor does anyone who was present appear to have turned their mind to the question of whether the Board could lawfully pay compensation of this nature under the Tourism Board Act. The Board’s solicitor told us that he was not asked to advise on this particular point and, therefore, did not do so. He said that his advice to the directors was that the legal requirements in a resignation/dismissal situation were far from clear under the relevant legislation, and that any terms considered by the Board would need the Minister’s approval.

319
The Board’s solicitor told us that the "ultimate safeguard" in this respect was that the Minister would ultimately have to make the decision. It is clear that the three members relied upon this advice, and in meeting with the Minister later that day were seeking his confirmation that the terms were acceptable.

320
We note at this point that the solicitor’s presence at various meetings on 16 December 1998 was solely as a result of his previous involvement in advising the Board on governance issues, and because he had been asked by Mr Mogridge (on the evening 15 December 1998) to brief the Board meeting the following day generally in relation to the Minister’s power of dismissal of Board members. We accept that, given the practical and timing issues associated with the need for resolution of the resignation issue, it was impracticable for the Board to have requested the preparation of a detailed legal analysis of the position.

321
We deal also at this point with the matter of confidentiality. Mr Mogridge raised this out of his concern that an early resignation could give rise to personal reputational issues. He wished to minimise any damage to his standing as a professional director. He was therefore concerned to ensure that the Minister and other parties to the resignation agreement did not comment publicly in a way which might undermine that interest. The other members were also keen to obtain the Minister’s agreement not to make adverse public comment about the performance of the Board and its members. This was an important consideration in their desire to achieve an end to the impasse with the Minister and enable the Board to move ahead.

322
Mr Wall told us that he had a similar concern, which also extended to a wish to protect the Board’s staff from unjustified public criticism. All other parties to whom we spoke – including (as we shall see) the Minister – accepted the validity of these concerns.

16 December 1998: the Board Meeting

323
At the conclusion of the meeting at which the resignation proposal had been discussed, the Board’s solicitor was asked to prepare a short document setting out the terms of resignation. Consistent with the legal advice which had been received, Mr Mogridge expressly instructed that the deed provide for the Minister’s signature. At the same time Mr Boult telephoned the Minister’s office to advise the Minister of the position reached, and to request withdrawal of the letter which they understood to be initiating action to remove the Board members from office (see paragraph 307). The Minister was unavailable and Mr Boult was advised that the letter was on its way.

324
The Minister’s letter arrived as the full Board was discussing the proposed resignations, and the reasons for them, but not (apparently) the resignation payments. The letter was not opened, and was subsequently returned to the Minister’s office and destroyed.

325
The letter was in fact an unsigned draft of a letter which the Minister intended to provide to members. A reconstituted copy is reproduced in Appendix 6 on pages 115-124.

326
The minutes of the meeting record that Board members then agreed to appoint Messrs Boult, McCrae and Simm as a subcommittee to:

...meet with the Minister and negotiate a suitable arrangement for the departure of the Chairman and Deputy Chairman. These discussions should also incorporate agreement with the Minister on the future role of and performance measures for the Board, particularly with respect to the Board’s relationship with his office.

327
At that stage the Board gave no formal authorisation to any payments being made by the Board to Messrs Mogridge and Wall.

328
The Board’s solicitor had also briefly attended the meeting by this time, to advise directors again on the Minister’s powers of removal under the Tourism Board Act. He handed out a document which he had prepared, entitled Dismissal of Board Members. This had not been prepared with any advance warning of the events which had already unfolded that day. Its main emphasis was on the powers of the Minister to remove members from office, the circumscribing of those powers by the need for statutory grounds, and the requirement that procedural fairness be observed in any removal. However, the document also contained the following statement:

There are also employment law arguments which are directly relevant to the way the Minister is obliged to approach any dismissal. Dismissal of a Board member under the Act is analogous in our opinion to dismissal of an employee on a fixed term contract.

In the latter situation, the employee would be entitled to expect to be paid out on the balance of the contract. In addition, the obligations upon the employer in this situation are parallel to the obligations of the Minister in administrative law ...

329
We accept that this advice was not available to the directors who had been involved in the settlement discussions before the Board meeting. However, the summary did have relevance to the considerations which were facing the Board members at that time.

330
We also accept that, at the time it appointed the subcommittee to negotiate with the Minister, not all members of the Board were fully aware of the terms of the proposed settlement. However, a number of those who had not been involved in the settlement discussions inferred that payments would be made.

331
We also note that, when seeking the authority of the Board, the members of the subcommittee were aware of the need to respect the confidentiality agreed with Messrs Mogridge and Wall.

16 December 1998: the Meeting with the Minister

332
The subcommittee met with the Minister on the afternoon of 16 December 1998. The Board’s solicitor had by this time prepared a draft Deed of Resignation, which the members of the subcommittee took with them to the meeting. The Deed referred to a commitment to improve the relationship between the Minister and the Board and made provision for signature by the Minister.

333
It is not in dispute that the greater part of the meeting was taken up with discussion of how the relationship between the Minister and the Board would be managed following the departure of Messrs Mogridge and Wall. It was agreed to develop this discussion further by correspondence.

334
It is also not in dispute that:

  • the subcommittee members produced the Deed of Resignation representing the terms on which Messrs Mogridge and Wall were prepared to depart,15 and invited the Minister to sign it;
  • the Minister expressed surprise that payments of money were contemplated and questioned the basis on which the proposed amounts had been calculated (specifically, on the expectation of a second term in office for each resigning member – in respect of which the Minister asked his executive assistant to produce their letters of appointment);
  • reference was made to legal advice having been taken by the members (although it is unclear how specific this reference was); and
  • the Minister declined to be a signatory to the deed.

335
Accounts differ as to whether the Minister nevertheless endorsed or agreed to the arrangements proposed. It seems to us, however, that the parties drew different conclusions from the discussion. The subcommittee members concluded that the Minister had agreed to the proposed payments, and the Minister concluded that it was not his role either to approve or to disapprove, but rather to be satisfied that the members had properly considered all relevant matters.

336
The Minister told us that he did object, both to the payment of severance money and to the basis on which the payments were proposed to be made (i.e. the expectation of a second term). He told us that:

  • He indicated to the subcommittee that he regarded the question of any payment from Board funds as a matter for the members, but that he would wish to be assured that they had taken advice on their authority and had exercised their judgements appropriately as members.
  • He understood that the members were dealing with the matter with access to appropriate legal advice.
  • There was no mention at the meeting that the subcommittee members had been given legal advice that, without the Minister’s agreement, they had no authority to make any payments.

337
The Minister said that he agreed to write a letter to the directors confirming that he would be bound by the confidentiality provision.

338
This account is supported by the recollections of the Minister’s executive secretary who also took a contemporaneous note of the discussion at the meeting. That note contains the words:

Seen as a "pretty good investment". Matter for directors not MM.

On its face, this supports the conclusion which the Minister drew from the meeting. One subcommittee member acknowledged that the Minister had said it’s over to you. However, legal submissions on behalf of the subcommittee members suggested that this related to the uncertainty over whether an expectation existed that Messrs Mogridge and Wall would have been reappointed for a second term, and therefore whether the payment should encompass a second term or not:

The phrase "pretty good investment" which clearly refers to the "value" to obtained by making resignation payments, is immediately followed by "matter for directors". It most likely refers to the calculation of the amounts of the payments and whether appointment for a second term was a reasonable expectation.

339
We interviewed the Minister’s executive secretary. Her evidence was that in the discussions between the Minister and the subcommittee members no distinction was drawn between the proposal to make the payments to Messrs Mogridge and Wall and the calculation of those payments. Her note recording that it was a matter for directors not MM referred to both the proposal and the calculation of the amounts involved. We accept, however, that in the circumstances it is possible that the subcommittee members might have believed that the Minister was questioning only the amounts of the payments.

340
The subcommittee members were adamant that they left the meeting with the clear understanding that the Minister:

  • had accepted that the settlement proposals amounted to a fair commercial settlement; and
  • had no objection to the Board proceeding to make the payments to the departing directors.

They told us that they would not have proceeded in any way with the settlement had the Minister not been in agreement with what was proposed. Messrs Mogridge and Wall were also adamant that they would not have resigned without the Minister’s agreement.

341
When questioned about the Minister’s refusal to sign the deed, the subcommittee members said they understood this was for the "technical" reason that the payment of the funds was a matter for the Board and not for him. They took his willingness subsequently to write a "letter of comfort" as consistent with an acceptance of the arrangements.

16 December 1998: the Debriefing

342
After the meeting with the Minister, Mr Boult returned to the Board’s offices and reported on the outcome to Messrs Mogridge and Wall. Mr Winter and some of the other members were present, but it would appear (and this is confirmed by the minutes) that the formal meeting of the Board had by this time finished. Some reference was made to the fact that payments would be made by the Board, but the actual amounts were not disclosed.

343
Mr Boult told us that he informed those present that the Minister had refused to sign the Deed of Resignation but was in agreement with the removal of Messrs Mogridge and Wall on the terms which had been put to him; and that he would confirm that in writing. There was apparently "unanimous concurrence" with this position, but this is nowhere recorded.

344
Mr Boult subsequently contacted and obtained the agreement of the remaining members. He then spoke to the Minister, who told us that he took from the conversation an indication by Mr Boult that the members had obtained the necessary legal assurance (which he had asked them to seek) about the settlement proposal. At Mr Boult’s request the Minister agreed to write the letter of comfort on that basis. Mr Boult’s understanding of the conversation was that the Minister was happy for the members to proceed.

18 December 1998: the Correspondence with the Minister

345
On 18 December 1998 Mr Boult wrote to the Minister, as had been agreed, detailing the matters concerning the Board’s ongoing business and its future relationship with the Minister and the OTSp. These were the matters which the Board had authorised the subcommittee to negotiate with the Minister and obtain his agreement upon. The letter is reproduced in Appendix 7 on pages 125-128.16

346
On the same day the Minister wrote to Mr Boult in the following terms:

Thank you for your advice regarding the forthcoming retirements of the Chair and Deputy Chair of the New Zealand Tourism Board. I note the proposed arrangements regarding confidentiality of the matters referred to and agree to be bound by the proposal.

My media release has been referred to the Chair and Deputy Chair and is, I understand, acceptable to them.

I note the other arrangements proposed and am satisfied that the Board has negotiated arrangements which are in the best interests of the New Zealand Tourism Board.

347
The letter is reproduced in Appendix 8 on page 130.

348
The Minister told us that he drafted the letter personally and did not take advice on its contents. He regarded the purpose of the letter as being to confirm his commitment not to make public criticisms of the departing members. In respect of the other matters, he also wished to make it clear that he accepted that the members were acting in good faith and in the best interests of the Board. He did not accept that, by this letter, he had indicated approval of the payments.

349
The subcommittee members’ understanding of the letter was somewhat different. They took the language of the final paragraph to confirm their existing understanding that the Minister had accepted and endorsed the arrangements at the meeting, including the proposed payments. Both Mr Boult and Mr Simm told us that they were left in no doubt, when the Minister’s letter was put in the context of what had been understood at the meeting in his office on 16 December 1998, that the Minister had agreed that the matters covered in the deed – including the payments – amounted to a fair settlement in the circumstances.

350
Upon receiving the letter, Mr Boult sent a copy to the Board’s solicitor. In a brief conversation about the letter, Mr Boult advised the Board’s solicitor that:

  • Messrs Mogridge and Wall would not sign the Deed of Resignation until they knew the Minister had agreed with it; and
  • the Minister had orally agreed with the arrangements but, for the "technical reason" that only the Board could formally authorise the payments from its budget, the Minister had not signed the deed.

351
For these reasons Mr Boult did not seek express advice from the Board’s solicitor – and none was given at the time – on whether the letter represented the Minister’s agreement and was a sufficient substitute for the Minister’s signature on the resignation Deed itself.

352
The Board’s solicitor, likewise, did not advise the Board on the risks in accepting the Minister’s letter as sufficient authority to make the payments. In discussion with us he commented that, while it would have been preferable for the Minister to have signed the deed, and the letter was not ideal, it was nevertheless an acceptable second-best solution in the circumstances.

353
Mr Boult took from the conversation a tacit approval from the Board’s solicitor to proceed. He prepared an amended version of the Deed of Resignation, reflecting an earlier date of departure and omitting the provision for the Minister’s signature. He had also arranged on 18 December 1998 for each member of the Board (except Messrs Mogridge and Wall) to sign a resolution authorising him and Mr Simm to sign documentation relating to the resignations of the Chairman and Deputy Chairman. The members’ signatures were obtained by fax.

354
Messrs Boult and Simm then proceeded to sign the amended Deed. A copy is reproduced in Appendix 9 on pages 131-133. Because Messrs Mogridge and Wall were unavailable, the Deed was signed on their behalf by the Board’s solicitor who was in possession of written authorisations from each of them for that purpose.

355
The legal submissions on behalf of the subcommittee record that:

At no stage did the Board assume it had legal power to terminate or negotiate the resignation of Messrs Mogridge and Wall without the prior agreement of the Minister. They had legal advice that only the Minister had the power. The subcommittee took the view that they were acting solely as delegates of the Minister and the directors placed complete reliance on the Minister’s verbal and written assurances to the terms of the deed.

Implementation: the Tax Status of the Payments

356
Mr Boult then sent the signed deed, together with a copy of the Minister’s letter, to the Board’s Chief Executive (Mr Winter) with instructions that the payments set out in the deed be made to Messrs Mogridge and Wall. No further authorisation by the Board was considered necessary. Mr Winter told us that he relied upon the resolution of 16 December 1998 when he instructed the Board’s accountants, KPMG (who for confidentiality reasons handle members’ remuneration matters), to make the payments accordingly.

357
We had produced to us a file note written by the person at KPMG responsible for carrying out this instruction. The file note records:

  • a concern about the tax status of the payments;
  • the raising of this concern by telephone with Mr Winter by telephone; and
  • Mr Winter’s reference to a legal opinion supporting the tax-free basis.

358
Mr Winter did not recall this exchange, but accepted that it took place. He accepted that there was no written legal opinion. However, he did recall speaking with the Board’s solicitor.

359
The Board’s solicitor also recalled speaking with Mr Winter, but denied giving any legal advice to him about the tax issue. We have concluded that it is unlikely that the Board obtained any such advice.

360
In January 1999 Mr Mogridge contacted Mr Boult about the tax status of the payments. Mr Boult, as a consequence, wrote to both Mr Mogridge and Mr Wall on 19 January 1999 advising that the payments had been made under section 40(1)(c)(i) of the Employment Contracts Act 1991, being compensation for humiliation, loss of dignity and injury to feelings as a result of [their] departure from the New Zealand Tourism Board.

361
Mr Boult told us that in writing these letters he was acting on informal advice given to him by the taxation advisor to a range of business entities managed by Mr Boult (including a publicly listed company). No advice was sought on this point by the Board itself.

Aftermath: the PWC report

362
Representatives of PWC met with members of the Board during the meeting of 16 December 1998. When presented with the members’ objections to the report, PWC decided that it should be withdrawn and reclassified as a draft. They wrote to the Minister and the OTSp accordingly, on the same day.

363
Further work on the governance sections of the PWC report was undertaken in late-December 1998 and January 1999. Several further drafts were prepared, at least one of which was circulated to members for comment. An "interim final" report was delivered in February this year. Although PWC advised OTSp that they considered the assignment was complete, they also indicated to us that they considered the report required further work.

364
The Minister released the "interim final" report publicly on 22 February 1999. The Board told us that it continues to take issue with aspects of the report, and that some members have yet to comment on it. Those members have registered with the Minister their objection to its disclosure, in a letter dated 15 March 1999 from the Board’s solicitors. Mr Morrison advised us, in response to this objection, that he had instructed PWC to complete the report and to undertake all necessary consultation. He assumed, on receipt of a final draft from PWC and an indication that they considered the assignment complete, that all necessary consultation had, in fact, been undertaken.

13: But not that of Mr Wall.

14: See earlier discussion of this issue in Part 2 (at paragraphs 204-207).

15: The deed stated the amounts of money which were proposed to be paid to Messrs Mogridge and Wall.

16: It appears that two versions of the letter were sent, one on 17 December 1998 and one on 18 December 1998, with slight differences to the text. The version dated 18 December 1998 is reproduced here.

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