Part 4: Issues Arising from the Resignation of Messrs Mogridge and Wall

Inquiry into certain events concerning the New Zealand Tourism Board.

Entitlement to Remuneration

The Tourism Board Act provides that the Board is a statutory board, within the meaning of the Fees and Travelling Allowances Act 1951. Members are entitled to receive (out of the Board’s funds) remuneration by way of fees, salary or allowances, for the member’s services as a member, together with travelling allowances or expenses.17 This is a standard provision common to many other statutory boards and committees.

The effect of section 3 of the Fees and Travelling Allowances Act is that the remuneration paid under the authority of the Tourism Board Act must be paid at a rate approved from time to time by the Minister of State Services.

Rates of Remuneration

In 1991 when the Board was established, the members’ remuneration was set by the Ministers of State Services and Tourism (and endorsed by the Cabinet) on the following basis:

Chairperson $33,000

Deputy Chairperson $25,000

Members $15,000

These rates remained current until 1997. On 28 April 1997 the Cabinet agreed a new framework for fixing statutory board members’ remuneration.18 That framework did not supplant the 1991 rates approved for the board. However, in May 1997 soon after the appointments of Messrs Mogridge and Wall took effect, the Minister of Tourism approached the State Services Commissioner with a view to seeking approval by the Minister of State Services for higher rates.

The State Services Commission’s staff used the framework to assess the Minister’s proposal. The Commissioner then wrote to the Minister of Tourism on 16 June 1997 saying that, because the proposed fees were outside the framework and hence the delegated authority of the Commission, the Minister would have to seek the approval of the Minister of State Services directly.

On 2 July 1997 the Minister of Tourism wrote to Mr Mogridge stating that the 1991 rates would remain the basis for the remuneration payable to Board members and the Deputy Chairperson, but that the annual rate for the Chairperson would be $35,000 (an increase of $2,000 on the 1991 rate). The Minister added:

Where additional time and service is required by New Zealand Tourism Board directors you should exercise your discretion as Chair of the Board to sanction additional remuneration to directors, at the same daily rate as the standard director’s fee.

With additional remuneration, the fee will be no greater than: Chair at $50,000, Deputy Chair at $32,000, and directors at $20,000.

The Minister of Tourism told us that he had asked his then senior private secretary to complete the necessary arrangements with the State Services Commission to obtain approval of the rates notified in his letter to Mr Mogridge. After some further negotiation, the Commissioner had again advised the Minister to seek approval from the Minister of State Services. The Minister of Tourism candidly acknowledged to us that, owing to the departure of his senior private secretary at the end of July 1997, the matter was overlooked. Accordingly, the necessary approval was not obtained. We accept this was an oversight.

Legality of the Rates of Remuneration Paid

In the absence of the requisite approval from the Minister of State Services, the question that arises is whether the Board acted lawfully in paying remuneration to Messrs Mogridge and Wall in accordance with the Minister’s letter of 2 July 1997.

In the face of the clear provisions in the legislation (see paragraphs 401 and 402 above) approval of rates of remuneration was (and is) the responsibility of the Minister of State Services and not the Minister of Tourism. Consequently, remuneration payments at rates not having the approval of the Minister of State Services were in breach of section 3 of the Fees and Travelling Allowances Act 1951, and were therefore probably unlawful.

However, it is understandable that, on receipt of the Minister’s letter, Messrs Mogridge and Wall and the Board assumed that the Minister had authorised the remuneration and had obtained any approval that was required. And Messrs Mogridge and Wall and the Board would therefore have been unaware of any unlawfulness involved.

In these circumstances, and if it was necessary, it is equally probable that they would have obtained relief from the Court under the Illegal Contracts Act 1970 on the ground that the payments could have been approved.19 We accept therefore that there is no need for the Board to take any steps to recover the payments of remuneration made to Messrs Mogridge and Wall in respect of which the prior approval of the Minister of State Services had not been obtained.

Legality of Payments Made on Resignation

Certain submissions to us asserted that it would be inappropriate for us to express any view on the lawfulness of the resignation payments made to Messrs Mogridge and Wall. We accept that it is not for us to determine, as would a court, issues of fact and law. But the Audit Office is empowered by the Public Finance Act 1977 to conduct inquiries of this nature, and to report to Parliament such matters as the Auditor-General thinks fit relating to any transactions that are required to be audited by the Office under any Act. In doing so, it is appropriate that the Auditor-General express opinions on the lawfulness of transactions, and indeed we consider that Parliament and the public expect him to do so.

We therefore do not accept that it is inappropriate for the Auditor-General to reach conclusions and to express an opinion on the lawfulness of the payments which were made.

The essential facts are not in dispute. The resignations were part of an attempt to resolve the dysfunctional relationship which had developed between the Board and the Minister, with the object of allowing the Board to carry out its mandate and maximise its effectiveness at a critically important time for the tourism industry. The "tax-free" payments were made to Messrs Mogridge and Wall by the Board, acting on the direction of Mr Winter, who in turn had been instructed by Mr Boult, who believed that he had authority from the Board and the agreement of the Minister to do so.

The issue is whether the Board had legal authority to make the resignation payments.

The Board claims that it did have such authority, although it acknowledges that it neither sought nor received specific legal advice from the Board’s solicitor as to the authority to make the payments at the time they were made. The Board had received advice from the Board’s solicitor on the issue of the Minister's power of dismissal of Board members generally and possible employment law analogies relevant to the question of dismissal. But no specific advice on the structure and lawfulness of the proposed payments to Messrs Mogridge and Wall was sought or given.

The employment law analogy was taken a step further by Mr Boult when he wrote the letters dated 19 January 1999 to Messrs Mogridge and Wall in which he stated that the payments had been made pursuant to section 40(1)(c)(i) of the Employment Contracts Act 1991. (See also paragraph 361.)

The Board’s subcommittee acknowledged to us that the statements in Mr Boult's letters to Messrs Mogridge and Wall were "not literally correct" because the Employment Contracts Act 1991 only applies to private contracts with employees. This is an important acknowledgement because it recognises, correctly, that members of the Board were and are not "employees" of the Board.

We have received extensive submissions from the Board’s solicitors, on behalf of the subcommittee members, strenuously disputing the allegation that the payments made by the Board to Messrs Mogridge and Wall were unlawful. Those submissions state that, in the view of the subcommittee, the payments were fully justified in view of the overall objective of finding a resolution to the impasse between the Board and the Minister. It was submitted that the impasse which occurred was not of the Board’s making but resulted from illegitimate pressure applied by the Minister to the Board. In a situation of "real urgency" the Board was required to develop a solution so as to avoid major ongoing damage to the tourism industry.

The essence of the Board’s legal submissions is as follows:

The...subcommittee of the Board was, in fact, carrying out on behalf of the Minister a constructive dismissal of the Chairman (and deputy). It was implemented in the form of a "resignation" but no-one involved was under any illusion that it was anything other than a termination by the Minister. Had the Minister not instigated the process, the Board would not have acted as it did and the Chairman and Deputy Chairman would still be in office. To the extent the Board can be seen as having acted "unlawfully" it was solely because of the Minister’s "unlawful" demands which were jeopardising the ability of the Board to function and limiting its ability to fulfil its main statutory obligations to the tourism industry.

The next relevant legal question is whether or not the constructive dismissal was lawful or not. The Tourism Board Act specifies the grounds on which the Minister may terminate a director. The criteria are specific and limited.

The two categories relevant to the current question are "misconduct" and "neglect of duty". It is submitted that the Minister had no evidence against either the Board as a whole (or Messrs Mogridge or Wall) which would have met the legal test of "misconduct" or "neglect of duty". If this is accepted any action by the Minister to remove the Board or its Chairman would have been legally challengable on several potential grounds … This would include breach of the Minister’s statutory duty not to terminate (or constructively dismiss) directors without proper legal cause.

It may well be arguable that any claim for compensation for unlawful constructive dismissal should properly have been made against the Minister. It may also be arguable that in the event of the claim being made out it would be for the Minister to settle any compensation.

It is equally arguable, however, the Board implemented the wishes of the Minister in circumstances which constituted a constructive dismissal by the Minister. The Minister agreed the terms of removal from office and relying on this authority the Board then arranged the payments pursuant to its own legal ability to administer its internal business affairs which includes the power to settle or compromise legal claims likely to be made against the Board and/or the Minister in conducting the operations of the Board.

The key legal consideration, it was suggested, is not whether the Tourism Board Act provides for payments on lawful resignation or termination of office but, rather, what payments in lieu of damages might be claimed by a Board member unlawfully removed from office or forced by the Minister to resign.

These submissions were supported by further detailed submissions on the law, which we have considered carefully. These included an analogy between the wrongful removal of a Board member from office and a claim for wrongful dismissal of an employee on a fixed term employment contract, and an analysis of the wide powers of the Board as a statutory corporation with all the powers of a natural person to do anything not prohibited by its Act.

As a result of reading all the relevant background papers and hearing from the relevant witnesses in the course of our inquiry, we accept that the members of the subcommittee, in their negotiations with the Minister and in arranging the payments to Messrs Mogridge and Wall, acted in good faith and in the genuine belief that their actions were justified in pursuit of the statutory objectives of the Board. In particular, we accept that:

  • Board members were under considerable pressure from the Minister (and the OTSp) in respect of their perception of the performance of the Board. Messrs Boult, McCrea and Simm (who had been approached by the Minister) were under particular pressure. Their actions were motivated not by self-interest but by their view of the damage which the affair was doing to the tourism industry.
  • Board members held genuine concerns about the serious and damaging effects of the ongoing dispute between the Board and the Minister on the tourism industry in New Zealand.
  • The subcommittee members saw the terms of the Deed of Resignation as reflecting a "take it or leave it" proposal from Messrs Mogridge and Wall.
  • The subcommittee members believed that they were acting on legal advice. The Board’s solicitor's close involvement in the events of 16 December 1998 provided ample justification for that belief.

But we are equally satisfied that there was no lawful basis for the Board to make the payments to Messrs Mogridge and Wall. We have reached this view essentially for the reasons set out in the following paragraphs.

Members of the Board are appointed to the Board, hold office, and receive remuneration in terms of the Tourism Board Act. Under that Act they:

  • are appointed by the Minister;
  • may hold "office" concurrently with "any other office"; and
  • are appointed for terms not exceeding three years and are eligible for reappointment.

Under clause 1(1) of the First Schedule to the Tourism Board Act, a member whose term of "office" has expired continues to hold "office" until:

(a) The member vacates office under clause 2 of this Schedule; or

(b) The member is reappointed; or

(c) The Minister gives the member written notice that a successor has been, or is not to be, appointed.

Under clause 2(1) the Minister may remove a member from "office" for:

...disability affecting performance of duty, bankruptcy, neglect of duty, or misconduct, proved to the Minister's satisfaction.

The Minister has no authority to remove a member from "office" on any other ground. For instance, a failure to perform, not amounting to "neglect of duty", is not a ground for removal under the Act.

In addition, a member may resign "office" by written notice to the Minister.

It is clear from these various provisions that members of the Board hold a statutory "office". As the subcommittee members acknowledged in their submissions, members of the Board are not "employees" of the Board. Nor are they "employees" of the Minister, the Government, or any government department. The provisions of the Tourism Board Act govern their status and prescribe the basis on which they vacate "office". Parliament has created the statutory "office" of Board member and has prescribed the only means by which members may, voluntarily or involuntarily, relinquish that office.

In these circumstances we consider that reliance on employment law analogies relating to claims for unjustified dismissal of employees is not particularly helpful. More appropriate analogies could be drawn from the position of members of company boards of directors and other statutory boards holding public "office". At common law, such persons have no entitlement to any remuneration – let alone any compensation for loss of office. The reason for this is that a member of such a board has a fiduciary relationship with the entity concerned and may therefore not profit from that relationship.20

The only basis on which such persons are entitled to receive remuneration or compensation for loss of office is if Parliament enacts legislation creating an exception to the common law. Parliament has taken this step in relation to company directors. Section 161 of the Companies Act 1993 makes express provision both for the payment of remuneration to directors and for the payment of compensation for loss of office.

In the case of the Board, the only provision authorising the payment of any remuneration to members is clause 9 in the First Schedule to the Tourism Board Act and, as already noted (see paragraph 402), any payment of remuneration to Board members requires the prior approval of the Minister of State Services, not the Minister of Tourism. There is no statutory authority to remunerate members of the Board beyond this provision. In particular, no statutory authority exists to pay a member compensation for loss of office. Members of the Board are not in the same position as employees of the Board who may be entitled to superannuation or retiring allowances under the Act.21

Consequently, neither the Board nor the Minister had authority to enter into an agreement with any member of the Board for the payment by the Board of any amounts of remuneration other than those expressly permitted by clause 9.

The subcommittee members argued that the resignations amounted to a constructive dismissal by the Minister. We accept that the Minister, by his actions, made life untenable for Board members and that the resignations followed as a consequence. Despite Mr Morrison’s advice to the Minister, we have seen no evidence which would have justified the Minister terminating the appointments of Messrs Mogridge and Wall. Nor, we assume, did the Minister. However, in the circumstances we do not consider it would be appropriate for us to express a view on whether the Minister’s actions amounted to a constructive dismissal.

In any event, we have difficulty in understanding how the three members of the subcommittee were carrying out a constructive dismissal of the Chairperson and Deputy Chairperson "on behalf of the Minister" when the payments to the members being dismissed were to be made by the Board.

As the original submissions for the subcommittee acknowledged, any claims for compensation for wrongful or constructive dismissal should properly have been made against the Minister, who in the event of a successful claim would have been responsible for any settlement and any payment. We therefore do not accept the later submission from the subcommittee (on our draft report), that the Board had power to settle or compromise such claims on the ground that they were made "against the Board and/or Minister". In particular:

  • Members of the Board would not have a claim against the Board for damages for wrongful or constructive dismissal by the Minister.
  • Assuming a valid and successful claim against the Minister for wrongful or constructive dismissal, there was and is no authority for the Board to meet the liability of the Minister for the claim.
  • The general powers of the Board under the Tourism Board Act (section 5) do not extend expressly or implicitly to authorising the Board to make payments for which it could have no liability22. A claim by a Board member for wrongful or constructive dismissal would be against the Minister who wrongfully or constructively dismissed the member, and not against the Board.

For these reasons, the Auditor-General has concluded that, in his opinion, the payments made by the Board to Messrs Mogridge and Wall appear to have been unlawful. Accordingly, the Board should consider taking steps to recover the amounts from Messrs Mogridge and Wall.

We invited the Minister to make submissions on the lawfulness of the payments. He declined to do so on the basis that, in his view, the payments had always been, and continued to be, a matter for the Board and not for him.

Although the Minister did not sign the deed of resignation, he was aware of the fact of the proposed payments to Messrs Mogridge and Wall and the amounts involved. And he wrote a letter to the Board which was at least open to interpretation by the subcommittee that he agreed with the whole proposal.

There is little doubt that the Minister left the final decision about the payments to the Board. However, what the Minister and those involved seem to have overlooked is that premature resignations of Board members and the approval of payments to them are "Ministers’ business" (i.e. the responsibility of the Minister of Tourism and, in the case of remuneration, the Minister of State Services) and not simply "Board business". In particular:

  • the appointment, removal and resignation of Board members (including their premature resignation) is the business of the Minister of Tourism and not the Board;
  • Board members’ remuneration requires the approval of the Minister of State Services;
  • there is no authority for a payment by the Board for compensation for loss of office or for wrongful or constructive dismissal of a member by the Minister of Tourism; and
  • any claim for compensation for loss of office or for wrongful or constructive dismissal would be against the Minister (not the Board) and settlement of such a claim would require the Minister’s approval.

The Minister did not take advice before he wrote the letter of 18 December 1998. We acknowledge that he did not do so because he believed that these resignations and the consequent payments were "Board business", and because he therefore felt able to rely on the legal advice which he understood the subcommittee members had obtained from a leading firm of solicitors. But in our view, bearing in mind all of the factors listed above, it would have been prudent for him to have taken his own advice on whether the course of action proposed by the subcommittee was lawful.

17: Tourism Board Act, First Schedule, clause 9.

18: See Administration of Statutory Bodies and Other Committees, State Services Commission, July 1997.

19: See Burrows, Finn & Todd, Law of Contract in New Zealand, 1997, paragraphs 12.5 and 12.6, cf. Lower Hutt City Council v Martin [1987] 1 NZLR 321.

20: Cf Guinness plc v Saunders [1990] 2 AC 663; [1990] 1 All ER 652, HL.

21: Clause 15 of the First Schedule to the Tourism Board Act.

22: The Board only has power to do that which is authorised by its Act, any other enactment, or any rule of law: section 5(1)(b). There is no applicable statutory power or rule of law in this case.

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