Part 5: The Appointment and Resignation of Mr Paul Winter

Inquiry into certain events concerning the New Zealand Tourism Board.

Mr Paul Winter was the Board’s Chief Executive from January 1997 until his resignation in January 1999. His resignation followed soon after those of the Chairperson and Deputy Chairperson of the Board, about which most of this report is concerned.

Our terms of reference involved us examining the legality and appropriateness of the severance payment to Mr Winter received on his departure

Terms and Conditions of Employment

The Board appointed Mr Winter as its chief executive in October 1996. It dealt with Mr Winter’s conditions of appointment on three occasions:

  • At the time of his initial appointment, terms and conditions were contained in two letters, both dated 8 October 1996 and signed by the then Chairperson of the Board. The contract was for a term of three years from 13 January 1997, with a performance provision.
  • Following a review of Mr Winter’s remuneration package in May 1998, agreement was reached in July 1998 that a portion of the remuneration would be paid subject to performance, and the term of appointment was extended to 31 July 2001.
  • Between July and December 1998 a draft written contract of employment was prepared and discussed by Mr Winter and Mr Mogridge.

In August or September 1998 Mr Mogridge added a handwritten note in pencil to the termination provision in the draft written contract, which then read as follows (the handwritten annotations are in bold type):

Your employment contract may be terminated by either party on three month’s [sic] written notice, or at a date agreed by both parties. The Board shall have the option of substituting payment in lieu for all or part of any period of notice under this clause, and should the Board so terminate the contract, except in the case of serious misconduct, the amount due under the remainder of the contract shall be paid in full.

Consultation with the State Services Commission

The Board’s responsibilities in respect of the appointment of a chief executive and the settlement of the terms and conditions of employment are set out in clause 10 of the First Schedule to the Tourism Board Act. Clause 10 provides:

Board to appoint chief executive – (1) Subject to subclause (2) of this clause, the Board shall from time to time appoint a chief executive of the Board, on terms and conditions agreed by the Board and the person appointed.

(2) The Board shall not agree any conditions of employment for a chief executive of the Board without –

(a) Consulting the State Services Commission; and

(b) Having regard to all recommendations the State Services Commission makes to the Board about them within a reasonable time of being consulted.

The statutory requirement for the Board to consult with the State Services Commission (the Commission) before agreeing any conditions of employment for a chief executive is an important one. It presumably reflects Parliament’s concern that the chief executive’s conditions of employment should bear some relationship to the conditions of employment of other chief executives in the public sector – in the interests of both consistency and the oversight of Government expenditure.

To enable the Commission to fulfil its role under clause 10, clearly there must be appropriate consultation between the Board and the Commission. In this context sufficient time must be allowed and genuine effort must be made. Consultation is to be a reality, not a charade. To "consult" is not merely to tell or present. Nor, at the other extreme, is it to agree.23

It is apparent that at the time of Mr Winter’s appointment in October 1996 the Board was in touch with the Commission about the terms and conditions of Mr Winter’s appointment. It is also clear from evidence we received in the course of our inquiry that the Commission at the time expressed the view that the letters of appointment were inadequate. They expected to receive a draft contract from the Board for comment before it was finalised.

It is equally clear that no contract was ever referred to the Commission by the Board. Nor did the Board take any steps to consult the Commission when it altered the terms and conditions of Mr Winter’s employment as chief executive on two occasions in 1998.

The Commission had written to Mr Mogridge on 7 April 1998 enclosing a copy of a model contract, which it thought might be of use to the Board in preparing a more detailed document. The letter concluded:

I look forward to receiving the draft contract you propose to offer the chief executive for comment before it is finalised.

Mr Mogridge said that it was always his intention to refer the contract back to the Commission when the wording had been finalised. The Commission confirmed to us that it had expected to see a draft contract, and that in its view the Board’s obligation to consult had not been discharged. The Commission also told us that it would have expected the Board to consult afresh over an extension of the term of the contract.

In legal submissions to our inquiry on behalf of Messrs Boult, McCrea, Simm and Allport (the current Chairman of the Board), it was suggested that clause 10 of the First Schedule to the Tourism Board Act does not require consultation with the Commission when the terms and conditions of the chief executive are being altered. The submission pointed out that:

Clause 10(1) refers to the duty of the Board to appoint a Chief Executive on terms and conditions agreed by the Board and that person appointed. Clause 10(1) is expressed to be subject to clause (2). Subclause (2) imposes a further duty on the Board to consult the State Services Commission. It is at the very least arguable that the duty of consultation only arises on the appointment (and not the reappointment) of the chief executive.

We are doubtful that Parliament would have intended clause 10 to be interpreted in such a restricted fashion. The interpretation advanced in the submission would enable the Board to appoint a chief executive on terms and conditions that took into account the recommendations of the Commission and then, a short time later, to renegotiate new terms and conditions that did not take into account those recommendations. We have been advised that a Court would be likely to interpret the obligation in clause 10 as applying to both the appointment and reappointment of a chief executive.

Effect of the Failure to Consult

The State Services Commission submitted to us that the failure of a statutory board to meet the requirement to consult the Commission on the terms and conditions of employment of its chief executive would render the contract of employment invalid. The invalidity could be remedied by the board then undertaking consultation with the Commission – but the board would have to be open to changing the terms and conditions of employment, if the process were to meet the requisite standard for consultation.

On the basis of the Commission’s submission, Mr Winter’s contract of employment would be invalid because of the failure of the Board to comply with its obligations under clause 10 to consult with the Commission. However, we have been advised that the Board and Mr Winter could probably have obtained relief in terms of the Illegal Contracts Act 1970.24 In these circumstances we accept that there is no need for any steps to be taken to recover the remuneration paid to Mr Winter during his employment as Chief Executive.

Mr Winter’s Resignation

Mr Winter resigned soon after the new Chairperson of the Board, Mr Allport, had taken up office. In early January 1999 Mr Allport formed the view that, for a number of reasons, it would be in the best interests of the Board to have a new chief executive. We heard evidence from Mr Allport and Mr Winter about their ensuing discussions, which led to an agreement that Mr Winter would resign on condition that, consistent with his contract of employment, he was paid out for the remainder of the term of his contract to 31 July 2001.

Mr Allport decided that, in the circumstances (which included the need for the Board to move quickly beyond the events of late-1998), and bearing in mind the contract of employment, he had no alternative but to accept Mr Winter’s conditions for departure. Terms of settlement were reached following arm’s length negotiations. Suitably qualified and experienced advisers represented each party in the negotiations. The terms of the settlement were confirmed subsequently with the other Board members by way of telephone conference.

Under the settlement, Mr Winter was paid a gross sum of $579,423.08, which represented the amount payable to him for the remainder of the contract period. In addition, he received a payment of backpay, outstanding salary, reimbursement of expenses and allowances, and outstanding accumulated annual leave, which totalled $44,855.12. Tax was deducted at source in the normal manner.

Although the settlement was large, we are satisfied that it was authorised by the terms of the contract of employment between the Board and Mr Winter.

The Minister of Tourism was not involved in either Mr Winter’s departure or the severance payment made to him. The settlement made provision for the Minister to be informed as to the terms of settlement. Mr Allport offered to supply those details to the Minister. However, the Minister responded that he was satisfied that the matter should be dealt with by the Board.

23: Wellington International Airport Limited v Air New Zealand [1993] 1 NZLR 671 (CA).

24: Cf Hearle v Bay of Plenty Polytechnic Council, Employment Court (Travis J), 8 October 1996.

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