McKerchar

 

KDC v McKERCHAR   18 May 2017

The full judgment of Judge Colgan is available here.

It is a lengthy and very erudite judgment full of detailed legal argument.

Legal Eagle’s summary follows:

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This was a strike-out application by both sides. A strike-out application happens where one party alleges that there is an insufficient legal basis for the claim to proceed to a full trial.

McKerchar applied on the basis that the severance deed between him and the KDC was in full and final settlement of all claims and prevented the KDC from pursuing any claim against him.

The KDC claimed that McKerchar’s claim for damages was not possible in such a proceeding.

KDC claim against McKerchar

The KDC’s claims against McKerchar are set out in paras [12] to [30] and make interesting reading for those who followed the saga. They may be an eye-opener for those who are unaware of why ratepayers in Kaipara have such a deep distrust of the KDC.

The amount of the total claimed was not quantified at this stage but the Court considered that the damages claimed would be substantial.

Peter Winder plays a pivotal role in the judgment though some of the facts in the judgement are incorrect. In para [36] it states that Peter Winder was:

the sole Crown commissioner before the Council was returned to full the sole Crown Commissioner, before the Council was returned to full democracy at the 2016 local government elections. Mr Winder now has a limited role as Crown Commissioner with the Council which includes oversight of litigation.

Peter Winder was never the sole Commissioner. And he was subsequently Crown Manager, not Crown Commissioner.

Failures of the KDC

One gets the feeling throughout the judgment that the lawyers for the KDC and the representative of the KDC failed to pursue the claim with the skill and dedication that one would expect. It seems at time that they were merely going through the motions.

• The Court was compelled to ask if the KDC produced sufficient evidence to support the claim. In [36] it explains that only Peter Winder gave evidence in court even though he had no personal knowledge of what went on between the KDC and McKerchar in 2011 when the severance agreement was signed. The Court remarks [38] on the failure of the KDC to provide relevant witnesses who had detailed knowledge about the KDC’s dealings with McKerchar. In particular Neil Tiller the Mayor and Julie Geange the Deputy Mayor who negotiated the severance deal with McKerchar.

Apparently Neil Tiller was available to give evidence but for some unexplained reason he was not called as a witness.

There is no comment about Julie Geange’s failure to give evidence.

The Court also raises the issue of Chair of Commissioners John Robertson not giving evidence. Judge Colgan commented:

[39] Mr Winder’s evidence was that particular responsibility for the litigation lay with the Chair of the Commissioners, Mr Robertson, who Mr Winder told the Court spoke with Mr Tiller on a number of occasions about Mr McKerchar’s employment. Further, according to Mr Winder’s evidence, it was the Mayor, the Deputy Mayor and Mr Robertson who engaged with a number of councillors about their awareness of the alleged breaches of his employment agreement and of his statutory duties by Mr McKerchar. Mr Winder was (understandably) unable to assist the Court with any such information at all, even by hearsay. I do not wish to be thought to be critical of Mr Winder in these circumstances; he assisted the Court with what evidence he could give but the absence of other witnesses and evidence did not assist the Council’s case.

But it is implicit in the Court’s comments that the failure of John Robertson to give evidence was remarkable. Not only was he the only person who had he accumulated evidence from witnesses, but he also failed to pass that evidence on to Peter Winder so that he could make it available to the Court.

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• The Court was not happy with the way the OAG report was handled by the KDC

[119] The report of the OAG issued in late 2013 was provided as an exhibit to the Court by the Council. Regrettably, no references to its contents were made in evidence and the Council’s submissions did not refer to it. It was simply produced to the Court as a substantial and important document but, I assume, left for me to read and apply without assistance or submission. It is, as already noted, a tome running to more than 300 pages, and is clearly a thorough review of the history of the MCWS and associated issues including the ways in which the Council purported to pay for the scheme.

….It would have been better if the party relying on the content of it had identified relevant passages in it, rather than leaving the whole report for the Court to read and make of it what it will.

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• No evidence was called by the KDC in respect of McKerchar’s good faith obligations or any express or implied terms of his employment

[148] …. In addition to there being no affirmative evidence called by the plaintiff in this regard, Mr McKerchar was not cross-examined, when he did give evidence, about both his knowledge of these allegations and, pertinently, any refusal or failure by him to make those breaches known to the Council.

[149] I have already commented on the incompleteness of the Council’s case on this issue and, in particular, the absence of evidence relevant to the state of knowledge of its elected officials or other senior staff, apart from Mr McKerchar, about the events known to it before the settlement agreement was entered into.

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• The KDC failed to provide evidence to counter McKerchar’s legal arguments that were patently wrong. Take this instance:

[112] Mr McKerchar accepts that some of the issues in relation to the lawfulness of the striking of rates could not have been known to the Council before the settlement agreement with him was entered into on 2 August 2011. This is because it was only subsequently, as a result of what Mr McKerchar told the Court was a High Court case concerning rates struck by the Christchurch City Council, that it became clear that such rates could not be struck lawfully. Neither the defendant nor his counsel identified this case. Research for me has not revealed the name of this case Mr McKerchar relied on, or even its existence, let alone confirmed Mr McKerchar’s assertion. The defendant said that the Council (and he himself), as with other councils in New Zealand, had followed advice from Local Government New Zealand as to how to levy rates. Until the High Court’s Christchurch judgment was delivered, Mr McKerchar says this previous practice was assumed by him and other council chief executives to be lawful.

Such evidence was allowed to stand even though there was no supporting evidence.

I suspect that McKerchar was confusing the Christchurch City council (Rates Validation) Act 2015 with the Tata Beach rates dispute of 2010 which culminated in the Tasman District Council (Validation and Recovery of Certain Rates) Act 2014.

The argument was a complete red-herring. As was the statement that the KDC had followed the advice of from Local Government New Zealand as to how to levy rates.

The EcoCare rates set by the McKerchar council did not comply with any of the requirements of the LGA. They were a total dog’s breakfast. Some of the rates were completely omitted from rating documents (but still charged) and the “unit of demand” levy was nothing more than a Mafia-type tithe that was completely outside the law.

But the commissioners presented no evidence and allowed McKerchar to get away with such arguments. So much so that the Court concluded:

[113] If Mr McKerchar is correct about this, it is unlikely that he could be liable to the Council for having followed and applied known and accepted practices. Again, there was no evidence to contradict or even challenge Mr McKerchar’s.

The crux of the case

The case hinged around the meaning of the clauses in the severance deed between the parties.

Details of the severance deed are at [50] to [53]

The crucial clause was clause 9 which stated that the deed was:

… in full and final settlement of all matters, rights, and obligations arising from the Employee’s position of employment with the Employer, and is in full satisfaction of any actual or potential disputes, … actions or other issues between the Employee and the Employer arising out of the Employee’s position of employment with the Employer, whether out of statute, common law, equity, or otherwise.

The issue was whether that clause applied to all claims past, present and future, which was the stance taken by McKerchar.

Or, did the clause only relate to causes of action that were known to the parties at the time of the agreement, as argued by the Commissioners? They argued that the KDC was not aware of the extent and gravity of McKerchar’s shortcomings when the agreement was signed in 2011. Such incompetence and potential claims could not therefore have been contemplated by the severance deed.

The evidence of the KDC

In [58] the Court notes the "paucity of persuasive evidence adduced” by the KDC, and also comments on the “generally patchy, sometimes indirect and incomplete evidence presented” by the KDC.

In [59] the Court restates the lack of evidence from witnesses:

[59] Next, and as already noted, clearly central actors in these events leading up to the settlement agreement between the parties have not provided evidence. Excluding Councillor Bill Guest who has subsequently passed away, and as already noted, very significant was the absence of the (then) Mayor, Mr Tiller, and indeed any other (then) councillors whose individual and collective knowledge is at the heart of the Council’s defence of Mr McKerchar’s strike-out application.

The only witness for the KDC was Peter Winder who had not spoken to the main witness, Mayor Tiller. Winder’s evidence was [62] that it was not until mid-2013 that the Commissioners had sufficient information to issue the proceedings following the release of the OAG report.

McKerchar’s evidence

His argument was quite simple. He argued that when the severance deed was signed in 2011 the Mayor and councillors were fully aware of all the claims and criticisms in respect of his performance.  the deed of severance therefore contemplated all future claims.

The Court’s conclusion

The Court struggled to accept the KDC's argument that it did not have any evidence of any potential claim when the severance deed was signed on 2 August 2011.

[155] Factual support for this proposition is said to be the contents of Mr Winder’s affidavit sworn on 6 October 2016, and his oral evidence at the hearing on 11 November 2016. That is, however, to misstate the position. Mr Winder’s evidence is, at best, only speculative because he was not involved with the Council at that time. He has not spoken to very relevant potential witnesses who were. There is no evidence from those persons to corroborate Mr Winder’s speculative evidence of what happened. There is little documentary evidence to support the plaintiff’s contentions. So the evidence for the plaintiff is, at best, Mr Winder’s opinion that, as at 2 August 2011, the Council could not have known about the matters that have subsequently become its causes of action.

[157] In the absence of direct contradictory evidence which could have been called from persons such as the former Mayor, former councillors and perhaps also from the facilitator, Mr Marshall, and the Chair of the Commissioners, the Court is entitled to accept Mr McKerchar’s evidence of the existence of that state of affairs.

The Court finally concluded:

[263] I consider that in these circumstances (both the relevant events leading up to the signing of the deed and the contents of the document as a whole), both parties intended not only to end the employment relationship between them but also to ensure that there would be no subsequent litigation between them arising out of that relationship.

[266] I am satisfied that the deed of settlement between the parties and, in particular, cls 9 and 10, provides an absolute defence to Mr McKerchar in respect of the Council’s claims now brought against him. There has been an accord and satisfaction entered into between the parties, with the benefit of, or at least of having had the opportunity for, legal advice, which precludes the Council from suing Mr McKerchar for alleged breaches by him of his employment agreement. In these circumstances, the plaintiff’s claims must be and are struck out and its proceeding dismissed

Penalties

The KDC also claimed penalties from McKerchar for breach of his individual employment contract. Such claims have to be brought within one year of becoming aware of the breaches that give rise to the penalty. The KDC argued that the release of the OAG report on 3 December 2013 alerted it to the breaches. The Court had this to say:

[274] The plaintiff had the period of one year after the latter of the breaches or becoming aware of them, within which to bring a claim for penalties. Even on the best case for the Council, that 12-month limitation period began to run, at the latest, on 3 December 2013, and more probably at an earlier date of the Council becoming aware of the evidence which it says it needed, to make a claim for penalties against Mr McKerchar. The one-year limitation period therefore expired on 3 December 2014 at the latest, 16 days before claims for penalties were brought.

Thus the KDC filed the claim out of time. Not only that, it made no submissions to the Court:

[275] The plaintiff has not asserted that this irregularity could be ameliorated by repleading and indeed simply left the Court to make the best that it can from this information. No application to extend this 12-month time limit has been

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EMPLOYMENT AGREEMENT BETWEEN KDC AND A J MCKERCHAR

11.0 Termination of agreement

11.3 The Chief Executive Officer giving three (3) months notice in writing may terminate the appointment at any time.

11.4 The Council or Chief Executive Officer has given notice of termination under this Agreement, the Council may pay the Chief Executive Officer in lieu of him working out the whole or any part of the term of notice.

So, if the Chief Executive wanted to go for any reason, all he had to do was give three months notice.  In such circumstances NO monetary payment was to be made.   So, if the Chief Executive had resigned for health reasons or for any other reason then he would not have been entitled to any payment.

This suggests that the Chief Executive did not want to leave voluntarily but Council wanted his immediate resignation.  There were clearly matters in dispute between them, and it seems that a compromise was reached whereby the Chief Executive agreed to resign on the basis of a negotiated monetary package.

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Below are the three documents released yesterday (21.01.13) by Steve Ruru, the Chief Executive of the KDC.

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1. LETTER FROM STEVE RURU TO CLIVE BOONHAM

21 January 2013

Dear Clive

Request for information under the Local Government Official Information and Meetings Act 1987

I refer to your request for a copy of the Deed of Settlement in relation to the previous Chief Executive, Mr Jack McKerchar.

In deciding whether or not to release this Deed of Settlement, I have been mindful that there has been significant and continuing public interest in this issue.

Kaipara District Council Commissioners have also advised me that, in their view, the non-release of this Deed is hindering their ability to address some of the issues facing the District.

Given that, and after seeking legal advice, I have decided to release the Deed . However, I will not be making any public comment on this issue.

For your information, I also enclose a letter received from Mr McKerchar in relation to this issue. Mr McKerchar is aware that this letter is being released to people from whom a request has been received.

I trust this satisfies your request.

Yours faithfully

Steve Ruru
Chief Executive

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2. DEED OF SETTLEMENT BETWEEN KAIPARA DISTRICT COUNCIL AND A J MCKERCHAR

THIS DEED dated the day of 2011

BETWEEN: THE KAIPARA DISTRICT COUNCIL a Local Authority pursuant to the Local Government Act 2002 ("the Employer")

AND: ALAN JOHN McKERCHAR ("the Employee")

BACKGROUND:

A. By an Employment contract dated the 1st day of October 2007, the Employee has held a position of employment with the Employer as the Chief Executive of the Kaipara District Council.

B. The term of the Employee's position with the Employer expires on 31st October 2012 ("the expiry date").

C. The parties have reached an agreement that the Employee's position of employment shall terminate prior to the expiry date on certain terms and conditions.

D. The parties enter into this Deed to record the termination of the Employee's position of employment with the Employer, and to identify the terms and conditions thereof.

NOW THEREFORE THIS DEED WITNESSES:

1. The Employee shall resign from his position of employment with the Employer on the 02 day of August 2011. The Employee shall continue to undertake his duties in accordance with the terms of his Employment Contract until the effective date of termination being 31 October 2011.

2.  The Employer shall pay the following amounts to the Employee:

(a) The sum of $200,000.00 for lost salary which would otherwise have been payable to the Employee from the 31st October 2011 to the 31st October 2012. This payment is to be taxable as income to the Employee.

(b) The sum of $20,000.00 by way of compensation pursuant to Section 123(l)(c)(i) of the Employment Relations Act 2000. This payment is to be a tax free payment to the Employee.

(c) The sum of $20,000.00 to meet the Employee's expenses and costs of out¬placement assistance and managing his career transition. This payment is to be a tax free payment to the Employee.

(d) All annual leave entitlements accrued and not taken by the Employee to 31  October 2011. This payment is taxable as income to the Employee.

3.      (a) Payment of the sum identified in clauses 2(b), 2(c) and 2(d) herein shall be made on the 31 October 2011,

(b) Payment of the sum identified in clause 2(a) herein shall occur:

(i) as to $82,250.00 on 3st' October 2011, and

(ii) as to $117,750.00 on 2nd April 2012.

4. The Employer hereby indemnifies the Employee against any tax deduction or claim made by the Commissioner of Inland Revenue against those payments referred to in clauses 2(b) and 2(c) herein.

5. Neither party will unilaterally publicise the resignation of the Employee. On the date of acceptance of the resignation of the Employee, the parties will cooperate in a jointly prepared statement to the media recording the Employee's resignation from the position of Chief Executive of the Kaipara District Council, and the Employer's acceptance of same.

6. The Employer will through the Mayor, provide the Employee with a positive reference for the Employee's use in securing future positions of employment, and will refrain from making any disparaging comments about the Employee, the Employee's performance of his duties, or the Employee's departure from his position of employment.

7, The Employer wll undertake a normal public farewell to recognise the Employee's service to the Kaipara commimity, and to recognise the achievements made during the Employee's term of employment with the Employer.

8. Both parties to this Deed undertake to keep confidential the negotiations leading to the Employee's resignation, and the terms of the settlement recorded by this Deed, and to not disclose to any other person (other than professional advisers) any matters pertaining to the resignation of the Employee from his position of employment with the Employer, except in such form, and containing such details as is agreed in advance in writing by the Employer and the Employee.

9. This Deed is executed by the parties in full and final settlement of all matters, rights, and obligations arising from the Employee's position of employment with the Employer, and is in full satisfaction of any actual or potential disputes, grievances, actions or other issues between the Employee and the Employer arising out of the Employee's position of employment with the Employer, whether out of statute, common law, equiity, or otherwise.

10. Both parties acknowledge that they have had the opportunity of taking legal advice in the negotiation of the terms of this settlement and in the execution of this Deed, and both parties confirm and acknowledge that the settlement achieved herein is a fair and reasonable settlement of all matters pertaining to the Employee's employment with the Employer.

IN WITNESS WHEREOF this Deed has been executed the day and year first hereinbefore written.

SIGNED by the KAIPARA DISTRICT COUNCIL pursuant to a Resolution of Council dated the 02 day of August  2011

Mayor Neil Tiller

Councillor Julie Geange

SIGNED by ALAN JOHN McKERCHAR

in the presence of:

Witness signature:.Barbara Ware, Corporate Services Manager 

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3. LETTER OF JACK MCKERCHAR TO ACCOMPANY RELEASE OF THE DEED OF SETTLEMENT

20 January 2013

Jack McKerchar
PO Box 247
Dargaville, 0340

Steve Ruru
Chief Executive
Kaipara District Councit
Private Bag
Dargaville 0340

Dear Steve,

Disclosure of Settlement Deed

Furtiier to our discussions this letter outlines my comments on the release of the Settlement Deed.

From the outset, I had considered the settlement deed to be confidential and that it should not be disclosed to any third party. I believe the Chief Ombudsman considered the issue and came to a similar view.

Having said that, I understand that you wish to make available a copy of the settlement deed to respond to a number of on-going official information requests, and a request by the Commissioners.

I feel that considerable pressure is being exerted on me to agree to the release of the deed.  Therefore, in addition to providing a copy of the deed, I think it reasonable to ask you include a copy of this letter.

I am particularly concerned about idle speculations that appear to surround my departure from Council, and the need to provide solid information. Therefore, I confirm that settlement was achieved on an amicable basis and in return for the early termination of my contract with Council.

I trust this will be the end of the matter.

Yours faithfully

J McKerchar

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