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Pacific Flight Catering Limited & Another v/s Lsg Sky Chefs New Zealand Limited

    CA No. 758 of 2012

    Decided On, 22 August 2013

    At, Court of Appeal of New Zealand

    By, THE HONOURABLE MR. JUSTICE O?REGAN P
    By, THE HONOURABLE MR. JUSTICE ELLEN FRANCE & THE HONOURABLE MR. JUSTICE HARRISON

    For the Appellant: R B Stewart QC , J K Goodall, Advocates. For the Respondent: P G Skelton QC , A Borchardt, Advocates.



Judgment Text

O’Regan, P.

[1] This is an appeal against a decision of Woolford J, in which he upheld a claim by the respondent, LSG Sky Chefs New Zealand Ltd (LSG), against the appellants, Pacific Flight Catering Ltd and PRI Flight Catering Ltd, for money paid by LSG for Pacific’s use under compulsion of law.[1] The appellants are associated companies and for ease of reference we will refer to them as 'Pacific'.

[2] The origin of the claim was the transfer of a number of Pacific’s employees to LSG at a time when LSG took over a flight catering contract that had previously been held by Pacific. This triggered an obligation under Part 6A of the Employment Relations Act 2000 for LSG to take on certain employees of Pacific who had become surplus to Pacific’s requirements.[2]

[3] LSG was required to take on those employees on the same terms and conditions of employment as applied during their employment by Pacific. In particular, LSG was required to recognise each employee’s accrued entitlement to annual leave, alternative holidays, sick leave and bereavement leave not taken or exchanged for payment before the date of transfer. LSG says that although it must pay those entitlements to those employees, it is entitled to be reimbursed by Pacific under the common law action known as money paid to the use of the defendant under compulsion of law. The High Court Judge upheld LSG’s claim. Pacific appeals against that decision.

Issues for decision

[4] The ultimate issue on the appeal is whether Pacific is liable to LSG for the cost of accrued pre-transfer leave entitlements of the employees who transferred from Pacific to LSG under Part 6A (we will refer to these employees as the 'transferring Pacific employees'). On the approach we take to the case, the key determinant of that issue is the question: whether Pacific remains liable to the transferring Pacific employees for their pre-transfer leave entitlements even though they have transferred to, and become employees of, LSG?

[5] Before turning to those issues, we briefly summarise the facts, the relevant legislation and the common law cause of action on which LSG’s claim is founded.

Factual background

[6] Both Pacific and LSG are providers of airline meals to airlines operating out of Auckland Airport. In 2010, Singapore Airlines sought tenders for airline catering services for its flights operating out of Auckland Airport. In November 2010 Singapore Airlines notified LSG that it had been the successful tenderer, and would replace Pacific as the provider of the services to Singapore Airlines. The new arrangement took effect from February 2011.

[7] The new arrangement triggered Part 6A and the employees of Pacific who became surplus to Pacific’s ongoing requirements became entitled to elect to transfer to LSG. About 40 employees did so. The transfer took effect when the Singapore Airlines’ contract came into operation in February 2011.

[8] Under Part 6A, LSG was required to recognise the leave entitlements of the transferring Pacific employees that they had accrued prior to their transfer. Counsel for Pacific, Mr Stewart QC, advised us that the total amount of the accrued leave has been left to be determined later, but is anticipated to be somewhere between $90,000 and $140,000. This is considerably lower than the figures initially provided to LSG by Pacific and counsel for LSG, Mr Skelton QC, said that Pacific had deliberately inflated all but two or three of the transferring Pacific employees’ leave balances and given them pay rises, in most cases without informing the employees they were doing so. Pacific’s conduct in that regard appears to have been reprehensible, but we do not see it as having any bearing on the issues before us in the present appeal.

The legislative context

[9] Part 6A was introduced into the Employment Relations Act in 2004 and subsequently amended in 2006. The object of the regime created by Part 6A is to provide protection to certain categories of employees working in industries such as the cleaning and contract catering industries by providing job security in times when the contractual arrangements under which their employer operates are changed or similar restructurings occur.[3] In situations such as the present, the successful tenderer who takes over the contract (the new employer) is required to allow employees of the previous contracting party (the old employer) to elect to transfer to the new employer with their terms and conditions as accrued with the old employer kept intact. We will refer to these employees as 'transferring employees'.

[10] Sections 69F and 69I provide that an employee may elect to transfer between employers if, as a result of a 'restructuring' as defined in s 69B, the employee will no longer be required to work for the old employer and the employee’s work is to be performed on behalf of the new employer.[4] There was no dispute that the termination of Pacific’s contractual arrangement with Singapore Airlines and its replacement with the new LSG arrangement was a restructuring for the purposes of Part 6A, and that Part 6A applies to this case.

[11] The provision protecting the pre-transfer entitlements of transferring employees is s 69I(2), which provides:

(2) If an employee elects to transfer to the new employer, then to the extent that the employee’s work is to be performed by the new employer, the employee-

(a) becomes an employee of the new employer on and from the specified date; and

(b) is employed on the same terms and conditions by the new employer as applied to the employee immediately before the specified date, including terms and conditions relating to whether the employee is employed full-time or part-time; and

(c) is not entitled to any redundancy entitlements under those terms and conditions of employment from his or her previous employer because of the transfer.

[12] Under s 69J(1), the employment of a transferring employee is treated as continuous, including for the purpose of service-related entitlements, whether legislative or otherwise. Section 69J(2) sets out in detail how this principle applies to the holidays entitlements of a transferring employee. It provides as follows:

(2) To avoid doubt, and without limiting subsection (1),-

(a) in relation to an employee’s entitlements under the Holidays Act 2003,-

(i) the period of employment of an employee with the employer that ends with the transfer must be treated as a period of employment with the new employer for the purpose of determining the employee’s entitlement to annual holidays, sick leave, and bereavement leave; and

(ii) the employer must not pay the employee for annual holidays not taken before the date of transfer; and

(iii) the new employer must recognise the employee’s entitlement to-

(A) any sick leave, including any sick leave carried over under section 66 of that Act, not taken before the date of transfer; and

(B) any annual holidays not taken before the date of transfer; and

(C) any alternative holidays not taken or exchanged for payment under section 61 of that Act before the date of transfer:

(b) for the purposes of determining an employee’s rights and benefits to parental leave and parental leave payments under the Parental Leave and Employment Protection Act 1987,-

(i) the period of employment of an employee with the employer that ends with the transfer must be treated as a period of employment with the new employer; and

(ii) the new employer must treat any notice given to or by the employer under the Act as if it had been given to or by the new employer.

[13] Provision is made in subpart 2 of Part 6A for disclosure of 'employee transfer costs information' prior to tendering for an agreement if a restructuring would result if the agreement was awarded.[5] However, we were told that the disclosure regime has a number of shortcomings, not the least of which is that only global information has to be disclosed and the new employer has no way of ascertaining how many employees of the old employer will become eligible for transfer and, of those, how many will elect to transfer.

[14] Section 69OL provides for a review of Part 6A three years after its enactment. We were told that there is a Bill before Parliament that will, if passed, amend Part 6A in a number of respects.[6]

Money paid to the use of the defendant under compulsion

[15] As noted earlier, the claim made by LSG relies on the common law cause of action of 'money paid to the use of the defendant under compulsion.' We will call this the 'cause of action'. It was common ground that the summary of the requirements of the cause of action in Halsbury’s Laws of England correctly sets out the elements that have to be established by a claimant. These are:[7]

(1) the claimant must have made an actual or virtual payment of money; neither the incurring of a liability nor the loss of goods can be treated as money paid;

(2) the claimant must have been compelled, or compellable, to pay this money to a third party, or have been requested by the defendant to pay it;

(3) the claimant must not officiously have intervened so as to expose himself to the liability to make the payment; and

(4) the defendant must have been legally liable to pay the third party, though the reason for that liability need not be the same as the one which induced the claimant to pay the third party.

[16] It was also common ground that, in the present case, it was the fourth of those requirements that was in issue. There was no dispute that:

(a) LSG had paid money to the transferring Pacific employees to meet entitlements they had accrued while employed by Pacific, satisfying the first requirement;

(b) LSG was obliged to do this because of its obligation under ss 69I and 69J, satisfying the second requirement; and

(c) LSG had not 'officiously intervened', but had rather met a statutory and contractual obligation, satisfying the third requirement.

[17] Therefore, the issue in this case comes down to whether Pacific was legally liable to pay the accrued leave entitlements of the transferring employees when LSG paid those entitlements.

High Court approach

[18] In the High Court, the Judge began by determining whether the four elements of the cause of action were satisfied, and then asked himself whether Part 6A removed Pacific’s obligation to reimburse LSG for money paid under compulsion. In relation to the fourth requirement of the cause of action, he held that the Holidays Act 2003 and the collective agreement between Pacific and the relevant union imposed an obligation on Pacific to pay the transferring Pacific employees their annual leave, alternative holidays, sick leave and bereavement leave even after they had transferred to LSG. He considered that, when LSG paid the transferring Pacific employees for leave entitlements accrued while they had been working for Pacific, it was discharging Pacific’s obligations under the Holidays Act and the collective agreement. Therefore, the Judge concluded that the fourth requirement of the cause of action was met.[8]

[19] The Judge then addressed the issue of whether the Employment Relations Act had extinguished Pacific’s obligations to meet those pre-transfer entitlements of the transferring Pacific employees. He held that it had not, and that Pacific remained liable to meet those requirements. His reasons were as follows:

(a) There was a presumption that Parliament does not intend to change the common law unless such a change is clearly indicated in the legislation. The Judge considered that no intention was evident in Part 6A to abrogate the common law right of the new employer to be reimbursed for sums paid to discharge the old employer’s obligations to transferring employees for pre-transfer entitlements.[9]

(b) Section 69I(2)(c) provides that a transferring employee may not claim redundancy from the old employer. There is no equivalent provision providing that the transferring employee may not claim his or her entitlement to accrued leave from the old employer.[10]

(c) Although s 69J(2)(a)(ii) provides that the old employer must not pay the transferring employee for annual holidays not taken before the date of transfer, that does not signal a legislative intention that the old employer is no longer liable for holiday entitlements of transferring employees. Rather, the purpose of the provision is to prevent transferring employees from having all of their accrued holiday entitlement cashed up, leaving them with no holiday entitlement with the new employer.[11]

(d) Section 69J(2) creates, in effect, a form of statutory guarantee under which the new employer must recognise the accrued leave entitlements of the transferring employees but the employees do not lose their statutory or contractual rights against the old employer for pre-transfer leave entitlements.[12]

(e) The fact that there is a disclosure regime in Part 6A does not necessarily mean that Parliament intended that the new employer would lose the right to recover from the old employer amounts paid to transferring employees for pre-transfer entitlements.[13]

[20] The Judge concluded that there was nothing in Part 6A which removed Pacific’s liability when LSG paid pre-transfer leave entitlements to the transferring Pacific employees. He considered that LSG was liable to pay those amounts to the transferring Pacific employees as their entitlements arose, but as between LSG and Pacific the primary liability for accrued annual leave, alternative holidays, sick leave and bereavement leave with Pacific.[14]

Our approach

[21] We prefer to approach the case from a different starting point from that of the High Court Judge. It seems to us that the case turns on whether payments made by LSG to transferring Pacific employees for pre-transfer entitlements can be said to be payments of sums that Pacific was legally liable to pay to those transferring Pacific employees. The starting point must be whether Pacific was legally liable to pay the accrued leave entitlements. If the answer to that question is 'no', then the fourth requirement of the cause of action on which LSG’s case is based will not be made out and the claim will fail.[15] We therefore turn to consider whether Pacific continued to be liable to the transferring Pacific employees, either under contract or statute, to pay their accrued leave entitlements.

Analysis

[22] It is clear from the authorities that the fourth element of the cause of action will not be satisfied unless the defendant is 'personally liable to be sued for the money which the plaintiff claims to have paid to his use'.[16] Put another way, the fourth element of the cause of action requires that 'there is a liability for the same debt resting on the plaintiff and the defendant and the plaintiff has been legally compelled to pay ... whereas the defendant is primarily liable to pay as between himself and the plaintiff'.[17]

[23] Whether Pacific is liable to the transferring Pacific employees for their pretransfer leave entitlements is a matter of statutory interpretation. There is nothing in Part 6A that states that the old employer remains liable to its transferring employees for their pretransfer entitlements. Nor is there anything that says that the old employer is liable to reimburse the new employer when the new employer pays the transferring employees their pre-transfer entitlements.

[24] The question is, therefore, whether there is any other indication in Part 6A that the old employer does not remain liable to the transferring employees for their pre-transfer entitlements such that the transferring employees could sue the old employer for those entitlements. We have reached the view that the answer for that question is 'yes'. We can state our reasons reasonably briefly.

Was Pacific contractually liable to the transferring Pacific employees for pre-transfer entitlements?

[25] An old employer’s obligations to its employees arise under the relevant employment contract, in this case the collective agreement between Pacific and the union. Under s 69I(2)(a), the transferring employees are deemed to be employees of the new employer (in this case, LSG) from the time of the transfer. Under s 69M(2), the new employer becomes a party to the collective agreement in relation to transferring employees from the date 'on which the [transferring] employee becomes an employee of the new employer'. Under s 69J(1), the employment of the transferring employee with the new employer is to be treated as continuous, including for the purpose of service-related entitlements.

[26] The combined effect of these provisions is that, from the time of transfer, the transferring employee becomes an employee of the new employer, and ceases to be an employee of the old employer. In those circumstances there is no contractual basis for a claim by the transferring employee against the old employer for pre-transfer leave entitlements. Rather, the transferring employee can now make a claim against the new employer, which has become a party to the collective agreement, and in respect of which the transferring employee is treated as having been continuously employed both before and after the date of transfer.

[27] We consider that s 69I(3) supports this conclusion. It provides that the transferring employee may, upon transfer, become employed by more than one employer in two situations. The first is where only part of the employee’s work is affected by the restructuring. In that event, the transferring employee will be an employee of both the old employer and the new employer. The second is where the restructuring results in the work previously being done by the old employer being taken over by two different parties, and the transferring employee then works for both of them. If LSG were correct that a transferring employee remains an employee of his or her old employer in a situation such as the present case, one would have expected that would have been stated in s 69I(3) or elsewhere in Part 6A.

Was Pacific liable to the transferring Pacific employees for pre-transfer entitlements under Part 6A?

[28] Having established that Pacific has no ongoing contractual obligation to transferring employees for pre-transfer entitlements, we now turn to the legislation to determine whether there is any legislative provision that gives rise to such an obligation on Pacific’s part. The obligation an employer has to its employees for annual leave, alternative holidays, sick leave and bereavement leave are obligations that are imposed on an 'employer' by the Holidays Act 2003. Once s 69I(2)(a) takes effect, the transferring employee becomes an employee of the new employer, and ceases to be an employee of the old employer. What is more, s 69J(1) provides, in effect, that the transferring employee is treated as having always been an employee of the new employer. In those circumstances, the obligations of the 'employer' under the Holidays Act 2003 must be obligations of the new employer, not of the old employer.

[29] Section 69J(2) makes this even clearer, because it sets out detailed requirements imposing the obligations previously held by the old employer on to the new employer once an employee has elected to transfer to the new employer. While the High Court Judge was correct to identify the purpose of this provision as being to prevent employees from losing accrued entitlements on transfer, that does not undermine the fact that the section also clearly shifts the liability to meet those accrued entitlements from the old employer to the new employer from the date of transfer.

[30] The High Court Judge placed some importance on the fact that s 69I(2)(c) removes the liability of the old employer to pay redundancy to a transferring employee, but that there is no specific provision removing any obligation on the part of the old employer for the transferring employees’ accrued leave entitlements. We do not consider this is significant. When s 69I(2)(c) is read alongside s 69N, it is clear that the result is to shift the cost of redundancy from the old employer to the new employer. But the purpose of the provision is to make it clear that for a transferring employee, election to transfer is an alternative to becoming redundant, and so the benefit for the old employer is that the transfer of their employees to the new employer, with the intention that they will keep working for the new employer, absolves the old employer from having to bear the cost of making the employee redundant.

[31] Pacific argued before us that the disclosure regime contained in subpart 2 allowed a potential new employer to obtain details in advance of all the potential employment costs arising from a transfer. This, Pacific submitted, showed that Parliament intended that these costs could be factored into the new employer’s tender for the contract giving rise to the restructuring. We accept that the disclosure regime is a recognition that the new employer needs to have information about the costs associated with the transferring employees, which can be seen as an indication that the new employer will bear those costs. But we do not see that as a decisive indicator that the old employer has no liability in respect of transferring employees.

[32] Standing back and looking at Part 6A as a whole, it is clear that the intention is to preserve the ongoing employment of vulnerable employees at the time of a restructuring if that is at all possible, and to do so in a way that is seamless from the employees’ point of view. That involves preserving all entitlements and allowing the transferring employees to treat their period of employment with the old employer and the new employer as if they had been employed throughout by the same employer. That regime places responsibility on the new employer so that the transferring employee now looks to the new employer for his or her entitlements.

[33] In the absence of anything indicating to the contrary, there is no reason to believe that Parliament intended that the old employer maintained some ongoing responsibility to the transferring employee, such that the transferring employee could look to the old employer for payment in the event of a failure to pay by the new employer. There is not, as the Judge held, some form of statutory guarantee by the old employer of the new employer’s obligation. Nor is there anything that indicates a Parliamentary intention that the old employer should be liable to the new employer in relation to pre-transfer entitlements. That seems to be something of a lacuna in the legislation.

[34] There was evidence before the High Court that the practice that has arisen in the cleaning industry is that the old employer pays to the new employer at the date of transfer a lump sum reflecting a present value calculation of future pre-transfer entitlements for transferring employees. This is presumably done on the basis that the old employer in one transaction will be the new employer in the next, and that it is in everyone’s interest to have an equitable regime. Pacific has not agreed to that type of arrangement, presumably because it does not see itself as a 'new employer' in future transactions.

[35] There is now a Bill before Parliament which would provide for a default position that, if the parties do not agree otherwise, the old employer will be required to pay an amount to the new employer to reflect the obligation taken on by the new employer for certain pre-transfer entitlements of transferring employees.[18] The fact that Parliament has seen it as necessary to do this would appear to support the proposition that the present legislation fails to do so.

[36] Mr Skelton argued that, even if we were to determine that the old employer did not have an ongoing liability to transferring employees for pretransfer leave entitlements, nevertheless we should find that the old employer still has a liability of the kind required to meet the fourth requirement of the cause of action. He said that the purpose of Part 6A is not to give a windfall to an employer, but rather to protect employees. In order to ensure this protection was effective, it was necessary to ensure that the employee could claim for pre-transfer entitlements not only against the new employer but also against the old employer in the event of a failure of the new employer.

[37] Mr Skelton said this was similar in concept to a minor’s contract where a creditor can sue the guarantor of the contract even though they cannot sue the minor. We do not see that as an apt analogy in this situation, nor do we see anything in Part 6A that supports the idea that there is a continuing guarantee by an old employer and a right of subrogation arising on the part of the new employer who meets the pre-transfer entitlement of transferring employees.

[38] Mr Skelton also pointed out the odd consequences arising from the lacuna in the legislation. He said in the present situation, Singapore Airlines would effectively pay twice for the cost of the pre-transfer entitlements of the transferred employees. He said those costs would have been reflected in the price paid for services to Pacific during the term of Pacific’s contract, and they will have to be paid for again to LSG. He also pointed out the perverse incentives that this gave to incumbents facing competition in a tender process in relation to disclosure. He said this was reflected in what he argued was the improper conduct by Pacif

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ic in relation to the present case, where it had significantly overstated the value of the pre-transfer entitlements of the transferring employees and has still not provided an accurate calculation to this day. [39] We accept that there are some undesirable aspects of the current legislative position, but those are, of course, matters for Parliament and, indeed, are currently being addressed by Parliament. We do not see them as bearing on the outcome of the present appeal. [40] We conclude that under Part 6A an old employer does not have any obligation to pay for pre-transfer entitlements that have accrued to its former employees who have transferred to a new employer under Part 6A. Result [41] As the fourth element of the cause of action relied upon by LSG is not satisfied, and its claim should therefore fail. Accordingly, we allow the appeal and set aside the High Court decision. Costs [42] Costs should follow the event. We award costs to Pacific for a standard appeal on a band A basis plus usual disbursements. We certify for second counsel. [43] The costs award in favour of LSG in the High Court is quashed. Costs in the High Court should be redetermined in accordance with this judgment. 1. LSG Sky Chefs New Zealand Ltd v Pacific Flight Catering Ltd [2012] NZHC 2810 [High Court judgment]. 2. References to Parts, subparts, sections or Schedules are to Parts, subparts, sections or Schedules of the Employment Relations Act 2000 unless stated otherwise. 3. See s 69F(i)(a) and Schedule 1A. 4. Restructuring includes subsequent contracting, 'Subsequent contracting' is in turn defined in s 69C(4) and covers this case. 5. Section 69OA. Employee transfer costs information includes the number of employees who would be eligible to transfer, the wages or salary payable to those employees, the total hours the employees spend in a period performing the work that would be subject to the restructuring, and the cost of any service-related entitlements and any other entitlements of the employees. 6. Employment Relations Amendment Bill 2013 (105–1). See [35] below. 7. Halsbury’s Laws of England (5th ed, 2012) vol 88 Restitution at [463]. 8. High Court judgment, above n 1, at [40]. 9. At [49] and [56]. 10. At [52]. 11. At [54]–[55]. 12. At [57]. 13. At [58]. 14. At [66]. 15. See the statement of the law from Halsbury’s Laws of England quoted at [15] above. 16. Bonner v Tottenham and Edmonton Permanent Investment Building Society [1899] 1 QB 161 (CA) at 175. 17. Brook’s Wharf and Bull Wharf Ltd v Goodman Brothers [1937] 1 KB 534 (CA) at 544. 18. Employment Relations Amendment Bill 2013 (105–1), cl 35.
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