Well Worth The Money! By Kim Leighton

Updated: May 23, 2020

Other media have carried complaints recently about the charges of private lawyers for conducting employment cases - Dyhrberg Drayton running up a bill of $250,000 to the New Zealand Nurses Organization or Mark Beech and Holland Beckett charging $240,000 to the Bay of Plenty District Health Board for delaying a court case for four years – a case which finally got going last year, with Beech still at the helm for the Bay of Plenty DHB.

But employment lawyers have done a lot for New Zealand business. Their expertise is as convenient as international finance lawyers’. One of the world’s most famous money-launderers, formerly a high-ranking Crown counsel, has been working solidly on employment law in Tauranga for about a decade, though we don’t know how much input he, or any individual, has had into the developments discussed here.

The specialist elements of employment law have been built up over time, sometimes involving a lot of risk for the lawyers involved. Because it is new law, it is only now becoming possible for us to talk about it.

Lawyers making and protecting wealth in New Zealand

New Zealand is well known globally as a country with a reputation for political stability and lack of corruption. Its lawyers, accountants and businessmen have long assisted wealthy New Zealanders, and individuals from all over the world, to invest and safeguard their wealth without damage to the reputation of either professionals or clients.

What they have needed for that is secrecy. That can lead to the perception of corruption, unless the country has appropriate rules of transparency. New Zealand has all the necessary legal provisions, such as the Official Information Act 1982, the Local Government Information and Meetings Act 1987, the Privacy Act 1993 and the Protected Disclosures Act 2000.

Nevertheless in 2012 New Zealand was – temporarily - removed from the European Union’s “white list” of countries for investment business, along with Russia. That removal was a huge risk to overseas investment business in New Zealand, which relied on the reputation for clean operations and freedom from corruption. In 2009 it had even passed the Anti-Money Laundering and Countering Financing of Terrorism Act.

New Zealand company law was changed so that from 2015 companies needed to have at least one director living in New Zealand. Directors could no longer just say they relied on lawyers’ “advice”, and the Registrar of Companies could check documents and information and pass them to the regulatory authorities.

This obviously presented difficulties. Clients who required serious confidentiality about their finances could no longer be offered protection for their privacy using company structures, and other means had to be found.

The need for secrecy: overseas and domestic solutions

Some other routes to secrecy remained, especially using lawyers.

Lawyers have the benefit of solicitor-client privilege, and both lawyers and accountants may have the benefit of privilege for their tax advice documents. Privilege is the right of a client to refuse to let anyone, even government authorities or courts, see the papers their lawyer has about them.

The solution for overseas clients making overseas investments was to use foreign trusts, rather than companies. The New Zealand authorities have access to information about these but are not interested in overseas clients deployng overseas money. Foreign authorities can inquire, but they have to know what they are asking about, because there is no public register.

The quest was to ensure an equivalent for New Zealand-based transactions. Secrecy is very useful for clients who wish to keep their personal finances private, or even hermetically sealed, if, say, they are high-profile figures.

As with overseas transactions, there is also a risk that the transactions will not necessarily be entirely honest, but that is the same with foreign trusts. Sometimes clients do not tell their lawyers everything, and there are even lawyers who are not entirely honest, but these are everyday risks.

One solution was found within the employment jurisdiction, which had already been developing methods of keeping transactions secret.

Employment law is different

Employment law has always been different from general law because it involves employers holding power over employees. In most countries, and under the common law, this difference means that employers generally cannot enforce employment contracts literally.

In New Zealand however the separate employment jurisdiction has developed in entirely the opposite direction, so that the power imbalance is now acknowledged by recognising the power and rights that employers wish to obtain from the employment agreement.

That acknowledgement has been put into practice in the dispute resolution process. This process has built on foundations of confidentiality in Human Resources practice. It has developed the focus on suppression within its tribunal and court processes. Normal justice processes require openness unless there is a very good reason against it, but employment is different, and secrecy is a strength of the New Zealand infrastructure.

All employment cases that are not resolved in mediation first of all go to the Employment Relations Authority. This is staffed by MBIE “Members” who are employment lawyers or HR managers. They were originally expected to resolve problems informally but instead developed a fully legalistic process. This is often stricter than the Employment Court process, which is governed by statutory procedural regulations.

Cases go to the Court if either party is dissatisfied with the Authority’s determination, though generally only employers can afford to take a case further than the Authority.

But the first step in dispute resolution is confidential mediation, which MBIE provides free. MBIE officials have been pioneers in developing their powers to assist employers and managers to achieve private resolution to problems, and then to ensure that private resolutions are adhered to. Through that enforcement role, MBIE has developed a powerful – and secret – process with a potentially wide application, available to almost anyone.

Statutory and developed suppression

The Employment Relations Authority and Employment Court are part of a statutory jurisdiction, which means everything is set up under Acts of Parliament.

The Authority and Court are allowed by statute to publish their determinations and decisions without the names of people involved if they make a non-publication order. On the same basis, statute allows them to withhold publication of evidence and pleadings (the documents that shape court proceedings).

They developed this limited power into one that allowed them to order the suppression of information that might identify parties. This drew for its substance on equivalent suppressions in criminal and family law. These orders can be seen on the cover sheet of determinations and decisions. Although there is no statutory authority as such, no-one objected to these orders, even when they were extended to the suppression of documents, particularly settlement agreements.

Employment settlement agreements are made where an employer and employee end the employment relationship by negotiation. They traditionally might involve the payment of money from the employer to the employee to settle any claims the employee might make against the employer, but parties can put whatever they like in a settlement contract.

New Zealand has an unusual legal provision that applies where a government mediator signs off a settlement contract. It says that a signed-off settlement contract is final, binding and enforceable, many of the usual legal provisions for cancelling contracts are not available, and the terms of the contract can only be brought before the Authority or the court for enforcement.

This is the easiest route into making and suppressing secret transactions. Mediators automatically insert a “confidentiality” clause, and have signed off transactions that are far from routine: their only duty is to ensure that the parties say they understand the effect of the sign-off in making the contract unquestionable and enforceable.

These secret contracts also routinely include payments for the lawyers concerned, and it is not unusual for the employer to pay the employee’s lawyer as well. Mediators have also signed off documents which have agreements benefiting people who are not involved in the employment relationship or even made by such people.

The combination of these provisions can be seen in the published Authority reports, now routine, by which parties identified by random letters are granted suppression orders for their “settlement” contracts.

Suppressing crimes

Using employment settlement contracts to cover up potentially criminal conduct was apparently developed in the UK by commercial lawyers for private employers. They paid employees to remain silent, often about sexual harassment. If the employee talked about the sexual abuse, they would be in breach of the contract, and in theory could be required to repay the money.

The #MeToo movement and treating sexual harassment at work as a crime raised unexpected difficulties for the lawyers who had negotiated such contracts, sometimes decades later.

A contract under which one party agrees to pay money to a witness to a crime in return for the witness withholding information from the police and the courts is an example given in the New Zealand legislation of an illegal contract. Illegal contracts are ineffective and cannot be enforced, and perverting the course of justice is also a crime, but a contract signed off by a government mediator is enforceable by statute.

A contract to commit a serious crime is also given as an example of an illegal contract in the New Zealand legislation. Concealing evidence is a serious crime. A lawyer who drafts a contract requiring a witness not to report a crime to the police, and arranges the payment of money for that, both parties and any lawyers involved could be guilty of perverting the course of justice, and the contract would not be valid, but for the provision by which a mediator’s sign-off makes a contract binding and enforceable.

In New Zealand, this sign-off allows such contracts to be used to suppress documents as well. The tribunal and court process also accepts and enforces agreements to make or replace documents. Once the contract is signed off by a government mediator, it can be enforced even if it is illegal. This should effect a complete and enforceable coverup of any transaction that can be brought within the terms of the settlement, which by law cannot be questioned.

Potential problems

Of course managers do not use employment settlement contracts just to cover up document fraud. Some settlements are quite genuine. In other cases the issue is personal harassment.

In cases of settlements that are intended to do more than resolve an employment relationship problem to the satisfaction of both parties, the problem is sometimes a whistleblower who threatens to expose the matters that need to be suppressed, whether they are financial fraud or personal excesses. Such a person also needs to be silenced.

People will not always agree to sign away their rights, but the secrecy of the New Zealand process also offers free and confidential meetings with a mediator from MBIE behind closed doors. MBIE encourages lawyers to attend, and licenses certain lawyers to act for government employers. The employee can be reminded of the employer’s rights and power, which include engaging the skills of lawyers to get what it wants.

Lawyers such as Steph Dyhrberg or Mark Beech have been criticised publicly for their robust approach to ensuring that the employee signs as required. This criticism should not have happened, because the lawyers expect the benefit of confidentiality and privilege. This was given to offers to settle but has also been developed by the employment jurisdiction to apply to the mediation itself, as well as being routinely applied to the settlement document.

In a public sector entity, the settlement should also ensure future inquiries do not raise questions. Any payout should be described as future salary, with the employee resigning at a future date. This has no effect on tax considerations but means that no payout as such needs to be recorded except a payout for hurt feelings, which are tax free. For small organisations it is particularly useful if tax-free payouts are avoided, because it is then possible to record the lawyers’ expenses as general HR expenses. This means the need to make accounting provision for future payouts is reduced or removed and there will be no record indicating real HR problems either.

Provided the settlement is carefully worded, it can ensure that internal evidence of such real problems is suppressed or removed. It is helpful if the employee’s lawyer hands over any problem evidence the employee holds during the mediation itself. The lawyers can claim privilege, mediators cannot be called to give evidence about what happened in mediation and the clients will be legally gagged.

Consolidating in mainstream jurisdiction

There are difficult employees, especially those from overseas or who are politically motivated. They particularly need to be silenced, but to maintain New Zealand’s reputation, the silencing itself must be suppressed. This means suppressing the potential whistleblower including after they have left the employment.

The most effective way to silence them is to ensure that they do not work again. This is relatively easy in the health or education sectors, which are largely public, and enable the widespread but “confidential” circulation of information.

Getting an employee to sign a contract that will give the employer the requisite powers generally requires their lawyer’s cooperation. Where the employer is determined to win, will pay lawyers whatever it takes and will use any means possible, it becomes sensible for an employee’s lawyer to advise the employee of that, and to agree with the employer’s lawyer that fighting the employer will necessarily lead not merely to the loss of a career but also to bankruptcy. Many employees cannot stand the strain personally and may take their lives.

Developing the mediation process to accept this, and sign off the contracts, involved some true pioneers.

Case study: covering up and enforcing crimes

Dyhrberg Drayton took part in procuring one of the early such contracts, working with the employer’s lawyer Geoff Davenport and with Peter Cullen, Helen Cull QC and Karen Radich. These were private lawyers engaged by the managers of Dyhrberg Drayton’s employee client. The managers needed suppression of HR and financial records, about themselves and others as well as the employee, all within a public sector body.

A vital part of Dyhrberg Drayton’s work for the employer, while still being paid by the employee, was to agree in advance to hide all mention of Helen Cull QC’s involvement, in case this was not legalised. The employee, Caroline Sawyer, was advised by Dyhrberg Drayton to work at a different site while Helen Cull QC and Karen Radich ran an “investigation” using as many of the faked records as possible, including a faked “email relationship” between one manager and the employee, which included personal remarks about Helen Cull QC herself.

It was not then certain that the employment jurisdiction would enforce or even allow perverting the course of justice or fraud. The lawyers are to be congratulated for their pioneering work when it was a serious potential risk to their own careers.

Caroline Sawyer picked up that Dyhrberg Drayton were not following her instructions to protest about faked records, but luckily for them when she went to Bartlett Law instead, Penelope Ryder-Lewis agreed to complete the process. Dyhrberg Drayton sent Penelope Ryder-Lewis the faked records they were secretly holding and Penelope Ryder-Lewis secretly sold them to Geoff Davenport, advising her client to sign a carefully-worded settlement contract to prevent Geoff Davenport using the records to destroy her entire career.

When Caroline Sawyer unexpectedly brought proceedings because the fake documents were used anyway, it must have been a worrying time for the lawyers involved. There was a risk that the faking of documents would not be accepted either as a means of personnel or contract management or as an acceptable way of dealing with accounting and financial records.

However the Authority confirmed that a mediator’s sign-off meant a contract was legally enforceable as a statutory instrument, and it decided to adopt powers to fine for breaching it by exposing offences by managers.

Judge Smith, after a hearing where evidence of faking over several years was acknowledged, confirmed that a mediator’s sign-off meant anything in the document was legally validated including agreements to suppress evidence, and that those agreements are enforceable. He did not mind that there was no actual settlement or that the name on the document was wrong or that it was not signed by an authorised representative for the employer.

The validity of such employment orders was also accepted by Judge Christine Grice of the High Court. As a former President of the Law Society and former Judge in the Cook Islands she would be well aware of the implications for lawyers’ professional obligations and even for Anti-Money Laundering processes. The Cook Islands are an important contact in New Zealand’s offshore wealth protection industry.

It was particularly useful that Judge Grice accepted, for the New Zealand High Court (where Helen Cull is now Justice Cull), that the mainstream New Zealand jurisdiction can now be overridden by a contract made in the employment jurisdiction. Also vital was Justice Grice’s acceptance that the lawyer who negotiated the contract, although he was not party to it or named in it, was protected by it as well.

Appeals from the Employment Court go to the Court of Appeal. Even before the judgment of Justice Grice, leave to appeal was refused to Dyhrberg Drayton’s client and another employee, “ITE”. He too had been “advised” to sign a contract requiring the handover of evidence. It also had a provision enabling the employer to continue billing him until it could bankrupt him.

These decisions consolidated not only the power of the separate employment jurisdiction but the special legal rights of employers and their managers over employees. Only a loser in that jurisdiction would begrudge the lawyers, public servants and judges concerned their awards of financial compensation and public recognition for their pioneering work in extending the power and usefulness of New Zealand’s legal system.

Third parties: the universal jurisdiction of the employment process

The development of suppression was crucial, as was its extension to suppress accounting and other records. However the last crucial step was for the employment process to obtain jurisdiction over third parties i.e. anyone.

It would be no good to suppress or remove an employee’s evidence that documents were fake or offences had been committed, and stop them talking about it or reporting it to the authorities, if the employee might report it to the authorities anyway, or they might realise what had been done through some other process such as audit, or when investigating a third party complaint.

The earliest recorded agreement of the police to “respect” the suppression of evidence of false accounting and forgery related again to Geoff Davenport. In the case mentioned above, he was assured by Inspector van den Heuvel of the Wellington Police fraud team that the police would not investigate, or even record, reports of crime by the employee, Caroline Sawyer, which related in any way to her former employer or anyone connected with them. However by definition these suppression agreements with the regulatory authorities are themselves secret.

The high ranking from Transparency International that makes New Zealand such a good place for investment should not worry investors who deal with employment lawyers. The employment lawyers have ensured that the system is the opposite of transparent.

Although they will not confirm directly (and it is hardly to be expected in this “anti-corruption” environment), the Privacy Commission, Ombudsman, Auditor-General and Serious Fraud Office, as well as the Police, all appear also to consider themselves bound by the mediator’s sign-off.

The Law Society has similarly accepted that different professional obligations apply in employment cases. Normally lawyers are bound by the Rules of Conduct, which are made by Parliament. In employment cases, the process is run under employment rules.

Case study: pioneers in third party enforcement in a three-pronged attack

A long-serving member of the Law Society’s Standards Committee, which by statute deals with lawyers’ misconduct, was Samuel Hood of Norris Ward McKinnon. He sat as a member of a Standards Committee for nine years.

He also helped establish the use of mediators’ sign-offs against third parties in a series of cases against an employment advocate also from Hamilton, Allan Halse.

In at least seven Authority determinations and three Court hearings in the same case, Samuel Hood established that a mediator’s sign-off gave the employer power to suppress the advocate, not just the employee. The Authority made ordered suppression and fines against Allan Halse, whose client had made a settlement contract with a “non-disparagement” clause in, because he continued to criticise Samuel Hood’s employer client publicly.

The Authority also claimed that Allan Halse’s own clients, past or future, could be fined for associating with him. Judge Perkins supported that, though without actually fining any client. He also warned that people could be sent to prison, which Samuel Hood also asked for but did not get.

Judge Perkins imposed a fine Allan Halse was able to pay, but a few months later in March 2019 the Authority imposed a sufficient fine to close the business.

A similar fine had already been imposed on Allan Halse in similar circumstances in a case brought by a colleague of Samuel Hood, Auckland lawyer Anthony Drake from Wynn Williams.

In July 2018 the Authority Chief found that Allan Halse and a contractor of his company, Tracey Simpson, had criticised Anthony Drake’s client, including in reports to government Ministers and letters to Anthony Drake. The Chief imposed heavy fines on Allan Halse. The fines are also payable by Allan Halse’s company and one of his contractors.

Some of the money the Authority Chief required Allan Halse to pay Turuki was “general damages”, which means he had developed a jurisdiction in “tort” as well. This was quite a step forward in power for an MBIE employee.

The Authority Chief’s fines and damages were upheld by Judge Perkins and in 2020 Anthony Drake issued a bankruptcy notice against Allan Halse. This would leave his business to be liquidated and his former contractor to be pursued for the money instead.

These cases were important for establishing the developed power of the Authority to impose fines and damages against anyone associated with an employment situation and to enable lawyers to close down the businesses and livelihoods not just of employees but anyone who supported them.

The innovation of Mark Beech was to have the Authority do that without any supporting sign-off,

Mark Beech had the Authority itself order suppression of both client and advocate, in a case where Allan Halse represented a former employee of the Bay of Plenty DHB trying to bring a grievance claim.

The Authority member ordered Allan Halse and his client, Ana Shaw, not to contact or comment about the former employer or its staff and to comply with her orders. This established that these MBIE employees have power to override the Bill of Rights Act.

Ana Shaw posted photographs of her former boss “stalking” her at work on her private Facebook, and Allan Halse protested the same way on the CultureSafe Facebook. He had also previously written a letter to the same man asking him to settle the case. Ana Shaw took part in a RNZ programme about the DHB.

The DHB sent Mark Beech to claim fines, damages and imprisonment.

It can be seen the lawyers have all been following the instructions of public sector bodies and managers, who are well able to arrange proper payment for that development work.

The work has now been confirmed as legal and valuable by the Authority and the Court. The position offers substantial benefit to private employers and investors as well as public sector managers, and the lawyers cannot reasonably be criticised for charging for it.

Layering of suppression in the employment jurisdiction

What anyone reading the cases will see is that they all work by layering legal actions over each other, and so really do require legal input to carry through. Lawyers also have the advantage of legal privilege.

First of all the obligation or transaction that is to be suppressed is created, in private. There may still need to be a connection to employment to place it in the employment system, but it does not need to be an employment matter as such. In the developed jurisdiction, the connection can be very distant. However, for private transactions this is not an issue.

For example, to remove money from a public service body, Mr X the manager can sign out $100,000, preferably from a discretionary account, in the name of the body, to be paid to Mr Y to settle an unspecified problem, and have it signed off by MBIE. There is no need for Mr X and Mr Y to attend a meeting as MBIE will do the sign-off on line. This sort of “settlement” deal should require the suppression of all documents leading to the settlement, and should itself be suppressed by the Authority on a routine application.

To move a sum privately, Mr Z should engage the services of Barrister D to represent Z Ltd. It costs about $110 to set up a company. The settlement could require Z Ltd to transfer a capital sum, or the contents of a numbered account into another numbered account, or to pay invoices that Mr Z will present in future. Barrister D, who will have no trust account and no AML reporting requirements, will retain the papers subject to legal privilege. Again, the settlement should have full suppression.

If Mr Z works for the same entity as Mr X, it might also be possible to provide that Z Ltd can invoice that entity for the bills. Once the document is suppressed, it can be used only for enforcement.

In the case of a potential whistleblower employee whom Mr X and Mr Y wish to damage, they can obtain the employee’s signature on a document signed off by a mediator, but this is no longer necessary either. The employee can just be sacked, including on the basis of fake records. The entity can hire a lawyer to do it, who should not be told directly that the records are fake. The records should be destroyed so that they cannot be produced and shown to be fake. If the employee protests, they can be sued for breach of the duty of confidentiality that will be found in any employment agreement, and costs orders can be obtained in order to bankrupt them.

Following especially the developments made by Mark Beech, the predicate obligation can be obtained for a third party. The Authority may make a direction or order against the advocate or agent of an employee or former employee, for breaching a former employee’s “settlement”, including “non-disparagement” provisions, or for aiding and abetting a breach of “confidentiality” in an employment agreement. The aiding and abetting provisions mean that employers can now seek suppression orders about anything they do.

Where someone needs to be gagged, the Authority may simply make a direction or determination forbidding something the third party, or the employee they associate with, is likely to go on to do. Even before the judgment of Justice Grice, the Authority had extended its powers to include ordering a former employee not to give evidence to the High Court against their former employer.

The layering comes into operation once an obligation, direction or order has been established that the Authority is willing to enforce.

The Authority can order “compliance” with the obligation, direction or order.

A “compliance order” brings into play a statutory power to impose fines. Although these are fairly limited, they can be multiplied by bringing in further third parties, or by imposing them for each occasion of “breach”.

The Authority has also accepted the power to order general damages, so in breach of suppression cases it may also order, in effect, the equivalent of libel damages.

The Authority may also order costs, including “uplift” and “indemnity” awards.

Although orders for costs against those who have already had their careers ruined through reputational harm, using the fake records, or who are being bankrupted, are pointless in themselves, they are important in recognising the importance and validity of the lawyers’ work. Luckily the lawyers do not run any risk. They do not rely on payments from the employees or third parties, but get paid by whoever engaged them.

Lawyers deserve their payments

The lawyers’ work was a risky process. If the Employment Court had not validated the enforceability of illegal contracts in the employment jurisdiction, or the High Court had not accepted the supremacy of the Employment Court to validate or enforce false accounting and fraud, or even if the Law Society had not allowed the lawyers to develop the employment jurisdiction to do all that, the lawyers as well as managers might have found themselves held liable for years and years of serious offences.

Only the losers would begrudge them a few hundred thousand dollars for their trouble each time.

480 views0 comments