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Accident Compensation Cases

Gapuzan v Pratt & Whitney Air New Zealand Services t/a Christchurch Engine Centre (EMC, 11/11/14)

Judgment Text

Judge B A Corkill
This judgment decides two applications. The first is made by the defendant. The orders it seeks are: 
That the remedies sought by the plaintiff in paras 55(a), (c) and (d) of his fourth amended statement of claim be dismissed on the basis that these remedies vested in the Official Assignee under s 101 of the Insolvency Act 2006 (IA), and that upon the plaintiff's bankruptcy the Official Assignee determined that there was no merit in pursuing such remedies in this Court. 
That the remedies sought by the plaintiff in para 55(b) of his fourth amended statement of claim be dismissed on the basis that they are frivolous and/or vexatious under cl 15 of sch 3 to the Employment Relations Act 2000 (the Act). 
That as a result of the above dismissal of remedies, the fourth amended statement of claim be struck out pursuant to ss 162 and 221 of the Act and reg 6 of the Employment Court Regulations 2000 (the Regulations). 
That costs in relation to the application be fixed, and that the sum of $2,000 held as security for the costs awarded by the Employment Relations Authority (the Authority) be paid to the defendant. 
The plaintiff's application seeks leave to amend the fourth amended statement of claim. The application asserts in summary: 
He should be permitted to seek a penalty under s 149(4) of the Act, it being contended that a penalty is payable to the Court and not the plaintiff under s 136(1) of the Act. 
Alternatively, it is asserted that the alleged breach by the defendant of a settlement agreement between the parties resulted in Mr Gapuzan being denied treatment, rehabilitation and cover for injury by the Accident Compensation Corporation (the Corporation). A claim relating to such a breach is a claim personal to the plaintiff as a bankrupt. The right to claim a penalty for such a breach would not vest in the Official Assignee, and Mr Gapuzan should be permitted to pursue it. 
This matter has been the subject of three previous interlocutory judgments. The first of those interlocutory judgments provided a convenient summary of the background to Mr Gapuzan's claims.1
| X |Footnote: 1
Gapuzan v Pratt & Whitney Air New Zealand t/a Christchurch Engine Centre [2013] NZEmpC 158Has Litigation History which is not known to be negative[Blue]  [First interlocutory judgment]. 
That summary is as follows: 
The plaintiff is an aircraft engineer. The defendant is a joint venture between Pratt & Whitney and Air New Zealand to service aircraft engines. The plaintiff was employed by the defendant in its facility at Christchurch Airport. That employment began in January 2006. 
From 2008, the plaintiff had complained of pain in his left elbow which was diagnosed as epicondylitis. In early 2011, the plaintiff began working in what is known as the CX area. Before he did so, an assessment of the work involved was carried out and it was agreed that the work involved little or no risk of aggravating his condition. 
Beginning in early 2011, the plaintiff began to experience pain in his right elbow. The plaintiff believed his symptoms were related to his work and, in about October 2011, raised a personal grievance alleging that the defendant had failed to provide him with a safe workplace. 
On 5 December 2011, the plaintiff made a claim for accident compensation in relation to his right elbow. In response to that claim, the Accident Compensation Corporation (ACC) provided a standard form questionnaire for the defendant to complete as the plaintiff's employer. It appears the form was given to the plaintiff on or about 7 December 2011 but he did not pass it on to the defendant until some time later. 
On 14 December 2011, the plaintiff was examined by an occupational medicine specialist, Dr Souter, who provided a report to the defendant. The plaintiff's immediate manager, Brett Crackett, then completed the ACC questionnaire on 19 December 2011. In answer to one of the questions, Mr Crackett ticked a box to indicate that he did not agree that that the plaintiff's injury was caused by his work. 
On 20 December 2011, the parties met with a mediator from the then Department of Labour. At that meeting, they agreed terms of settlement which were signed by them and by the mediator pursuant to s 149(3) of the Employment Relations Act 2000 (the Act). The terms of settlement provided that the plaintiff would resign the following day, that he would receive substantial payments from the defendant and included the following terms: 
Having attended mediation and resolved their employment relationship problem, Rosauro and CEC undertake that when speaking of each other to third parties they will do so in positive or neutral terms. 
This is the full and final settlement of all matters between CEC and Rosauro arising out of their employment relationship and its termination including but not limited to all or any statutory entitlements except as herein provided. ’”
The plaintiff duly resigned on 21 December 2011 and the payments provided for in the terms of settlement were made. 
Although he had completed the ACC questionnaire on 19 December 2011, Mr Crackett did not send it to ACC immediately. It is suggested that this was because he believed that the plaintiff's resignation meant that no further action was required. 
On 9 January 2012, ACC declined the plaintiff's claim and the plaintiff became aware that the defendant had not returned the employer questionnaire to ACC. He contacted the mediator who contacted the defendant's Human Resources Manager on 10 January 2012. She arranged for the questionnaire to be sent to ACC that day. ACC then reviewed the plaintiff's claim in light of the answers given in the questionnaire and confirmed its decision to decline the claim. ”
It is also relevant to mention that on 23 August 2012, a Reviewer dismissed Mr Gapuzan's application for review in respect of the Corporation's decision. The Reviewer held that medical evidence showed Mr Gapuzan's right elbow epicondylitis was unlikely to be a gradual process injury caused or contributed to by his employment.2
| X |Footnote: 2
Application for Review by Rosauro Gapuzan 485092, 23 August 2012 [ACC Review decision]. 
Procedural matters 
The procedural background to the application now made is as follows: 
“In the first interlocutory judgment of 29 August 2013, certain paragraphs of the second amended statement of claim were struck out; leave was granted to Mr Gapuzan to file and serve any further statement of claim.3
| X |Footnote: 3
First interlocutory judgment, above n 1. 
In the same decision an application for an order for security for costs was dismissed, the Court noting however that the plaintiff had paid $2,000 into Court on account of a costs order made by the Authority.4
| X |Footnote: 4
The Authority had dismissed the plaintiff's claim following an investigation meeting, Gapuzan v Pratt & Whitney Air New Zealand t/a Christchurch Engine Centre [2012] NZERA Christchurch 115Has Litigation History which is not known to be negative[Blue] ; and subsequently in a costs determination ordered him to pay the defendant $2,000 for costs, Gapuzan v Pratt & Whitney Air New Zealand t/a Christchurch Engine Centre [2012] NZERA Christchurch 146Has Litigation History which is not known to be negative[Blue] 
In the second interlocutory judgment of 12 February 2014, the Court considered an application to strike out paragraphs of the third amended statement of claim.5 Again, certain paragraphs were struck out. Mr Gapuzan was granted leave to amend the remedies sought by way of a further amended statement of claim. This resulted in the filing and serving of the fourth amended statement of claim on 21 February 2014. 
Mr Gapuzan was adjudicated bankrupt on 30 May 2014. Pratt & Whitney applied for a stay of a fixture which had previously been scheduled for hearing on 14 -16 July 2014. Because the Official Assignee required time to evaluate the merits of the claim and confirm whether he would discontinue any aspects of the claim and/or whether any of the claims were personal to the bankrupt, the Court ordered that the fixture be vacated. The proceeding was stayed until further order of the Court to enable the issues arising from the bankruptcy to be dealt with.6 ”
Pratt & Whitney has now filed the application for strike-out which I described earlier, supported by evidence and submissions. Counsel for the Official Assignee helpfully filed a full memorandum setting out the conclusions the Official Assignee has reached as to Mr Gapuzan's claims. Mr Gapuzan has filed a notice of opposition to the defendant's application for strike out; it is supported by an affidavit. 
Two discreet issues arise from Pratt & Whitney's application. The first relates to the decision of the Official Assignee that he does not wish to pursue any of the claims or remedies which have vested in him; the second is the contention that the balance of the proceeding is frivolous and vexatious. Each raises different issues which require separate consideration. 
The fourth amended statement of claim 
Since the fourth amended statement of claim provides the starting point for the applications which are before the Court, it is necessary to summarise its content. Mr Gapuzan alleges: 
Pratt & Whitney did not file the Corporation's Form 273 Employer Work Injury Questionnaire in a timely way, with the result that the Corporation declined the claim because such information had not been provided. 
When the Corporation did receive the questionnaire, it contained allegedly false and misleading information, namely the denial that Mr Gapuzan's injury was work related. This resulted in the Corporation declining the claim for cover and treatment. 
It is alleged that attached to the employment questionnaire was a report of 14 December 2011 from an occupational specialist, Dr Souter, which contained misleading information; it is alleged that it was misleading on the part of Pratt & Whitney to have submitted this information to the Corporation. 
Further misleading information is alleged to have been provided in the form of an outdated ergonomic risk assessment, completed almost a year prior to the injury reported by Mr Gapuzan. 
It is alleged that Pratt & Whitney failed to provide Mr Gapuzan with the results of certain workplace assessments that were carried out in December 2011, contrary to statutory obligations alleged to exist under the Health and Safety in Employment Act 1992. 
Finally, it is alleged that the foregoing acts and omissions constitute bad faith on the part of Pratt & Whitney because they were deliberate and wilful. It is alleged that this was to ensure that Pratt & Whitney's experience rating classification would not be affected to its detriment.7
| X |Footnote: 7
Pursuant to s 169(2) of the Accident Compensation Act 2001 and the Accident Compensation (Experience Rating) Regulations 2011. 
The pleading goes on to assert that the issues are: 
The defendant's deliberate and wilful failure to send the employer questionnaire in a timely and effective manner is a breach of agreed terms of the settlement. 
Not providing ACC with vital information on the plaintiff's injury is a breach of the agreement to speak to the third party in positive or neutral terms. 
The defendant breached the agreement by denying that injury is work-related and provided false and misleading answers to the questionnaire submitted to ACC. 
The defendant breached the agreement by submitting false and misleading documentary [evidence] to ACC and the Authority. ”
Then follows para 55 which is the subject of the applications that are now before the Court. It describes the relief sought as follows: 
For the breach of the agreed terms of settlement, penalty imposed under s 149(4) of the Employment Relations Act 2000 (the Act). 
For acting in bad faith resulting to the denial of the plaintiff's ACC claim, award for damages in the amount of $50,000 pursuant to s 123(1)(c) of the Act due to significant injury to feelings, significant pain and suffering, humiliation, loss of dignity and loss of benefits which the employee might reasonably have been expected to obtain. 
Reimbursement to the plaintiff in accordance with s 123(1)(b) of the Act of a sum equal to the whole or any part of the wages or other money lost as a result of the defendant's actions. 
Punitive or exemplary damages due to the defendant's wrongdoing, flagrant and malicious disregard of the plaintiff's rights and interest and fraudulent and misleading declaration and evidences to ACC and the Authority. ”
The Official Assignee's conclusions 
The Official Assignee submits through counsel that the claims described in paras 55(a), (c) and (d) are claims which constitute “property” under s 3 of the IA which vested in him on adjudication under s 101 of that Act. The Court is also informed that the Official Assignee does not wish to pursue any of the claims or remedies that have vested in him by virtue of Mr Gapuzan's adjudication. 
Although s 217(2) of the IA provides that under sch 1, cl (b) of that Act, the Official Assignee can “ … discontinue … legal proceedings relating to the property of the bankrupt”, the Official Assignee has not formally sought to discontinue the specified remedies originally claimed by Mr Gapuzan; rather the defendant seeks an order dismissing the claims which the Official Assignee considers have vested in him. 
It is accordingly necessary for the Court to consider whether those conclusions are correct. 
Counsel for the Official Assignee records that all of a bankrupt's property vests in the Official Assignee on adjudication;8
| X |Footnote: 8
Insolvency Act 2006, s 101(1). This is subject to s 104, which provides the property held by the bankrupt in trust for another person does not vest in the Assignee, a proviso which does not apply in this case. 
and property acquired during bankruptcy vests in the Official Assignee without him having to intervene or take any other step in relation to it.9
| X |Footnote: 9
Section 102. 
“Property” is defined in the broadest possible terms, as follows:10
| X |Footnote: 10
Section 3. 
“Property means property of every kind, whether tangible or intangible, real or personal, corporeal or incorporeal, and includes rights, interests, and claims of every kind in relation to property however they arise. ”
Having regard to legislative history and the absence of any statutory provision stating that a thing in action may not vest in the Official Assignee, he says it must be concluded that the provision is sufficiently broad to cover the vesting of a bankrupt's rights of action against his or her employer. 
It is noted that there is a common law exception to vesting which applies where a claim is personal to a bankrupt. Such claims are limited to those in which “the damages are to be estimated by immediate reference to pain felt by the bankrupt in respect of his body, mind or character, and without immediate reference to his rights and property”.11
| X |Footnote: 11
Reference being made to Heath v Tang [1993] 1 WLR 1421 (CA)Has Cases Citing which are not known to be negative[Green]  at 1423 per Hoffman LJ; followed in Cork v Rawlins [2001] EWCA Civ 202
Section 102 of the IA makes it clear that property which the bankrupt acquires or which passes to the bankrupt between the commencement of the bankruptcy and the discharge of the bankrupt vests in the Assignee without the Assignee having to intervene or take any other step in relation to it. Such property is commonly called “after-acquired property”
It is submitted that whether or not the Official Assignee decides to pursue rights in respect of property vested in him is a matter for him; such a decision may be reviewed under relevant provisions of the IA, but may not be reviewed by this Court. The only issue which may be considered in the present context is whether rights of action formerly held by Mr Gapuzan are correctly stated by the Official Assignee to have vested in him. 
Against the background of those factors, the Official Assignee considers: 
In respect of the claim for penalty at para 55(a) under s 149 of the Act, a penalty is imposed for the purpose of punishment of a wrongdoing, such as breaching the Act or another Act or an employment agreement.12
| X |Footnote: 12
Xu v McIntosh [2004] 2 ERNZ 448 (EmpC)Has partially negative history or cases citing, but has not been reversed or overruled[Yellow]  at [47]. 
Whether a penalty is awarded is a matter of discretion for the Court. In this instance it would arise from an alleged breach of contract measured not by reference to the applicant's pain and suffering but by reference to an agreement. Quantum would fall for determination by reference to the conduct of the defendant, not the impact on the plaintiff's person.13
| X |Footnote: 13
Beckham v Drake 9 ER 1213 (HL)Has Cases Citing which are not known to be negative[Green]  and Cork, above n 11. 
In respect of the claim at para 55(b) for compensation for injury to feelings, pain and suffering, humiliation, loss of rights and loss of benefits, the Official Assignee submits that the remedy is one which potentially falls under s 123(1)(c) of the Act, and is within the class of claims that are personal to a bankrupt. Accordingly it is accepted this right does not vest in the Official Assignee. 
In respect of the claim at para 55(c) for lost wages, the Official Assignee refers to s 147 of the IA which permits the Official Assignee to require a bankrupt to pay an amount or periodic amounts during a bankruptcy as a contribution towards payment of the bankrupt's debts subject to consideration of personal needs; and to s 163 of the same Act which permits the Official Assignee to make an allowance to the bankrupt for the purposes of support for the bankrupt or his or her relatives and dependants. 
It is accordingly submitted that income needed for a bankrupt's support nominally vests in the Assignee, but may be used by the bankrupt for support. However the Official Assignee alone is entitled to consider whether or not a claim for reimbursement of lost income should be pursued. 
In respect of the claim at para 55(d) for punitive or exemplary damages, these are awarded to punish a wrongdoer and are quantified by reference to a wrongdoer's conduct rather than its impact on the plaintiff. 
Insofar as a breach of contract impacts on a plaintiff's person, general damages would be awarded in an orthodox contract claim; in the employment jurisdiction the appropriate remedy is under s 123(1)(c)(i), and not by means of an exemplary damages award. 
Mr Gapuzan in his notice of opposition to the defendant's application for strike-out submits: 
The Official Assignee's position as to imposition of a penalty under s 149(4) does not have sufficient regard to s 136(1) of the Act, which provides that a penalty is payable to the Authority or the Court as the case requires, and not the plaintiff. Accordingly, it is submitted that a claim for a penalty is not a right that can vest in the Official Assignee. 
It would be contrary to the Court's equity and good conscience jurisdiction to strike out proceedings which claim remedies that “ … the Court may or may not award without resolving the causes of action which would render a judgment on the defendant's culpability and vindicate the plaintiff's cry for truth, fairness and justice”
Mr Gapuzan submits that the conclusion reached by the District Court in its decision of 15 July 201314
| X |Footnote: 14
Gapuzan v Pratt & Whitney Holdings SAS DC Christchurch Civ-2013-009-000707, 15 July 2013
amounts to a miscarriage of justice because the District Court disregarded evidence, and reached a conclusion inconsistent with an interlocutory judgment of this Court dated 29 August 2013, with the result that the District Court decision is flawed. 
It is similarly asserted that there were procedural defects in the bankruptcy proceeding undertaken by the defendant in the High Court, so that the order of bankruptcy should not have been made. 
The Court should reach the same conclusion as was reached in Young v Bay of Plenty District Health Board, where it was held that certain claims which the Official Assignee in that case did not wish to advance could not be discontinued.15
| X |Footnote: 15
Young v Bay of Plenty District Health Board [2013] NZEmpC 131Has partially negative history or cases citing, but has not been reversed or overruled[Yellow] 
Mr Gapuzan submits that he has been deprived of accident compensation entitlements, declared bankrupt, and denied justice, so that it is now inappropriate for the defendant to be granted the relief which it seeks. 
It is also appropriate to refer to Mr Gapuzan's application for leave to amend his fourth amended statement of claim. The points made in that application overlap with points which are relevant with regard to the defendant's application. The two applications should be considered together. In his notice of application, Mr Gapuzan: 
Repeats the assertion made in the notice of opposition already referred to, to the effect that under s 136(1) of the Act any penalty is payable to the Authority or the Court as the case requires, and not to the plaintiff. 
Submits that for the same reason an award of exemplary damages could not be claimed as personal. 
Submits that the alleged breach by Pratt & Whitney of the settlement agreement has resulted in a denial of accident compensation entitlements, particularly treatment and rehabilitation. He says these are claims personal to him, and do not constitute “property” for the purposes of the IA. 
Submits that he should accordingly be granted leave to amend his pleading — apparently following any decision the Court might make in favour of the defendant with regard to its application. 
For its part, the defendant adopts the conclusions of the Official Assignee in respect of the claims under paras 55(a), (c) and (d). In relation to Mr Gapuzan's application for leave, the defendant pleads that leave should not be granted because the defendant does not accept the plaintiff is able to pursue a remedy under s 149(4) of the Act given the bankruptcy; that any right to seek a penalty or exemplary damages is not property which constitutes a claim that is personal to the bankrupt; and that the plaintiff's claim is frivolous and vexatious. 
Discussion — paras 55(a), (c) and (d) 
The starting point for an assessment of the Official Assignee's position must be s 101 of the IA, which vests the bankrupt's property and the capacity to deal with such property in the Official Assignee. It is immediate and automatic on adjudication. 
The central issue in the present case relates to the scope of the term “property”. That term is defined in s 3 of the IA and is expressed in wide terms. It is well established that the term is sufficiently broad so as to cover a right of action.16
| X |Footnote: 16
See De Alwis v Luvit Foods International HC Auckland Civ-202-404-1944, 24 March 2010, at [13]-[16]. 
There is, however, a common law exception where a right of action relating to a bankrupt's person or reputation that is not property which vests in a bankrupt. This principle is well recognised, and has been summarised in many international and local cases. 
A starting point is the House of Lords decision in Beckham v Drake, decided in 1849.17
| X |Footnote: 17
Beckham, above n 13. 
Mr Beckham was employed by Mrs Drake as a foreman in a type-founding business. A written contract provided that Mr Beckham's employment should be for seven years at a certain weekly wage and that in the event of a breach of the contract by any of the parties, the defaulting party would pay the other £500 as damages. Mr Beckham was dismissed. He later became bankrupt. He subsequently sued his employers on the agreement. It was pleaded they had no right of action by virtue of his bankruptcy. Seven judges held that Mr Beckham's right of action passed to his assignees in bankruptcy whilst two did not. In the House of Lords, Lord Brougham held:18
| X |Footnote: 18
At 1235. 
“ … you are not … to give damages to the assignees under bankruptcy for loss of character sustained by the bankrupt, by slander, or for the loss of service by the seduction of a servant or a daughter, or for criminal conversation with the wife … even when there is no actual damaged proved, or even where the damage is merely nominal for a breach of contract, still if that is in respect either of property or of a proprietary right, such as service or work and+ or labour, as in the present case, even in that case it passes. ”
Lord Campbell stated:19
| X |Footnote: 19
At 1236. 
“It has been settled, over and over again, that for personal labour, or anything personal respecting the bankrupt, the assignees have no claim. … I really think that this case is free from difficulty, when we come to consider that this is an action upon an agreement, subject to a penalty, and that the action is brought for the penalty …  ”
In 1993, Lord Hoffman in Tang repeated the same proposition, stating that rights of action and liabilities which are personal to the bankrupt, such as defamation and assault, do not vest in the assignees.20
| X |Footnote: 20
Tang, above n 11, at 697. 
A yet more recent example of this principle is found in Cork v Rawlins where the English Court of Appeal considered sums paid under two assurance policies effected by Mr Rawlins with Abbey Life Assurance Co Ltd before he became bankrupt.21
| X |Footnote: 21
Cork, above n 11. 
The issue was whether a Whole of Life Policy which provided for earlier payment on receipt of proof that the life assured had become disabled was property for the purposes of a bankruptcy.22
| X |Footnote: 22
The relevant definition of the term ‘property’ was that found in s 3 of the IA. 
Mr Rawlins contended that the circumstances giving rise to the payment were so inherently linked to his pain and suffering that it would be inequitable and contrary to the principles underpinning the insolvency legislation for the payment to vest for the benefit of his creditors in the bankruptcy. 
The Court rejected the submission that as the insurance payments were conditional on the bankrupt's disability or that they were conditional on his pain and suffering, they did not vest. In doing so it referred to the above authorities including the following passage in Beckham:23
| X |Footnote: 23
At [26] citing Beckham, above n 13, at 1228. 
“There is no doubt that the right to bring an action for an injury to the person, character, or feelings of a bankrupt, does not pass to the assignees, and that the right to bring an action for the payment of money agreed to be paid to the bankrupt does pass. And it appears to me that the present action is in effect an action on a contract to pay money. ”
These principles have been applied on many occasions in New Zealand. A recent example is Official Assignee v Matete, where the High Court concluded that the right to receive a redundancy payment was based on a contractual right to receive a specified sum upon the occurrence of a nominated event.24
| X |Footnote: 24
Official Assignee v Matete [2014] NZHC 1685, [2014] NZAR 1060Has Cases Citing which are not known to be negative[Green] 
It is now necessary to turn to the paragraphs of the fourth amended statement of claim which the Official Assignee claims relate to property rights that vest in him, in light of the principles I have identified. 
The first is para 55(a), wherein a penalty is sought for breach of the agreed terms. The settlement agreement was a contract. If a breach is considered sufficiently egregious, the Court may impose a penalty. The penalty is fixed by reference to the defaulting party's misconduct. It is in the nature of a punishment. Just as Lord Campbell in Beckham held that a right to claim a contractual penalty vested in the Assignee,25
| X |Footnote: 25
See [29] above. 
so it was appropriate for the Official Assignee to conclude in this case that a right to claim a penalty under s 149 vested in him 
That conclusion is sufficient to deal with the issue. However, for completeness I refer to Mr Gapuzan's submission based on s 136(1) of the Act, which provides that a penalty is not payable to a plaintiff. He did not refer to s 136(2) which states that the Authority or the Court may order that the whole or any part of any penalty recovered be paid to any person, which could include a plaintiff. However, what is relevant is not the identity of the payee but the nature of the right of claim as discussed in the previous paragraph. 

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