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Accident Compensation Cases

New Zealand Seafarers' Union, Re (HC, 13/03/96)

Judgment Text

McGECHAN J (reserved):
This is an application by the Trustees of two superannuation schemes for directions whether contributions were due from employers (and members) in consequence of redundancy payments. It is in substance an interpleader by the Trustees in respect of claims by the relevant union contributions were due; and by the employer (Tranz Rail, formerly named New Zealand Rail), supported by the New Zealand Shipping Federation, to the contrary. The Trustees themselves abide decision. There are some significant sums involved. The matter also has some possible wider implications. 
Relevant facts fall within a narrow compass. 
At the relevant time, employees concerned (seafarers, including catering staff) were covered by the Interisland Line Combined Maritime Unions Collective Employment Contract dated 23 June 1994. Clause 17.4 provided: 
“17.4 Redundancy Compensation 
Redundancy compensation payments shall be as follows: 
For Seafarers:— 
Three weeks salary for each year of service. A minimum payment of twelve weeks all inclusive. 
For officers 
Three weeks salary for each year of service up to and including the tenth year. 
Four weeks salary for each year thereafter. 
For all employees, part of a years service will be counted on a pro-rata basis. 
The maximum all inclusive payment for employees shall be sixty (60) week's salary provided that it shall not be greater than 60% of the weeks remaining up to the employee's normal retirement date. 
For the purpose of this Clause, service shall mean continuous service with the Employer including New Zealand Rail Ltd time ashore. 
For all employees except seafarers, salary shall mean the rate for the appropriate rank at the date of termination of employment inclusive of service increments, pilotage allowance and certificate payments where applicable. Seafarers salary shall be deemed to be $42,500.00. ”
Two superannuation schemes were (and are) in existence; The “New Zealand Seafarers' Union (Seamen's Section) Retirement and Welfare Plan” (“Seamen's Plan”) and the “New Zealand Seafarers' Union (Catering Section) Retirement and Welfare Plan” (“Catering Plan”). The duality stems from historical factors, and has no present significance. 
Each plan is governed by a separate trust deed. The wording employed differs. 
The Seafarers' Plan is constituted under an amending deed dated 6 September 1990. Under cl 12.0 and Second Schedule cls 2 and 3, contributions are to be made by members of 4 per cent or greater (agreed at 5 per cent) of the member's “earnings”, and by employers of twice that amount. The pivotal term is “earnings”. It is defined in cl 1.2(g) as follows: 
“(g) ‘Earnings’ shall include any wages salary allowances (including allowances of any of the kinds referred to in Section 89 of the Land and Income Tax Act 1954) holiday pay overtime pay long-service leave pay bonuses gratuities extra salary commissions directors' fees honoraria emoluments or remuneration of any kind paid or payable (whether at piece rates or otherwise and whether in cash or otherwise) to any person in respect of or in relation to the employment of that person as an employee of the Employer. ”
For completeness, s 89 Land and Income Tax Act 1954 (repealed) refers to a tax payer being provided “in respect of any office or position held by him” with “board or lodging, or the use of a house or quarters”, or being paid “an allowance instead of being so provided”. Likewise for completeness, the term “employee” used in cl 1.2(g) is defined itself in cl l.2(h) in terms: 
“(h) ‘Employee’ means any person who is engaged to work or works under a contract of service or apprenticeship with the Union. ”
There are no other relevant internal definitions. 
The Catering Plan is constituted under a deed dated 4 October 1990. Under cl 7.01 members contribute 4 per cent of “Salary”, and under cl 7.02 employers contribute 8 per cent of “Salary”. Members' contributions, as might be expected, are by periodic instalments deducted from their “Salaries” at times “Salary” is payable. The pivotal term is “Salary”. It is defined specifically in cl 1.01 as follows: 
‘Salary’ means the Member's gross taxable earnings as an Employee during the relevant period and when required to be calculated at a particular date shall be defined as the gross taxable salary or wages earned during the period ended at that date. ”
For completeness, the term “member” so used is defined in cl 1.01 in terms: 
‘Member’ means a currently registered member of the Union or any subsequent reconstruction of the Union under a different title and who has been admitted as a Member of the Scheme in accordance with Clause 6. ”
Likewise, “employee” is defined in terms: 
‘Employee’ means any person who is engaged to work or works under a contract of service or apprenticeship with an Employer, whether by way of manual labour, clerical or professional work or otherwise and includes a director. ”
There are no other relevant internal definitions. 
Over a period put as approximately July to October 1994, some 85 members employed by Tranz Rail (then New Zealand Rail) were made redundant. Some were within the Seafarers' Plan, and some within the Catering Plan. Redundancy compensation was paid to members in accordance with cl 17.4 of the collective agreement. The issue of obligation to make superannuation contributions in consequence was raised by the union on 22 June 1994. Tranz Rail considered no contractual obligation existed. No contributions were made either by employee or employer. 
Union's submissions 
(a) Seamen's Plan 
The key is identified as the cl 1.2(g) definition of “earnings”
Redundancy payments (a) are within, “ordinary, natural meaning” of “earnings”, and (b) are within the specific inclusion of “emoluments paid or payable … in respect of or in relation to the employment of that person as an employee of the employer”
Approach (a) (ordinary meaning) is open, as the definition is inclusive, not exhaustive. Redundancy qualifies because “it is money that would not go to the payee if a contract of service had not been entered into”. It is “employment related”. That suffices, provided the receipt is from performance of the contract of service, as distinguished from an unrelated gift. 
Expanding, one should not approach the ordinary meaning of “earnings” simply in terms of wages. “Earnings” are wider than “wages”. Earnings are “the rewards of exertion”: Nette v Howarth [1935] 53 CLR 55, 60 per Rich J. Earnings include eg discretionary bonuses, holiday pay, and non-reimbursing allowances. Particular kinds may be payable only on termination of contract eg severance pay or (as at present) redundancy at contractual rates. 
Narrowing, the argument accepts interpretation of “earnings” ultimately must depend upon “precise wording” of any particular definition (as here). Under cl 1.2(g) “earnings”, by implication, must arise “out of … employment, and be contractually required to be paid” (exemplifying overtime). Damages for wrongful dismissal are put as included within “earnings”, citing Jack Crewe Ltd v Jorgensen [1980] 111 DLR (3d) 577, 581 (an employment insurance case; but the same extended to common law). Such damages are quantified by multiplication of weekly wages by deficiency in period of notice; a “link” to contract which is “close”. (By contrast, general damages for inconvenience would not be included). Drawing an analogy, redundancy is put as paid “for the loss of the job”. Damages for wrongful dismissal are put as paid “for the fact that a job has been lost without the correct period of notice being granted”. While the two compensate for “different things”, the two kinds of payments are “essentially similar for present purposes”. Damages being earnings, redundancy should be regarded likewise. 
Approach (b) focuses on the included term “emoluments”. It puts “emoluments” in context, as a term wider than mere direct recompense (quid pro quo) for work performed. If it were not wider, it would not be necessary: its area would be covered by other specific inclusions (ranging from “wages” to “remuneration of any kind”) which cover every kind of recompense for work. It should not be treated as mere surplusage but instead be given some additional meaning. 
The submission invokes various authorities arising under assorted statutes using the term “emoluments”. In R v Postmaster General [1876] I QBD 658, Quain J construed “emoluments” as wider than “remuneration”, covering “profit or advantage”. In Nette v Howarth (supra) Rich J, at p 60, put “emolument” in context as “advantages in money … which flow from occupation of an office or the like” (and see per Dixon J, p 65). (Counsel adopted the Rich J formulation.) In Kiddie v Port of London Authority [1929] 93 JP 203, 205 Maugham J put “emolument” as meaning, in context, “the advantage or benefit which the plaintiff is entitled to”. Implicitly, it appears, the submission puts such wider approaches as applicable, and as including redundancy. 
The submission then faces up to certain potential difficulties. 
First, capital/income distinctions. Such characterisations are put as unnecessary: “this is not a tax case”. However, if such are relevant, redundancy payments are assessable income (from 30 November 1992) (presumably therefore, more akin to wages). There is, moreover, authority even for a lump sum payment being regarded as “emolument from … employment” in a tax context, Glantre Engineering Ltd v Goodhand (Inspector of Taxes) [1983] 1 All ER 542, per Warner J; McGregor (Inspector of Taxes) v Randall [1984] 1 All ER 1092, 1098-1099, per Scott J. There is even authority allowing capital payments to be treated as “emolument” in a tax context: Brumby (Inspector of Taxes) v Milner [1976] 1 WLR 1096
Second, other authorities (again in a tax context) recognise redundancy payments as falling outside emolument from employment. The submission notes, but rather passes over, Comptroller-General of Inland Revenue v Knight [1973] AC 428 (PC) which holds a redundancy payment was not taxable as it fell outside statutory words “in respect of his employment”. The submission noted Mairs (Inspector of Taxes) v Haughey [1994] 1 AC 303 in which the House of Lords held redundancy payments were not emoluments “from” employment, but were compensation to the employee for no longer receiving emoluments; distinguishing the decision as turning upon a “significantly narrower” requirement source be “from employment”, as contrasted to our “in respect of … in relation to” the employment. 
The submission then turned to other “textual” considerations said to be supportive. 
“Earnings” are defined as “in relation to employment”, not “in relation to work performed”. The definition looks to the contract, not to the work performed. 
“In respect of or in relation to” is a connection “of the widest character”. Any degree of connection will be sufficient. 
“Earnings” includes lump sum payments even if calculated by a reference to service, eg long service pay. 
“Earnings” includes items which (unlike wages) are not direct recompense for work done as an employee eg long service pay (related to experience, and incentive to stay, not double payment) and directors' fees. There is, correspondingly, no oddity in interpreting redundancy payments as emoluments in respect of or in relation to employment, and therefore as being within “earnings”, despite redundancy compensation not being a direct recompense for work done. 
Last, the submission invoked Re Wellington Hospital Board's Clerical Workers [1982] ACJ 207, per Chief Judge Horn. Regulations controlling changes in remuneration defined “remuneration” in terms including not only salary, wages, overtime, bonus, and other special performance, allowances, fees, commission, but also “every other emolument”. The Court held “emolument” was wide enough to catch “any payment to a worker connected with his employment or his contract of service”; and as such caught redundancy payments. 
(b) Catering Plan 
The key was put as cl 1.01 definition of “salary”
First, the union submits redundancy constitutes “salary” as redundancy comes within “taxable earnings”. Redundancy compensation has been taxable in the hands of employees since 1992. Redundancy is, moreover, within the earnings “as an employee”. Payments were made due to the employment nexus: but for the employment, payment would not have been made. 
Second, the union submits redundancy payments constitute “earnings” (undefined) as being “earnt” [sic] through work over previous years given a gradually increasing entitlement. 
Third, the union repeats submissions as to ordinary meaning of “earnings” presented in relation to the Seamen's Plan: employment-related payments, wider than wages, thus including redundancy. 
Fourth, the “justification for redundancy compensation is that it compensates for ‘loss of a job’ (Lloyd v Brassey [1969] 2 QB 98). It is “based on” salary or service, and payable whether or not new employment is obtained. It is not a “tideover” payment. (While quantification based on previous wages and service has some potential relevance, I confess some uncertainty how the balance of the point assists the union.) 
Fifth, the union suggests assistance from the implications of the definition of “earnings” in Accident Rehabilitation and Compensation Insurance (Earnings Definitions) Regulations 1992 (SR 1992/64) reg 2. The definition at para (viii) specifically excludes redundancy payments. The implication invited is recognition that where, as here, such specific exclusion is absent redundancy falls within the ordinary meaning of “earnings”
Tranz Rail's submissions 
Counsel introduced argument by oral encapsulation: redundancy pay was not a receipt “in respect of or in relation to employment” because it was compensation for loss of employment rather than a reward for services performed. That had been the consistent position recognised in the Courts since at least 1930; long established before 1990 when the present deeds were drawn. If the parties had intended to vary that position they would have done so expressly. 
Submissions then commenced with three general matters. 
First, superannuation schemes are to be interpreted in a particular and purposive manner, recognising benefits are part of the consideration an employee receives for services. 
Second, redundancy is compensation for loss of employment, not a reward for services. Counsel cited as most recent authority Mairs (Inspector of Taxes) v Haughey [1994] 1 AC 303 per Lord Woolf at pp 319, 320 (said not to be distinguishable on the basis of its utilisation of the word “from”); adding the earlier case of Wynes v Southrepps Hall Broiler Farm Ltd [1968] ITR 407. Counsel added citation of matrimonial property cases to like effect, eg Banas v Banas [1987] 3 FRNZ 430; 432, 436 per Judge lnglis QC: Wharfe v Wharfe [1988] 4 FRNZ 220, per Sinclair J; Roberts v Roberts [1990] 6 FRNZ 77 [1990] NZFLR 193, per Williamson J; Smith v Kerekes [1994] 3 NZLR 116, 127, per Tompkins J. To like effect, in R v National Insurance Commissioner, ex p Stratton [1979] 1 QB 36, ruling redundancy is not to be regarded as in lieu of remuneration, but to be regarded as otherwise compensating. Similarly, Shell NZ Ltd v Commissioner of Inland Revenue [1994] 16 NZTC 11,303, 11,306-11,307 (CA), noting “compensation for loss of office or employment” as being capital, and “not a reward for services, but compensation for being deprived of the opportunity to render services and to be paid for them”. Last, Comptroller-General of Inland Revenue v Knight [1973] AC 428, cited in Shell NZ and Mairs' cases (supra), was “unanswerable”. The issue in Knight's case was whether redundancy compensation was a gratuity paid or granted “in respect of the employment”: the Privy Council held payment was for abrogating service, and fell outside the quoted words. (There was also a tangential submission redundancy obligations arose from an overriding duty of fair treatment, a product of the statute, and were payment not wholly within control of contracting parties; distinguishable in that respect from remuneration for services). 
Third, superannuation and redundancy differ: Smith v Kerekes (supra), at p 127. Superannuation is a reward for “past services”: redundancy “although it might be calculated with reference to the length of service is not part of the reward for that service” (ibid p 127). In the absence of express words, contributions to superannuation should be based on “payments which are normally treated as salary”; this excluding redundancy. 
Tranz Rail submissions then focused directly on the Seafarers' Plan. 
Ordinary meaning of “earnings” is “payment by way of remuneration for services”; citing Midland Railway Co v Sharpe [1904] AC 349, 351, 353; applied in Gooch v H C Clarke Ltd [1941] NZLR 206, 209 (Compensation Court). Citations for the union were not in point. Nette v Howarth (supra) did not deal with redundancy. Jack Crewe Ltd v Jorgensen should be read down to the statutory context of unemployment compensation insurance; redundancy payments (or damages) being obviously related to protection from loss. The ordinary meaning now at issue does not include redundancy payments, which are not such remuneration. 
Nor are redundancy payments caught within specific inclusions within the term “earnings”. All can be excluded without further comment except “emoluments or remuneration of any kind paid or payable to any person in respect of or in relation to the employment of that person as an employee of the employer”. This contains three cumulative requirements. 
The first is “emoluments or remuneration”. On dictionary authority, those two terms are synonymous. “Emolument” does not add to “remuneration”. There is no room for differentiation on “surplusage” principles. The correct approach on the authorities is to treat remuneration and emoluments as reward for work undertaken; eg R v Postmaster-General (above); R v Lyon, ex p Harrison [1921] 1 KB 203; Re Wickham and Paddington Corporation's Arbitration [1946] 2 All ER 68; and cp Mairs (Inspector of Taxes) v Haughey and R v National Insurance Commissioner, ex p Stratton (above). Mairs' case is not distinguishable: Lord Woolf at p 320 holds redundancy is not a reward for service well before subsequent questions of derivation “from” arise. Brumby's case does not assist: payments were received by employees because such remained employed, payments thus constituting earnings. 
As to the second (receipt as an employee), regard must be had to the cl 1.2(h) definition of “employee”, requiring existing employment. Redundancy is not payable until after termination of employment (cp Mairs v Haughey (supra), at p 321; Re Chapple [1964] 82 WN (Pt 1) NSW 53, 56, per Asprey J: Wharfe v Wharfe (supra), at p 640. A redundancy payment is not received “as an employee”, as it arises only through disestablishment of the employment relationship. 
As to the third (payment in respect of or in relation to employment), the phrases “respect of” and “relation to” are synonymous. In Shell NZ Ltd v Commissioner of Inland Revenue (supra) the words although held to be “of widest import” still did not encompass compensation for loss of office, in that respect following Knight's case. In like vein, former s 88(1)(b) Land and Income Tax Act 1954 put within assessable income salaries wages and the like including all sums received by way of “extra salary or emoluments of any kind”; but was amended in 1973 specifically to include “compensation for loss of office”. Bare wording “emoluments … in respect of or in relation to employment or service of the tax payer” was not seen as doing so. 
Overall, it was submitted, use in the deed of the words “emoluments … payable to any person in respect of or in relation to employment”, meaning of which was well known in an income tax context, demonstrates intention not to encompass redundancy payments. 
Wellington Hospital Board's Clerical Workers (supra) is put as distinguishable on its facts. The issue was merely whether a redundancy payment was an “emolument”. It was not required to be an emolument in respect of or in relation to employment (Cf Knight's case); or to be received “as an employee”. The general finding that “emolument” is wide enough to catch payments to workers “connected to” employment, and within that, redundancy, no longer is valid in light of Mairs and the Shell NZ cases, and should not be followed. 
Finally, the mere fact of contractual obligation to make redundancy payments does not per se render such payments “earnings”. The union's touchstone “would not pay if no employment contract entered into” does not suffice. For example, contract might require payments to employees in event of workplace injury. The mere fact of obligation should not change such compensating payments into rewards. There is a further “qualitative” element required. A similar contractual effects condition was rejected in Mairs v Haughey (supra) at pp 603-607; pp 321-322. The redundancy payment is contingent, not a deferred payment for services performed, and is made only where a job no longer is available. As noted in Banas v Banas (above), at p 436 redundancy is “compensation for loss of future security”. Calculation according to periods of service, as required under contract, simply recognises the fact loss of future job security would bring greater hardship to some employees than to others. There is no analogy with rewards for past service, or with superannuation. 
Submissions then focused on the Catering Plan. 
First, the duality of “gross taxable earnings”, calculated at any particular date as “gross taxable salary or wages” is to be resolved in favour of the latter. Contributions are paid monthly. At month's end, the employer is required to calculate salary. Given that required calculation, earnings never can exceed gross taxable salary or wages. Such “salary or wages” do not include redundancy payments. Salary and wages are the “ordinary regular payments as remuneration for services”Gordon v Jennings [1882] 9 QBD 45, 47; James v Tees Conservancy Commissioners [1933] 46 Ll L Rep 19, 22 (bonus); Inspector of Awards and Agreements v CERS (Joint Venture) [1984] ACJ 339 (severance pay). Redundancy payments, by contrast, are for loss of employment. 
Second, if to the contrary “gross taxable earnings” does stand on its own, 
“earnings” do not include redundancy payments (submissions above); 
redundancy payments were well known in employment practice at the time of the deed and would have been referred to if to be included; 
the gross taxable earnings must be “as an employee” defined in present tense terms under cl 1.01, excluding redundancy paid after disestablishment of position (submissions above). 
Decision: the Seamen's Plan 
Decision turns upon whether “earnings” defined in cl 1.2(g) include the redundancy payments concerned. 
First, ordinary meaning. 
In my view, in ordinary current usage, “earnings” are remuneration for services rendered. They are “earned”. They are the direct result of labour given. The obvious examples, of course, are wages and salary. There are less obvious variants: overtime, travel money, dirt money, danger money, shift allowances — the list is extensive. All show as a central feature a strong relationship to services supplied. Usually, such are paid pursuant to contract. However I do not accept earnings can arise only under strictly contractual payment obligations. The waiter would regard tips, from serviced customers, as within “earnings”. The club or society Secretary would regard an honorarium likewise. Further, the mere existence of an employment contract does not in itself suffice to render all benefits which happen to pass from employer to employee as “earnings”. There is no room for an absolute “but for” test. There can be benefits passing from an employer — eg a wedding present — which would not be regarded as “earnings”. Likewise, payments —obligatory or otherwise, not a make-up of lost wages — to an employee who is injured on the job, or an employee who loses personal property on the job, would not be regarded as “earnings”. They are compensatory, not a reward for services. The essential nexus is that the payment be for services rendered. While services concerned may be in the past — most wages are paid largely in arrears — that cannot be taken too far. The “earnings” concept envisages an existing and ongoing employment relationship. While economists might analyse otherwise, if one asks a superannuitant, “What are your earnings?”, a likely reply is, “Nothing, I am retired, I am on super.” 
I do not see this ordinary meaning as extended through operation of the law as to damages for wrongful dismissal, plus added extension by analogy to compensation for redundancy. Jack Crewe Ltd v Jorgensen [1980] 111 DLR (3d) 577, 581 is not helpful. An employee wrongfully dismissed was awarded damages assessed as 12 months' income. He received certain unemployment insurance benefits meantime. The damages for wrongful dismissal were accepted as “earnings” for unemployment insurance purposes; the relevant regulations apparently defining such as income “arising out of employment”. (The report, and its predecessor at 99 DLR (3d) 464 are not entirely clear as to precise text). Associated observations as to deduction from damages, and possible reimbursement obligations, were made. The case is upon a special provision, and of limited general utility. I accept, however, the included contention that damages for wrongful dismissal, so far as going to “fill a hole” in income, eg lost wages, are income; and indeed assessable income. It is from that point the submission breaks down. Even putting aside questions of difference between “income” and “earnings”, it cannot be said that because damages replacing income lost through wrongful dismissal from a job are income, compensation for lawful destruction of the job itself (as superfluous) should be treated likewise. The former clearly relates to an income item: the latter is rather different. 
Second, one looks to see if ordinary meaning so ascertained is varied by context. 
That inquiry is not much assisted either way by generalisations as to the approach to interpretation of superannuation deeds. Certainly, they are to be interpreted with recognition of an intention to confer deferred income benefits on employees as a matter of contractual right, not charity. However, the end result of such factors in the present case is neutral. Contracts can not only benefit, but limit. 
I do not see the balance of cl 1.2(g) after the word “Earnings”, with its specific inclusions, as demonstrating an intention to modify the ordinary meaning of “earnings”. It amounts to a shopping list of service-related rewards commencing with the obvious “wages”, moving through fringe areas such as “gratuities” and “honoraria”, and ending with the generalisations “emoluments” and “remuneration of any kind”; all notably tagged as “payable … in respect of or in relation to … employment” of the recipient. The final catch-all “remuneration of any kind” catches the underlying intention: “remuneration”. It is entirely consistent with the ordinary meaning of “earnings” as earlier identified. 
Given that approach, do redundancy payments (due under the employment contract) fit within ordinary meaning of “earnings” so applicable? 
First, what are these “redundancy payments”? There is a common tendency to loose thinking. It is exemplified by varying terminology “redundancy pay” and “redundancy compensation”. In principle, redundancy payments are compensation for the loss of a job through its disestablishment as superfluous. Redundancy payments are not payable if the position continues to exist, filled by another employee. Redundancy payments are not extra wages, or wages in lieu of contractual notice due. Redundancy payments are not superannuation. Redundancy payments are not some compassionate distribution designed to bridge losses until a new job is found, like an unemployment benefit: redundancy payments are due even if the employee finds new employment immediately. Redundancy is payable because the job — the opportunity to earn — disappears, and modern attitudes to industrial relations consider compensation is appropriate. Certainly, the employee receives the payment because he/she was an employee in that position. The employee hardly would receive the payment if a stranger. That, however, does not determine. In principle, the employee does not receive the payment as remuneration from employment. The employee receives it as compensation for the loss of the very employment opportunity in itself. The payment, so identified, is compensatory, not remunerative. 
I do not regard that compensatory characterisation of redundancy payments as precluded by quantification approaches. Redundancy payments in this case, as in many others, are to be calculated as a function of wages/salary, and length of service. The payments are, in principle, compensation for the elimination of a position held; but calculated on the basis of past service and wages. An argument opens that, being so quantified, the payments should be regarded in substance as disguised wages. The argument opens, but it does not persuade. How else does one sensibly assess compensation for the disestablishment of a position and loss of opportunity to earn? An actuarial calculation at present value of future wages, with all its obvious difficulties as to anticipated length of continued employment, future wage structures, discount rate, contingencies and the like? An arbitrary lump sum, the same for all, whatever previous services and wages? By the phases of the moon? When one comes to evaluate the “worth” to an employee of a lost position, the time over which the employee has held that position, and the earnings obtained from it and otherwise likely to continue, are as reasonable and pragmatic guides as any, open to adoption without necessarily derogating from the underlying compensatory principle. 

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