Contents

Chapter 6
Accountability of the Crown and its employees

Liability of Crown employees

6.9When and how such employees ought to be protected from legal suit are important questions, as is the effect of any such protections on the position of the Crown. Whether individual Crown employees are personally responsible should be dealt with separately to whether the government on behalf of which they act ought to be responsible. We examine the issue of how best to protect Crown employees from civil proceedings, and put forward some possible solutions for comment. Even if New Zealand were to depart from a vicarious liability model (see discussion at paragraphs [3.2] to [3.17]), and the Crown were able to be sued directly, it would still be necessary to consider the position of Crown employees.

6.10Following the Supreme Court decision in Couch v Attorney-General (Couch),59 the Government took steps to clarify the degree, if any, to which Crown employees ought to be personally liable for actions undertaken in good faith in the performance of their public duties. The approach taken in amending the State Sector Act 1988 was to provide an immunity for Crown employees if they had acted in good faith in the performance of their work, while preserving the ability of those who had suffered loss to pursue the claim directly against the Crown. In its report, the Select Committee that considered the Bill addressed the possibility that this review might conclude that an immunity was a preferable approach, but concluded that the doubt the Couch decision created should, nevertheless, be removed:60

… and thus restore what was widely understood to be the status quo, in the knowledge that it would be open to Parliament to amend the provision once the Law Commission’s review was concluded if there were a compelling case for doing so.

6.11The Law Commission is considering whether providing a general immunity of this type is the most appropriate way of protecting Crown employees, and whether a statutory indemnity might instead be preferable. Feedback is sought on the choice between an immunity and an indemnity for Crown employees. Below we compare the two respective approaches and assesses the advantages and disadvantages of each.

Underlying principles

6.12The broad starting point is that the ordinary rules governing liability for torts committed by servants apply to the Crown and its employees: when a Crown employee commits a tort, the employee is personally liable, even if the tort is committed in the course of their employment.61
6.13Crown employees, however, should be protected from personal liability in cases where they have acted in good faith in pursuance of their jobs, just as private sector employees are often indemnified by their employers. Indeed, given the nature of their jobs, Crown employees undertake activities that have little parallel in the private sector, often in circumstances of conflict or difficulty. Moreover, they sometimes exercise extensive powers that can have a significant impact on individuals or groups. There is a proper concern that able employees may not wish to be involved with such activities or might exercise their roles defensively if faced with the possibility of being held personally liable.62

6.14The question is, then, how best to achieve the aim of providing a remedy to be paid by the Crown to those who have been wronged, while still protecting Crown employees acting in good faith.

6.15Whether an immunity or indemnity is used has implications for the personal responsibility of the individual employee involved. Preference for one or the other approach may depend on how responsibility is conceptualised and whether individual responsibility is seen as a necessary element. From one view, it is sufficient for accountability purposes to have corporate responsibility; in this case, direct liability of the Crown. From this view individual responsibility is less important because a mechanism still exists for sheeting home responsibility to the corporate body, so someone who is wronged is not left without a remedy.

6.16On the other hand, an approach that discounts the significance of personal responsibility, as immunity is said to do, might be seen as discouraging individuals from taking an appropriate level of care in carrying out their work. Since the connection is severed between the individual providing the service or carrying out the function and the party that is held accountable for these actions, the individual has less incentive to take responsibility for their actions.

Current situation: Immunity in the State Sector Act 1988Top

6.17Section 86 of the State Sector Act gives an immunity to Crown employees and chief executives in certain situations. Section 86(1) was amended in July 2013 to provide:

Public Service chief executives and employees are immune from liability in civil proceedings for good-faith actions or omissions in pursuance or intended pursuance of their duties, functions, or powers.

6.18At the same time an amendment was also made to section 6 of the Crown Proceedings Act, inserting the following provision as subsection (4A):

Despite certain Crown servants being immune from liability under section 86 of the State Sector Act 1988,—
(a) a court may find the Crown itself liable in tort in respect of the actions or omissions of those servants; and
(b) for the purpose of determining whether the Crown is so liable, the court must disregard the immunity in section 86.
6.19The intended effect of these provisions is that while chief executives and employees are immune, that immunity does not prevent the Crown from being vicariously liable for their actions. The Select Committee stated that the amendments would “resolve present uncertainty” and “restore what was widely understood to be the position prior to the majority decision of the Supreme Court in Couch”.63

6.20Before the 2013 amendment, section 86 provided:

No chief executive, or … employee, shall be personally liable for any liability of the Department, or for any act done or omitted by the Department or by the chief executive or any … employee of the Department or of the chief executive in good faith in pursuance or intended pursuance of the functions or powers of the Department or of the chief executive.

6.21The Supreme Court in Couch was divided three to two over the correct interpretation of section 86. Tipping J, in the majority, held that section 86 could best be interpreted as creating a bar on a department seeking contribution from a negligent chief executive or employee when the department itself was liable. In his view this interpretation preserved the structure of tort liability under the Crown Proceedings Act, as there was no indication that the State Sector Act was designed to alter that structure.

6.22McGrath J for the minority would have held that while section 86 might absolve a chief executive or employee of personal liability, it did not affect the Crown’s liability under the Crown Proceedings Act.64

6.23There were difficulties with both approaches. The difficulty with the minority approach was, as Tipping J in his judgment argued, reconciling it with the wording of section 6(1) of the 1950 Act. The difficulty with the majority approach was that it meant section 86 neither immunised nor indemnified individual Crown employees who committed a tort, but only prevented a contribution being claimed by the department.

Immunity compared with indemnityTop

6.24Crown employees can be protected in a number of different ways from the consequences of civil proceedings. An immunity from suit, such as that currently in section 86, means no proceedings may be brought against persons exercising powers under the Act, or that a person exercising a power under the Act is immune from civil proceedings. Accordingly, a party wronged by a Crown employee that is immune cannot sue that employee, and so may be left without a remedy unless the same remedy could be sought against the Crown.

6.25In the case of section 86, section 6(4A) of the Crown Proceedings Act enables suits against the Crown for torts committed by its employees, notwithstanding the employees’ immunity under section 86. Therefore, under the new scheme the remedy for a person wronged will be similar. However, it is possible to conceive of a gap where a person is left without a remedy, since an action falls outside of the scope of vicarious liability, so that the Crown is not liable, and the individual employee is immune by virtue of section 86. This potential gap, though, is likely to be very narrow in light of the wide scope of vicarious liability that exists at present, and the parameters of the section 86 immunity. If the employee commits actions that are outside the scope of vicarious liability, then it is highly likely the section 86 immunity would not be available, because that person would almost certainly not have been acting in good faith in pursuance of their duties, as required to come within the immunity.

6.26An alternative is to provide Crown employees with an indemnity, whereby the Crown pays for any judgment and any legal costs. Indemnification by the Crown must be in accordance with an express statutory provision.65 Indemnities for a Crown employee currently need to be approved individually by the Minister of Finance under the Public Finance Act 1989.66

6.27A model for an immunity can be found in section 86 of the State Sector Act, set out above, which provides that chief executives and employees are “are immune from liability in civil proceedings”. In contrast, section 122 of the Crown Entities Act 2004 gives the ability to provide an indemnity:

A statutory entity may only indemnify a member, an office holder, or an employee in respect of an excluded act or omission (including costs incurred in defending or settling any claim or proceeding relating to that excluded act or omission).

6.28In terms of financial risk and actual financial cost to the individual employee, the outcome of both an immunity and an indemnity is the same (so long, of course, as the indemnity covers the costs of litigation and judgment as they come due): the employee will not personally be required to pay for damages and court costs resulting from any action. Under an immunity this is because the employee is not able to be sued in the first place, while under an indemnity the reason is that there is an agreement or statutory requirement that the Crown rather than the employee will be responsible.

6.29Although each approach effectively achieves the same result of avoiding financial cost to the employee, a different process is involved in getting to that outcome, depending on whether an immunity or indemnity is in place. If the employee is immune, no proceedings can be taken against the employee, so he or she will not be named as a defendant in litigation. Immunity also means that any judgment resulting from the litigation will not be made against them personally. By comparison, an employee who is indemnified is still able to be sued and named as a party, and judgments can be made against the employee individually, even if the cost is actually met by another through the indemnity.

Advantages and disadvantages of indemnity versus immunityTop

Effect of threat of personal liability

6.30Employees who are indemnified by the Crown remain at risk of having litigation brought against them for their actions. This creates a risk that the threat of liability could lead to these employees conducting their work in an overly cautious or risk-averse way, and leave them feeling exposed. Without a protection against potential personal liability, it might be difficult to attract employees into public service positions. Immunities remove these risks by preventing the possibility of proceedings, allowing Crown employees to undertake their work without the fear of personal liability. On this view, the scrutiny and personal pressure threatened or actual litigation would entail is an unjustified interference with the ability of Crown employees to carry out their functions, even if the financial cost were to be met via an indemnity. An immunity provides more effective protection from this perspective, as it would shield Crown employees from even the possibility of being named as a defendant, let alone having to undergo the process of being sued and found to have breached obligations.

Certainty of protection

6.31A key concern about indemnities might be the uncertainty for individual employees about whether they will ultimately be indemnified by the Crown. An immunity provides certainty to employees about whether they are protected, whereas an indemnity, depending on its nature, may not guarantee that an employee would be indemnified in a particular instance. The present regime requires the Minister of Finance to approve the individual indemnity, if it is in the public interest to do so. It is likely that Crown employees would be entitled to be indemnified by their employer for any act or omission carried out in good faith in the course of their duties, but it is still conceivable that approval for indemnification could be withheld, leaving the employee to meet any judgment against them from their own personal funds.

6.32However, these concerns about uncertainty can be met by departing from the current discretionary regime and providing that indemnification is mandatory for the Crown. Under the indemnity proposed in the draft Bill,67 there would be an express statutory indemnity which would not require the approval of the Minister of Finance; the indemnity must be paid by the relevant department. The statute would provide that the department must indemnify Crown employees for proceedings relating to good faith actions done in pursuance of their duties. This would remove the discretion about whether the employee would be covered, as long as he or she was acting within the terms of the indemnity. Taking this approach would provide greater reassurance and security for Crown employees than the present form of the indemnity, and would remove the personal financial risk. It would effectively give employees the same protection as an immunity as far as their financial position is concerned.

Constitutional significance of suits against Crown employees

6.33There may be a symbolic concern that an immunisation is a departure from previous constitutional history. Being able to sue an officer personally for the failure to perform statutory functions or for acting in excess of lawful authority has some constitutional significance. There is a long-standing principle that any civil wrong committed by a Crown employee in the course of his or her role is committed in his or her personal capacity and the employee can be held responsible in a court for that wrong, even if someone else is covering the cost. Such suits may be seen to be a check on misuse of power, as they clearly were seen in earlier years.

6.34An indemnity approach preserves the option of personal suits against the employee, so in this respect would better reflect the constitutional principles at stake. We submit, however, that the better policy is to make suits against employees dependent on the absence of good faith, as this limits possible proceedings to those concerning the type of behaviour where it is appropriate for an individual to be exposed to liability.

Nature and focus of the litigation

6.35Arguably immunities may change the nature and focus of the litigation. There may be fears that, without the ability to bring proceedings against a particular individual, the actions of the employee concerned will not face scrutiny in the same way as they would if the employee were the subject of the proceedings. A potential unintended consequence of adopting an immunity approach could be to remove some of the incentive for an employee to exercise an appropriate level of care in his or her work. In contrast, the focus of litigation where a Crown employee is indemnified is still unquestionably on the actions of the individual employee involved.

Effect on litigation against the employee and the Crown

6.36In terms of how the litigation would proceed under each scenario, an indemnity approach carries the practical advantage that proceedings would continue as they have done so far (no proceedings yet having taken place under the new immunity provision). That is to say, the individual employee would be a party to the litigation and action brought against the Crown through a vicarious liability action (or, under the proposed direct liability scheme, directly against the Crown). It is the Commission’s view that in the case of good faith performance of their duties, employees of the Crown and others in positions similar to employees, such as Defence Force personnel, should be indemnified by the Crown, but that such an indemnification should not prevent the Crown itself being liable.

6.37With an immunity in place, litigation would necessarily proceed differently as the employee could not be sued, although it is unclear that this would be problematic in practice. Under the scheme introduced in 2013, individual employees have an immunity under section 86, but this immunity may be disregarded and the Crown found liable, per section 6(4A) of the Crown Proceedings Act. Section 6(4A) addresses the basic conceptual difficulty that would otherwise arise with an immunity approach: namely, that since tort liability in New Zealand is, at present, vicarious, ordinarily if a tortfeasor is immunised the employer will normally take the benefits of that immunisation. The Crown’s vicarious liability would change under our proposal simply to state that the Crown can be liable as a natural person. By comparison, an indemnity does not affect the tort liability of the Crown at all, whether direct or vicarious, since all it does is ensure that if a judgment is actually made against an employee, that judgment would be covered by the department that employs that employee (under the option in clause 11 of the Bill).

6.38Concerns about the possible effects of an immunity must be balanced against the reality that in Australia, or at least in New South Wales, similar provisions seem to work well enough. In New South Wales the general vicarious liability reforms of 1992 mean that all employees, including Crown employees, are exempted from liability, but their employers are not able to take advantage of that exemption in a vicarious liability action.68
6.39The operation of the New South Wales system of liability was explained recently by the New South Wales Court of Appeal in Kable v New South Wales.69 That case concerned a statute that enabled the New South Wales Government to continue to imprison Mr Kable even though his sentence had finished. It addressed the question of whether this statute was a legitimate exercise of legislative power, and found that the continued imprisonment of Mr Kable was a legitimate exercise of judicial power.70 ​In its consideration of various matters, the New South Wales Court of Appeal considered how such a false imprisonment claim would be dealt with. Under the vicarious liability reform in New South Wales, there was a statutory saving of the Crown’s liability, even though the individual employee would not be liable. Essentially the New South Wales Court of Appeal considered that the result of this saving was that the action proceeded as it would have done without the vicarious liability reforms. The exception is that the employee, in this case the prison governor, was not a defendant and would not have been held liable.

Views sought on best approachTop

6.40The Commission is seeking feedback on whether an indemnity or immunity is the most appropriate means of protecting Crown employees. Comment is sought on the options set out in the draft Bill for an immunity or an indemnity in the context of the direct liability model, as well as comments on the merit of each approach more generally.

59Couch v Attorney-General (on appeal from Hobson v Attorney-General) [2008] NZSC 45, [2008] 3 NZLR 725 and Couch v Attorney-General (No 2) (on appeal from Hobson v Attorney-General) [2010] NZSC 27, [2010] 3 NZLR 149 [Couch (No 2)]. For a summary of the Couch case, see above n 10.
60​State Sector and Public Finance Reform Bill 2012 (55-2) (explanatory note) at 14.
61P Hogg, PJ Monahan and WK Wright Liability of the Crown (4th ed, Carswell, Scarborough, 2011) at [8.1].
62At [8.4].
63State Sector and Public Finance Reform Bill 2012 (55-2) (select committee report) at 13.
64Couch (No 2), above n 59, at [190]–[192].
65See Public Finance Act 1989, s 65ZC: “Except as expressly authorised by any Act, it is not lawful for any person to give a guarantee or indemnity on behalf of or in the name of the Crown.”
66Public Finance Act 1989, s 65ZD.
67See draft Crown Civil Proceedings Bill, cl 11 (Indemnity for [Ministers and] Crown employees); any damages and litigation costs would be paid by the department.
68Law Reform (Vicarious Liability) Act 1983 (NSW), ss 7 and 8.
69Kable v New South Wales [2012] NSWCA 243.
70New South Wales v Kable [2013] HCA 26. The High Court of Australia ultimately held that the judicial order made did provide lawful authority to detain Mr Kable, notwithstanding that this order was subsequently set aside by the High Court because the empowering legislation was invalid. The Court did not, however, need to address vicarious liability and so did not comment on the New South Wales Court of Appeal’s remarks on the issue.