Pike River families attack 'chequebook justice'

The New Zealand Supreme Court will hear a final appeal against earlier decisions allowing insurer-funded reparations in the aftermath of the Pike River mine disaster.

The coal mining incident began on 19 November 2010 in the Pike River mine, 46km northeast of Greymouth, on the west coast of NZ's South Island. A methane explosion occurred while 31 miners and contractors were in the mine. Two miners walked out. The rest were believed to be at least 1,500m from the mine's entrance.

There were a further three explosions on 24-28 November and the 29 men were declared dead. It was NZ's worst mining disaster since 1914.

In November 2010, then-Prime Minister John Key announced a royal commission, led by Justice Graham Panckhurst. After its report was released in October 2012, three former Pike River Coal Ltd directors and former CEO Peter Whittall rejected accusations the mine was unsafe and disagreed with the commission's conclusion directors had not acted properly over health and safety (H&S) at the mine.

In November 2010, NZ Police and the Department of Labour began investigating and in November 2011, the Department of Labour prosecuted three parties under the Health Safety and Employment Act: Pike River Coal Ltd (in receivership), Valley Longwall International Drilling Pty Ltd (VLI); and Peter William Whittall on 25 charges of alleged H&S failures.

On 31 July 2012, VLI pleaded guilty in Greymouth District Court to three health and safety charges. Pike River Coal's receivers said the company would not enter a plea and Mr Whittall did not appear in court to face 12 health and safety charges.

On 25 October 2012, Mr Whittall entered not guilty pleas and on 26 October 2012, VLI, which had lost three employees in the mine, was fined $NZ46,800.

In July 2013, Pike River Coal was ordered to pay $NZ110,000 to each of the victims' families and fined $NZ760,000. It did not pay the fine and was unable to pay the reparation ordered.

In December 2013, charges were dropped against Mr Whittall after he and Pike River Coal offered a voluntary payment on behalf of the company's directors and officers to the families of the dead men and the two survivors. Prosecutors claimed a lack of evidence against Mr Whittall.

Barrister and former NZ Solicitor-General Mike Heron QC told the NZILA conference the reparation of $NZ110,000 for each of the two surviving miners and the families of the 29 killed, a total of $NZ3.41 million, was funded by the mine's D&O insurer.

He said Mr Whittall had undertaken to voluntarily pay the $NZ3.41 million if the prosecution offered no evidence against him and the insurer's premise was it was saving the cost of a 16–20 week trial.

Two relatives, Anna Elizabeth Osborne and Sonya Lynne Rockhouse, sought a judicial review of the decision.

They alleged Worksafe's decision to offer no evidence and the court to drop the charges was illegal. The High Court ruled an agreement to stifle prosecution would be illegal, but the payment offer was voluntary and the D&O insurer was willing to pay because Pike River Coal could not.

Mr Heron said the Osborne parties argued that, at common law, an agreement to stifle a prosecution, for example, by withdrawing charges in return for a payment, was an unlawful contract and void on public policy grounds. "Unsurprisingly Worksafe accepted that an agreement to stifle a prosecution would not be consistent with guidelines and no reasonable prosecutor would enter into such an agreement."

Worksafe argued the "offer" was a voluntary payment to the victims as reparation. It rejected the Osborne submission it required the payment, saying "it did not enter into any binding agreement to secure the payment on behalf of the victims or at all".

Mr Heron said the distinction between a voluntary payment compared to one made as a consequence of a binding bargain appeared to be a critical feature.

In the High Court, Justice Brown said: "Reparation (whether by the offender or a relative) could well be a matter that could be taken into account in a decision not to prosecute but there must be no bargain made about it."

Mr Heron said: "You could see it would be good for the families to get the money, but the Crown could not allow ‘chequebook justice'."

The case then went to the Appeal Court, which said the prosecutor's decision was "amenable to review" to determine if the prosecutor followed the guidelines.

It found "fine questions of weighting" — the importance of reparation versus acknowledgement of responsibility — were not ones for the court on judicial review.

Mr Heron said: "Worksafe had concluded that, although the case could credibly be put before a court, success was unlikely or at least contingent on pre-trial arguments. The litigation risk was significant. That is the sort of factual and holistic assessment a prosecutor must be entitled to make."

The court found no "improper bargain" between Mr Whittall and Worksafe.

"Mr Whittall's insurer offered a substantial reparation sum [if] the prosecution terminated. The prosecutor was entitled in law to consider that conditional reparation undertaking as part of the prosecution process (and the absence of that reparation sum in the event the prosecution proceeded on)."

Mr Heron said the court confirmed decisions whether to prosecute "shall not be made a matter of private bargain". If there were an agreement where one side promised to make payment in exchange for a promise not to prosecute, that would be unlawful.

"There must be no express or tacit indication by the prosecution that the consequence of making the offer is that it will necessarily then be accepted as the conclusion of a bargain."

Mr Heron said Worksafe had to consider that, if it continued the action and lost, no one would get a share of $NZ3.41 million.

"It's a fine question of weighting. I accept it was close to the mark but on the right side of it. The broader question for the Supreme Court is was the Appeal Court correct?"

Mr Heron said the Supreme Court had granted leave in June to hear a further appeal in Osborne v Worksafe.

His advice to insurers was to:

• Check the scope of your policies – what is the coverage for damages and reparation?
• Don’t make reparation part of a bargain but consider offering it as part of a package
• Consider whether reparation is intended to be covered.

Department of Labour v Whittall DC Christchurch CRI-2012-018-0821, 12 December 2013

Osborne v Worksafe New Zealand [2017] NZCA 11, [2017] 2 NZLR 513