Contents

Chapter 3
Resolving central policy issues

Accountability of Crown employees

Introduction

3.52The question of when and how Crown employees ought to be protected from personal liability for their actions was considered in Chapter 6 of the Issues Paper. In the Issues Paper, the Commission put forward two options for feedback – one being that Crown employees should have immunity and the other being that they have an indemnity. Here, we briefly revisit the distinctions between the options, discuss submissions and explain our recommendations. Clause 13 of the draft Civil Crown Proceedings Bill reflects our recommendations.

Current lawTop

3.53Most, but not all, Crown employees are immune from legal actions. Some Crown employees are not immune but may be entitled to an indemnity.

Public servants

3.54Following the Supreme Court decision in Couch,38 Parliament enacted amendments to the State Sector Act 1988 to clarify that Crown employees would not be personally liable for actions undertaken in good faith in the performance of their public duties. Section 86(1) of the State Sector Act was amended to provide an immunity for all Crown employees covered by that Act if they acted in good faith in the performance of their work.

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.

3.55An accompanying amendment to the Crown Proceedings Act inserted a new subsection (4A) into section 6, preserving the ability of those who had suffered loss to pursue the claim directly against the Crown:

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 purposes of determining whether the Crown is so liable, the court must disregard the immunity in section 86.
3.56The Select Committee that considered the Bill, while acknowledging that the Law Commission was reviewing this issue, concluded that the doubt the Couch decision had created should, nevertheless, be removed to:39

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

3.57The 2013 amendments to the State Sector Act were aimed at restoring what many had thought was the law prior to the case. Crown Law said in their submission that, within the Crown, at least, the 2013 amendments were not regarded as increasing the protection of public servants beyond what had been thought (prior to Couch) to be the position.

Crown employees not covered by the State Sector Act

3.58Section 86(1) of the State Sector Act does not cover all Crown employees. It covers only employees of departments specified in Schedule 1 of the State Sector Act. Crown employees, for example, who are members of the New Zealand Defence Force, the New Zealand Police or the New Zealand Security Intelligence Service are not protected by the immunity in section 86(1) because these are not departments listed in the Schedule.

3.59However, many of these Crown employees are covered by a patchwork of specific immunities. Although this is not comprehensive, some employees in this group are, at least in respect of some actions or omission, covered by specific statutory immunity. For example, Police officers have certain specific statutory immunities when executing judicially issued warrants.40 Police constables are also protected from civil and criminal liability for acts done in good faith under the Search and Surveillance Act 2012 (including warrantless entry powers, search and surveillance powers) if the power is exercised in a reasonable manner. Police immunities are specific but cover many activities that may give rise to liability.
3.60Employees of the New Zealand Security Intelligence Service also have statutory immunity from both criminal and civil proceedings when acting under provisions allowing intelligence interception and tracking and surveillance under a warrant or emergency powers.41 Defence force personnel have both criminal and civil immunity in respect of domestic actions where assisting Police to maintain control. They also have common law immunity when engaged in combat overseas.
An indemnity may be available
3.61Where no statutory immunity covers Crown employees, they may be entitled to seek an indemnity from the Crown if they are sued. However, an indemnity can only be given on behalf of the Crown where there is express statutory authority to give an indemnity.42 A number of Acts do include express statutory authority to indemnify a Crown employee where the employee has acted in good faith. For example, the Gambling Act 2008 allows the Lottery Grants Board to indemnify employees of the Department of Internal Affairs against costs incurred in proceedings for good-faith performance of New Zealand Lottery Grants Board functions.43 Another example is the Serious Fraud Office Act 1990, which provides that the Crown shall indemnify members of the office (the Director and employees) against all costs incurred in good-faith performance of their duties.44
3.62If there is no specific statutory provision of this kind, the Minister of Finance may, on behalf of the Crown, give an indemnity to a Crown servant under the Public Finance Act if it appears to be in the public interest to do so. Indemnities for Crown employees need to be approved individually by the Minister of Finance.45 Guidance on the circumstances in which ministers of the Crown may be indemnified is contained in the Cabinet Manual.46

Should Crown employees have immunity?Top

3.63The Commission considers that Crown employees should be protected from personal liability in cases where they have acted in good faith in pursuance of their jobs. The issue, though, is whether such protection should go so far as to provide statutory immunity or whether employees can be adequately protected, in the way private sector employees are, by their employer (the Crown) indemnifying them against liability.

3.64We presented two options in the Issues Paper:

3.65Under both options, the Crown is liable for the actions of its employees. An aggrieved party would bring legal proceedings against the Crown. Under both options, a Crown employee is also protected against any personal financial liability only where they had acted in good faith pursuant to their duties.

3.66However, immunity is a more complete protection for Crown employees than indemnity. Immunity from suit means that there is no cause of action against the employee. The employee cannot be sued or found by a court to be liable at law for their actions. Proceedings could be brought against the Crown because section 6(4A) of the Crown Proceedings Act displaces the common law and provides that the Crown cannot rely on the employee’s immunity under section 86.

3.67In comparison, indemnity means that the Crown is responsible for payment of losses that may be incurred by an employee who is sued. An indemnity does not stop anyone from bringing proceedings against the employee, and the court can give judgment against the employee. An indemnified employee could be found legally culpable, notwithstanding the fact that the Crown would be required to pay the employee’s legal costs and any damages that result from the proceedings.

Public policy considerations

3.68The core difference between the two options is that immunity prevents litigation being brought against a Crown employee whereas, with a statutory indemnity, the employee remains at risk of being named as a party and having litigation brought against him or her. This difference was seen as a very significant one by submitters.47
Exercise public functions and services – without fear or favour

3.69Almost all submitters supported immunity and said that public servants should be treated differently from non-Crown employees because Crown employees are exposed to additional legal risks. Submitters said that statutory immunity supported the public interest in having a well-resourced and able public sector. Crown employees serve the government of the day, which means they are required to implement government policy and their ministers’ lawful instructions, regardless of their personal views.

3.70Crown employees sometimes must exercise substantial powers or comply with onerous duties requiring them to make decisions that are difficult and likely to significantly affect and possibly aggrieve individuals. Often, there are competing interests being weighed up, so opposition is likely whatever decision is made. Although there may be instances where the acts or omissions are not peculiar to Crown employees, there are many instances where there are no analogous responsibilities in the private sector.

3.71Submitters argued that, if Crown employees are exposed to the threat of liability, this could lead to these employees conducting their work in an overly cautious or risk-averse way. Crown employees should not be unduly influenced by the fear of personal suit. Without immunity, they could be overly defensive. While submitters acknowledged that an indemnity would cover financial costs, there was concern that employees would still be publicly identified and would face the stress of proceedings against them and that having to take part as a defendant in a legal action could significantly impact on how employees undertake their roles.

3.72A number of the submissions the Law Commission received from individual public servants considered that the fear of personal suit could have a chilling effect on the way public servants do their jobs. A submission from a public servant who undertook investigation, for example, said that:

I work in the tax area and mainly address white collar crime and evasion fraud related issues. These clients are at times exceedingly aggressive and tend to attack the person if only to delay matters and remove or conceal the equity being pursued. Malicious court actions are already fairly common and sticking public servants on moderate to low incomes in the firing line will severely curtail the will and ability to do their job …

…In short the proposal [indemnity] will in practice make non-compliance easier and it will also put an extreme amount of pressure on public servants to walk away from aggressive and difficult clients simply because of personal risk. That is already a problem.

3.73Without a protection against potential personal liability, submitters also argued, it might be difficult to attract employees into public service positions. It would be undesirable if prospective employees were discouraged from joining the public sector because of the risk of legal liability or cost.

The alternative view – the “chilling” effect of exposure to liability is desirable

3.74However, the alternative view is that the chilling effect of exposure to liability is desirable because it encourages caution and risk aversion in Crown employees, and this is a good thing. Professor Janet McLean noted in her submission that the absence of immunity is intended to have a chilling effect on Crown servants. From this perspective, immunity is seen to discourage individuals from taking an appropriate level of care in carrying out their work.

3.75Historically, Crown servants were personally liable for any civil wrong committed in the course of their role, and such suits were viewed in much earlier years as a check on the misuse of power. Even if it is only nominal and reputational, exposure to liability provides a degree of individual responsibility for employees. Immunity severs the connection between the individual providing the service or carrying out the function and the party that is held accountable for these actions, and the individual carrying out the function then has less incentive to take responsibility for their actions.

Overstating “chilling” impact

3.76It is very hard to determine what, if any, weight should be given to the argument from either side about the chilling effect exposure to litigation has on any individual’s decision-making and actions. It seems likely that it is somewhat overstated. Replacing the current immunity with an indemnity is unlikely to cause any significant change in Crown employees behaviour, making them unduly risk-averse or too conservative in their roles. Likewise, we doubt that the current immunity they enjoy encourages Crown employees to act in a reckless, incompetent or over-zealous manner. The influence of potential litigation is, in our view, likely to be relatively remote. In the modern public sector, there are much more immediate and relevant levers, such as employment sanctions or rewards, for imposing accountability and managing individual responsibility.

Accountability and responsibility
3.77In the Issues Paper, we suggested that, if a Crown employee is not personally liable, his or her actions might “not face scrutiny in the same way as they would if the employee were the subject of the proceedings” and that indemnity may have the consequence of removing “some of the incentive for an employee to exercise an appropriate level of care in his or her work”.48

3.78Employee representative organisations, including the PSA, strongly disagree with this and submitted that an employee’s actions would face the same level of scrutiny whether he or she had immunity or an indemnity. Submitters said that the actions that give rise to the legal claim are the same in both cases, and any wrongdoing still has to be proved. The fact that immunity is contingent on employees acting in good faith gives employees sufficient incentive to exercise care in their roles. In the event of a trial, immunity does not protect Crown employees from having to give evidence. In fact, some employee organisations suggested that immunity may have the advantage that an employee may feel more free to be completely frank when giving evidence in the knowledge that they are immune from any liability. This may not so much be the case with an indemnity.

3.79Crown employees should be incentivised to do their best and, to this end, should be held accountable for their acts and omissions. The issue, however, is whether exposure to legal liability has any role to play in promoting responsibility at the individual employee level. Submitters argued that there are multiple forms of accountability already in place, and these already produce the desired result. There are various employment processes and codes of behaviour in place within the public sector. The employment relationship and agency codes of conduct oblige Crown employees to carry out their duties in good faith, fairly, impartially, responsibly and in a trustworthy manner.49 Statutory duties must be carried out in accordance with guidance and policy and, in many cases, require several levels of sign-off. Crown employees owe obligations to their department as part of the employment relationship and can be held accountable for acts and omissions that breach those obligations. Submitters argued that any poorly performing public employee can be quickly caught out by the various performance mechanisms within the various departments, ministries or agencies.

3.80While there is no doubt that accountability arrangements within government departments now do much of the work that may have previously been done by exposure to liability, it should be recognised that sometimes these systems will fail. The existence of these alternative accountabilities does not therefore fully answer the question of whether Crown employees should face the further scrutiny of being personally liable.

Impact of public sector reforms
3.81As discussed earlier, New Zealand introduced a new model of public service management with the public administration reforms of the 1980s. The new approach placed emphasis on upward accountability to ministers rather than on accountability directly to members of the public who use public services.50 The extent to which such public management reforms have enhanced accountability within New Zealand’s governmental institutions remains very much a live issue.51 However, for our purposes, the reforms represent a shift from the earlier model of public administration in which legal liability of the Crown servant for their actions played an important part. Under the current model, formal chains of accountability do not normally include public servants being directly accountable to the public who are affected by the execution of responsibilities.52

3.82This new more hierarchical model of accountability is very relevant to the question of whether employees should have immunity. Individual public servants are accountable to their superiors for the way they undertake their responsibilities, and those superiors are in turn accountable to those further up the chain for the actions of their staff. Exposing individual public servants to personal liability in the courts (even if they are indemnified against any financial consequence) where they have undertaken their functions and responsibilities in good faith does not fit particularly comfortably with the hierarchical model of the public service management New Zealand operates. There is a clearer chain of accountability at play now than there was with the 19th century notion that the law held individual public officials to account for doing their duty.

Improvements to systems and processes

3.83A number of submitters argued that removing immunity actually “individualises” obligations, and this could have the effect of lessening the collective obligations of the Crown. They believe that attributing personal responsibility to individual employees by exposure to reputation risk through litigation undervalues the collective responsibility of the Crown. Systemic problems are more likely to be identified when the Crown is the defendant rather than individual employees, because the focus is not then entirely on the actions of individual public servants. Some suggest that underlying systemic and process issues that may exist in organisations are less likely to be identified when the focus is on the actions of individuals.

3.84The suggestion that immunity promotes departmental and systemic accountability while indemnity promotes individual accountability is probably too simplistic. In practice, things are more complex. However, we think it is better for lawsuits to encourage improvements to systems and processes. Personal liability emphasises those mistakes that result in litigation rather than broader and potentially more serious systemic problems. It is important not to overly focus on the actions of individuals where they are part of a broader system. To promote systemic improvements, it is useful to view Crown employee accountability and responsibility in a more systemic way. Our recommendation that the Crown be directly liable, and the shift away from the Crown only being vicariously liable for the actions of employees, should help address this.

Public servants are currently immune
3.85Section 86 of the State Sector Act currently provides immunity for all Crown employees covered by that Act where they act in good faith in the performance of their work. As discussed above, the current section 86 was enacted by Parliament to restore what was thought by many to be the status quo prior to Couch.53 The Select Committee that considered the State Sector and Public Finance Reform Bill 2013 reported to Parliament that it should restore what was widely understood to be the status quo, in the knowledge that it would be open for Parliament to amend the provision once the Law Commission’s review was concluded if there were a compelling case for doing so.54

3.86Immunity is the status quo for most Crown employees, the vast majority of whom are covered by section 86 of the State Sector Act. Statutory immunities also exist for a range of other public officials outside the Crown. Current immunities include: office holders and employees of Crown entities; members of tertiary education institutes; members of school boards of trustees; the Auditor-General, her deputies and employees; the Ombudsmen, Chief Parliamentary Counsel and all employees of the Parliamentary Counsel Office; and directors, officers and employees of the Reserve Bank. There should be consistency in the protection given to Crown employees. If most Crown servants and public officials have immunity, then it suggests that those who are not currently immune should be.

Balancing the competing policy considerations

3.87After considering the position carefully, we have concluded that there is not a compelling case for replacing the current immunity most Crown servants have with a right to indemnity. In reaching this view, we are mindful of the Select Committee’s 2013 report. The form of the immunity in section 86 (enacted in the 2013 amendment) provides that the Crown itself is not able to rely on the employee’s immunity so would remain liable. The terms of the immunity should continue to preclude the Crown from benefiting. This, together with our earlier recommendations concerning the Crown being directly liable in tort, means that most of the concerns the Commission has previously had over immunity in this context have been addressed. The form of the current immunity does not preclude an aggrieved person seeking redress against the Crown. Provided the Crown continues to remain liable for the acts and omissions of Crown employees, public access to redress is retained even where individual Crown employees have immunity.

3.88We are therefore recommending that the current good-faith immunity provided for in section 86, coupled with a provision preserving the Crown’s liability, be retained. This form of a statutory immunity should apply to all Crown employees. We have concluded that there is not a compelling case to change to an indemnity model. As long as the Crown remains liable for their employees’ good-faith actions, this achieves a reasonable compromise between the competing policy considerations. However, if in the future there is evidence that this model of accountability is failing to provide the right incentives to those who deliver government services, it may be necessary to consider whether New Zealand should move to the indemnity model or further limit immunity or the terms of the immunity granted.

Recommendations

R5We recommend the retention of statutory immunity for Crown employees in respect of good-faith actions or omissions in pursuance or intended pursuance of their duties, functions or powers.

R6The immunities provided for Crown employees should not prevent the courts from holding the Crown itself liable in tort in respect of the actions or omissions of a Crown employee covered by an immunity.

38Couch (No 1), above n 19; and Couch (No 2), above n 8.
39State Sector and Public Finance Reform Bill 2012 (55-2) (select committee report) at 13.
40Crimes Act 1961, ss 26(2), 27(3), 28(6), 29(5), 30(7) and 39(4) and Policing Act 2008, s 44.
41New Zealand Security Intelligence Service Act 1969, ss 4A, 41C, 41D and 41F.
42Public Finance Act 1989, s 65ZC.
43Gambling Act 2008, s 294. Such employees may also have immunity under s 86(1) of the State Sector Act 1988.
44Serious Fraud Office Act 1990, s 35.
45Public Finance Act, s 65ZD.
46Cabinet Office Cabinet Manual 2008 at [4.34]–[4.57].
47The Commission received 121 submissions in total on the Issues Paper A New Crown Civil Proceedings Act for New Zealand (NZLC IP35, 2014); 118 of these submissions addressed the issue of indemnity versus immunity. All but two favoured a continuation of immunity for Crown employees. 113 of these submissions were from individual public servants supporting the current immunity in s 86 of the State Sector Act 1988. Although these were not form submissions, they were generally very brief. The remaining two submissions preferred the indemnity option.
48Law Commission, above n 31, at [6.35].
49For example the Code of Conduct for the State services.
50Mulgan, above n 13, at 9.
51Boston and Gill, above n 16, at 4.
52At 5. 
53Couch (No 1), above n 19; and Couch (No 2), above n 8.
54Finance and Expenditure Committee, above n 39, at 13.