Guideline decision on approach to reparation awards in health and safety sentencing

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The High Court has released its decision on two appeals relating to orders for reparation in Oceana Gold (New Zealand) Ltd v WorkSafe New Zealand [2019] NZHC 365.

The High Court’s decision confirms that:

  1. The Court can order reparation for the deceased’s loss of earnings to persons who have suffered loss as a result, i.e. to family members/dependents; and
  2. Reparation for loss of earnings is to be calculated using the statutory shortfall calculation which is the difference between the amount the victim would have received in net income and the compensation payable to them under the Accident Compensation scheme, limited to the period which they are entitled to such payments.

In Oceana Gold an employee died in a mining accident at the Waihi Mine. Oceana Gold was fined $378,000 and ordered to pay reparation of $350,000 for future lost earnings to the employee’s family. This was in addition to voluntary payments the company had already made to the family of $200,000 and $450,000 from an insurance policy Oceana Gold had in place, making the total reparation paid to employee’s family of $1 million.

Oceana Gold’s insurers appealed the decision as it was considered a test case for reparation awards under the Health and Safety at Work Act. Notably, Oceana Gold has said it would pay the reparations out of its own pocket to ensure the appeal did not affect the sum paid to the employee’s family.

In Cropp Logging, an experienced logger was injured in a breaking out incident. The company was fined $100,000. Reparation of $80,000 was awarded but the sentencing judge did not identify what part was for emotional harm and what part for was loss of earnings. Cropp Logging appealed the reparation awarded as being too high on the basis the Court failed to take into account any contributory conduct of victim.

The High Court was required to consider two issues on appeal:

  1. Whether the Court can order reparation for the deceased’s loss of earnings to persons who have suffered loss as a result i.e. family members/dependents; and
  2. How reparation for loss of earnings is to be calculated.

The Court confirmed that there was jurisdiction to make a reparation order for consequential loss in favour of persons other than that the person who had suffered the physical harm. Consequential loss is indirect loss that will likely arise as a result of a breach, and is commonly in the form of loss of future earnings in health and safety sentences.

The Sentencing Act 2002 allows the court to make an order of reparation in favour of a person if an offender has caused that person to suffer loss or emotional damage. The Court determined that this section applies to a “victim”, which can include members of the immediate family of a person who dies as a result of an offence by another person. The employee’s partner and child come within the definition of victim which meant that the Court could make an order for reparation in favour of them for the loss of the employee’s future earnings.

Calculation of reparation awards for loss of earnings

The High Court considered two approaches for calculating reparation awards for loss of earnings:

  1. The statutory shortfall approach – the shortfall between the financial benefit the victim would have otherwise received (calculated by reference to net income in the period before the incident), and the victim’s entitlement to compensation under the Accident Compensation Act for the period which they are entitled to such payments; or
  2. The open-ended approach – the anticipated future loss of earnings of the victim calculated as an estimate of their lifetime earnings based on actuarial reports.

The District Court followed the open-ended approach where actuarial reports had been obtained to determine the future earnings that could have been expected from the victim, had the incident not occurred. The High Court decided that this approach was too wide and held the statutory shortfall approach was the appropriate method of calculating loss of earnings:

“in the case of loss of earnings the order for reparation (which in a number of cases will be in addition to reparation for emotional harm) should be restricted to the statutory shortfall in compensation under the compensation legislation. That shortfall is to be calculated as the difference between the pecuniary benefit the victim would have received and the compensation payable to them under the accident compensation scheme, in accordance with the entitlements set out in Schedule 1 of the Accident Compensation Act limited to the period that the payments are made under that scheme. That will enable the shortfall to be made on a basis that ensures a degree of consistency with the social contract confirmed by the Accident Compensation legislation. It should also provide a more straightforward basis for the calculation of reparation and, hopefully, a degree of certainty to sentencing Judges and the parties. It will also avoid the need for complicated and potentially contestable actuarial reports for sentencing hearings and avoid arguments concerning contribution.”

Cropp Logging appealed the reparation order against it on the basis that the Judge failed to take into account any contributory conduct injured employee, who it alleged failed to observe industry standards. The Court stated that it was not appropriate for a sentencing hearing to determine what industry standards exist, how an injury occurred and what contribution a victim may have contributed. The Court determined that to seek a reduction of reparation on the basis of contributory conduct would undermine the overriding duty of an employer to keep its employees safe.

The High Court allowed the appeals, and the reparation payments were reduced to represent the statutory shortfall and an award for emotional harm.

The reparation award for Oceana Gold of $350,000 was set aside on the basis that Oceana Gold had already paid the deceased employee’s partner and child more than the amount of reparation that would have been ordered using the statutory shortfall calculation.

The award for Cropp Logging was reduced from $80,000 to $57,500 on the basis the District Court judge had erred in taking in account inflation.

For more information, please contact a member of our health and safety team.

Disclaimer: the content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.

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