What does good faith require?

By Sarah Moon

13 November 2023

What do you think about when you hear “good faith obligations”? You have likely heard it applies to all employment relationships and may be thinking of the ideas below, all of which are correct:

  • Be completely honest – don’t mislead or deceive;
  • Involve people as early as possible in matters that might affect them;
  • Keep an open mind and be prepared to change your opinion on things;
  • Communicate well (and early), with the right information;
  • Work constructively to solve problems; and
  • Raise issues quickly – don’t let things fester.

However, in practice, answering the headline question can be difficult – especially when relationships are breaking down and stress levels are high. This is where expert advice is essential to help ensure you stay on the right side of the law. 

A recent example

Over the last few years, we have assisted a large local employer with the headline question in the Employment Relations Authority and the Employment Court. The employer had a collective agreement with a union. Legislation imposes good faith obligations on the parties and their bargaining agents. Unfortunately, working relationships between the union and the employer were incredibly strained. The Employment Relationships Authority characterised the situation as a “relationship of mistrust”. This made acting in “good faith” incredibly difficult when everyone had to work together to agree a new collective agreement.

Eventually, as indicated, the Employment Relations Authority became involved. Both the union and the employer alleged the other breached their good faith obligations during negotiations for the collective agreement. The Authority found in our client’s favour, finding the union breached its good faith obligations by:

  • raising a pay claim late. This breach was then compounded by the union (wrongly) insisting it was not raised late; and
  • refusing to deal with a member of the employer’s negotiating team and trying to choose who it met with to finalise the deal.

Despite the union’s various allegations (over 10 between the two hearings), the Authority agreed that the employer did not breach any of its good faith obligations. This was despite the robust approach the employer used in negotiations. Importantly, the employer did not fight fire with fire – continuing to show good faith, even when the other side didn’t. 

As requested by our client, and because of the union’s breach of good faith, the Authority fixed the terms of the collective agreement, imposing contractual obligations between the union and the employer. This was only the second time the Authority had ever fixed an agreement.

Dissatisfied, the union took the matter to the Employment Court. The hearing was held in Nelson in February 2023 over several days. The Employment Court agreed with the Employment Relations Authority. Again, it was found that the union breached its good faith obligations, and the employer did not. The fixed agreement continued to apply.

This example highlights the importance of engaging with professional advisors early. Specialist advisors assist you to ensure that the strategy and methods you are thinking of using will still be considered appropriate later (and even in the objective view of an Authority Member or Judge, should matters escalate).

Still have questions?

Contact Pitt & Moore if you are unsure how to show good faith in a tricky employment situation. We are experts in good faith, with five local specialist employment lawyers who are dedicated to helping Nelson-Tasman people and organisations.

Welcoming The Farm Debt Mediation Scheme

A government backed scheme to assist primary producers in financial distress took effect on 1 July.  Unlike some of the other recent debt relief measures that apply to business more generally, this was not a COVID related measure, but recognises the particular pressures that primary producers are facing.  It is backed by the Farm Debt Mediation Act. 

The scheme applies to primary producers in fields such as agriculture, horticulture and aquaculture.  Some primary producers, such as forestry, fishing and lifestyle farming are excluded.

At the heart of the scheme is the mandatory requirement for banks, and other security holders, to go through a formal mediation process, in good faith, with their farmer clients before they can take any action to enforce their security (for example beginning a mortgagee sale process).  Farmers don’t have to wait for their creditors to act and can initiate the mediation process themselves.  The scheme provides a streamlined process for setting up the mediation and farmer’s costs are capped at $2,000.  A mediator is appointed and they then conduct a mediation meeting with the parties.

The scheme is no “magic cure-all” for farmers given that mediators have no ability to impose solutions on either party.  If the farmer cannot reach an agreement with their creditor at the mediation then the creditor can proceed with enforcement, provided they have negotiated in good faith.

However mediation can still be a very useful process.  Firstly there is the practical aspect of forcing the parties to put all other matters to one side for the day and focus their energies on resolving this one issue.  It can be surprising what a difference this focussed approach can make.  Secondly the parties have the benefit of a mediator who is skilled at assisting parties in working through their issues and arriving at a mutually acceptable solution.  With a mediator involved parties are much less inclined to walk away from the table and instead will often continue negotiating past their usual comfort point. 

Accordingly we would urge farmers who are experiencing financial difficulties to consider using this scheme on a proactive basis.  If your bank invokes the scheme, then we would recommend that farmers take appropriate professional advice on how to approach the mediation to maximise the opportunity for achieving a positive outcome.

Talk to us

Contact Marty Logan today to discuss how Pitt & Moore Lawyers can assist you.

Greater Transparency for Trusts in New Zealand

Significant changes are on the horizon for the landscape of trust law. The Trusts Act 2019 (“Trusts Act”) comes into force on 30 January 2021.

Trusts are extremely prominent in New Zealand, it is estimated there are between 300,000 and 500,00 trusts in New Zealand. There are a vast number of reasons why trusts are set up, for example, asset protection and tax purposes.

The changes being adopted by the Trusts Act gives the beneficiaries of a trust more power to hold the trustees to account.

Changes in Trust Law

Trustees will be required to retain and hold on to integral trust documents which set out the terms of the trust, records of trust property and accounting and financial statements.

Upon request by a beneficiary, trustees may also be required to disclose trust information to beneficiaries who request it. This information can range from the fact that a person is a beneficiary, to the terms of the trust and the administration of the trust. Trustees can withhold information from beneficiaries if they reasonably consider it should not be disclosed.

Below are some of the factors trustees will consider when weighing up whether to disclose trust information to beneficiaries.

  • The nature of the beneficial interest (what does the beneficiary stand to receive from the trust);
  • Whether any personal or commercial sensitive information is present (confidentiality issue);
  • Age of beneficiary;
  • Expectations of the settlor; and
  • Context or necessity of any request for information

It is likely the weight each factor is given, will become more clear when trustees decide not to disclose, and their decisions are challenged by a beneficiary through the courts.

Steps to take in the interim

Over the next year, trustees should discuss the process they plan to follow in respect of retaining and disclosing information to beneficiaries. Where required, trustees should seek advice to ensure they follow the Trusts Act. If processes are put in place now, then adhering to the new Act will not be an issue. It will also mean that when trustees change, there will be a robust process in place, which enables the new trustee to get up to speed on their obligations quickly.


The new law regarding disclosure allows greater transparency of trusts in New Zealand. Whilst this is a positive, the change is also likely to bring about exposure to matters which were previously kept confidential, often for good reason. It is now more crucial than ever that trustees understand their obligations in their role.

Talk to us

For expert advice on this area talk to our Trusts and Estate Planning Team.

Update on Health & Safety in Employment Act

The much heralded Health & Safety at Work Act 2015 has been in force for several years now. When it was enacted it was claimed that it would bring in a new era enhancing the safety of New Zealand’s workers. However in my view it was often difficult to see how the new legislation differed significantly from the old law.

There is now a steady stream of cases decided under the new legislation, and again I don’t think these cases have taken the law in a fundamentally new direction.

The most significant impact has been the substantial increase in fine levels.  In some cases this has come up against the reality that not all small traders can afford to pay a fine at the new level, and therefore reduced fines have been imposed.  However for those with the ability to pay, the fines are now truly significant. Businesses cannot insure against fines.  Another development has been the increased use of improvement notices and enforceable undertakings as alternatives to prosecution.

For those concerned that the new law would place unreasonable burdens on employers, they may find some reassurance from the practical approach taken by the Court in a recent decision involving the horticulture sector. 

The decision dealt with the overlapping obligations of different participants in the industry.  It arose from an accident on a kiwifruit farm.  The export authority, Zespri required an independent contractor to test fruit before harvest.  For logistical reasons the packhouses contracted the testing contractor.  The contractor’s employees occasionally used a quad bike, and were trained in its use.  The system was intended to minimise contact between the growers and the contractor’s employees to maintain the independence of the sampling.  In the course of carrying out sampling, the contractor’s employees left the kiwifruit blocks and drove up a slope covered in long grass. 

There was no need for the employee to go up the slope during the sampling process.  Tragically the quad bike rolled and the employee died as a result.  All parties involved were prosecuted.  The contractor pleaded guilty, and an arrangement was agreed with Zespri.  The packhouse and grower defended the charges against them.  WorkSafe claimed that the grower was required to identify potential hazards across the entire farm, not just the areas where the sampling would be taking place, and then take steps to reduce those risks through (for example) signage or creating no-go areas.  The grower pointed out the practical difficulties this would cause.  It did not operate quad bikes, and its management had no expertise in their use.  The contractor had the expertise in operation of quad bikes. 

The Court agreed with the grower and the packhouse that WorkSafe’s stance would place impractical burdens on them and they were both found not guilty.  It has to be stressed that each of these situations depend very much on their own facts, and the facts were unusual here in that the whole arrangement was predicated on minimising the contact between the growers and the sampling contractor, therefore the growers had very little control over the contractor’s staff.  However it does illustrate that the Courts are prepared to draw a line on liability and take into account the realities of these multi-party arrangements.

Talk to us

Contact Marty Logan today to discuss how Pitt & Moore Lawyers can assist you.

How Do I Challenge a Will?

There are many ways a will can be challenged and when making your own will it is important that you record the reasons why you are making the provisions that you are.

An upset relative or friend can bring a claim that a will should be declared invalid because the will-maker did not have the mental capacity to make a will, or was suffering from undue influence at the time the will was made.

The Family Protection Act 1955 also provides for a class of people (generally immediately family) to challenge a will on the basis that the will-maker owed them a moral duty to provide for their proper maintenance and support but breached that duty in making the provisions made for them.

A further line of attack is provided by the Law Reform (Testamentary Promises) Act 1949. This allows any person to claim that the will-maker made a promise to provide for them under their will in exchange for services provided them in their lifetime. The Court will force the deceased’s estate to honour that bargain provided there is sufficient credible evidence for that claim.

Fundamentally though, it is not easy to challenge a will. Courts are rightly loathe to interfere in the wishes of a will-maker about what should happen to their property after death.

The situation has become difficult with the prevalent use of trusts in more recent times. The property that a will-maker has transferred to a trust in his or her lifetime does not form part of the estate of that person. Other reasons that make challenging a will more difficult is the fact that we are all living longer, and may be more likely to have capacity issues alongside with the fact that many people are now having second, third, fourth, or even simultaneous relationships with children to those different partners.

Life is more complicated than it ever used to be and certainly more complicated than the law-makers back in 1949 or 1955 would have envisaged.

The whole area is fraught with complexity and because the area is highly discretionary can generally only be assessed on a case-by-case basis applying the principles that have been developed by the Courts since the mid-century. What the Courts are often faced with is a battle between the second or third partner and the deceased’s children. Or a battle between adult child siblings. A sensitive approach is always recommended, whatever the circumstances

Claims are often brought under both the Property (Relationships) Act 1976 and the Family Protection Act 1955.

Statutory timeframes mean a challenge has to be made within 6 to 12 months – the very time when family members are still in grieving. We encourage our clients to be firm on the issues but kind to all the people concerned. Such an approach is more likely to achieve resolution that all parties can agree on and give the parties involved the dignity to move on with their lives and not see the bulk of the deceased’s estate used up on legal fees. We are certain that no will-maker would want that!

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For expert advice on these areas talk to our Litigation and Dispute Resolution Team.

Rural fires – end of strict liability

I note with some satisfaction the recent demise of a statutory provision which caused much grief to an unlucky few in the rural community.

I refer to a section of the Forest and Rural Fires Act which made anyone who caused a rural or forest fire liable for any damage caused by the fire, and the cost of putting out that fire, regardless of whether they had been negligent. So long as the root cause of the fire could be traced back to you, you could be liable even if you had done everything right to contain the fire source, or thought you had completely extinguished the fire. 

In many cases the Fire Service’s costs of putting out rural fires were huge, and could exceed the amount of any material loss. If helicopters with their monsoon buckets were involved, costs mounted very rapidly. 

Over the years, individuals caught out by this included farmers whose burn offs had got out of control, and hunters whose campfires got away on them. Unexpected wind changes could cause havoc. Often the cause was embers coming back to life under favourable weather conditions when people quite reasonably thought they had long ago gone out. 

In many cases the Fire Service’s costs of putting out rural fires were huge, and could exceed the amount of any material loss. If helicopters with their monsoon buckets were involved, costs mounted very rapidly. Over the years, individuals caught out by this included farmers whose burn offs had got out of control, and hunters whose campfires got away on them. Unexpected wind changes could cause havoc. Often the cause was embers coming back to life under favourable weather conditions when people quite reasonably thought they had long ago gone out. 

If you had the right insurance in place then you were ok, but you had to have specific cover for liability under the Act and for the type of activity you were carrying out when the fire started. Cover could be a bit of a lottery. Some small block owners did not have the right cover for all the commercial activities carried out on their land. The financial consequences of not having cover could be catastrophic. This provision always seemed unfair to me because in other accident or emergency situations you are not expected to pay the full costs of the emergency response, even if you caused the accident.

The strict liability provision has been swept away with the repeal of the Forest and Rural Fires Act by the Fire and Emergency New Zealand Act 2017.  The Rural Fire Service is not funded by levies. A new criminal regime has been put in place whereby anyone who behaves intentionally or recklessly with regard to fire can face large fines. I think we can all agree that this is reasonable. 

While the no fault statutory liability has gone other potential legal liability does remain so that if it can be shown that a person has allowed a fire to escape as a result of negligence then they may find themselves sued by any property owners who suffered damage as a result.

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Contact our Litigation & Dispute Resolution Team today to discuss how we can assist you.

Leases – it’s all in the Wording

The importance of clear and explicit wording in your contractual arrangements has been confirmed by the recent quashing by the Supreme Court of the Court of Appeal’s judgment against Mobil Oil – Mobil Oil New Zealand Limited v Development Auckland Limited [2016] NZSC 89.

The Court of Appeal – disagreeing with the High Court – found that Mobil had to remediate the land that it had leased from the Auckland Harbour Board (and its successors) and that the natural and ordinary meaning of the words in the lease did mean that the remediation included the sub-soils which had been contaminated over many years prior by its use as a bulk storage of oil.

The lease agreements all contained a repair clause dealing with Mobil’s obligations to keep the land “in good order and clean and tidy” during the term and to deliver it in that condition on termination. The leases permitted the storage, handling and blending of petroleum products but prohibited any noisy or offensive trade or business and required Mobil to comply with all relevant regulatory requirements.

The question for the Court was whether delivery of the land at termination meant remediation of the contamination.

Factually, the key findings were that Mobil’s predecessors had occupied the site since the 1920’s and that the parties knew the land was contaminated from the 1970’s. The relevant leases were entered into between the parties in 1985. At the time the tenancies came to an end in 2011, remediation work costing between $10-50 million (depending on who was doing the work) was required.

Development Auckland said Mobil was to foot the bill under the terms of the lease. Mobil said that the terms of the lease did not require it to foot the bill.

The High Court found in Mobil’s favour and found that having regard to the land’s contamination in the 70’s one would have expected any remediation from contamination to be explicitly addressed in the lease rather than left for inference from the general wording of the clean and tidy clauses.

The Court of Appeal disagreed. It reviewed, at some length, the law of waste, and took the view that permission to use the site for oil storage did not amount to authorisation of incidental contamination. It was of the view that there had been a breach of the covenant not to injure the lessor. The Court saw the clean and tidy obligation as naturally extending to the subsurface and it saw Mobil as coming to the negotiating table in 1985 with an actual or potential liability for its prior contamination. The Court traversed all the correspondence between the parties leading up to the execution of the 1985 leases in order to get to that point and the majority found that all the contamination – not just the contamination caused post-1985 should be remediated by Mobil.

Mobil appealed and were successful. Amongst other things the Supreme Court considered it important that there were multiple causes of the contamination; that contamination was an incident of the permitted use of bulk oil storage; and that there was no claim by Auckland Harbour Board for Mobil to remediate the land when it was surrendered to it in 1985; as relevant. The Supreme Court favoured the High Court’s assessment of the contractual terms and emphasised that the word “keep” in keep tidy, is future looking and not a word which is apt to signify an obligation to effect transformative change (such as extensive and expensive remediation). The Supreme Court rejected that the clean and tidy clause meant that Mobil would be liable for any contamination and also rejected the suggestion that a term be implied into the contract which would require Mobil to prevent contamination – such a term was not necessary to give business efficacy and did not “go without saying”.

In short, be very clear from the outset what each party’s obligations and rights are to be – particularly having regard to the nature of the use of the premises – and ensure they are clearly spelt out in the agreement. In this case, after years of legal flip-flops, Auckland now has to wear the costs of site remediation which would arguably take away any profit to it after all the years of leasing it plus pay costs to Mobil – the ratepayers will not be happy!

Talk to us

Contact our Litigation & Dispute Resolution Team today to discuss how we can assist you.