It was unlawful for WorkSafe to withdraw its prosecution of Pike River mine boss Peter Whittall, in exchange for payments to the victims' families, the Supreme Court has ruled.
WorkSafe New Zealand initially laid 12 health and safety charges against Mr Whittall, but they were dropped after more than $3 million was paid to the victims' families.
Earlier hearings in the High Court and Court of Appeal ruled the decision to offer no evidence to the charges was not unlawful.
In October, lawyers for Anna Osborne and Sonya Rockhouse, who both lost family members in the 2010 explosion, asked the Supreme Court to issue a declaration that the dropping of charges arose from an unlawful bargain.
In is defence, the Crown argued the reparation payment was just one of several factors taken into account in withdrawing the charges.
It also had to consider the possible unavailability of witnesses and the fact a trial could take between 16 and 20 weeks.
In today's decision, the Supreme Court unanimously allowed the appeal and ruled the decision to offer no evidence was "an unlawful agreement to stifle prosecution".
The court has made a formal declaration to that effect.
Read the full decision:
A police investigation into the Pike River explosion concluded there was not enough evidence to prove a causal link between the actions of any individual and the specific events that led to the blast.
WorkSafe New Zealand also conducted its own investigation to determine whether there had been any criminal offending or breaches of the legislation governing health and safety in employment.
That eventually led to the charges laid against Peter Whittall on the basis he had "directed, authorised ... or participated in" the breaches of the workplace safety legislation by Pike River Coal, together with allegations he breached his duties as an employee.
Those charges mainly related to the management of the risk of methane gas explosion at the mine and inadequacies in ventilation.
One of the companies contracting at the mine, VLI Drilling, pleaded guilty to three charges of breaching health and safety regulations and was ordered to pay $46,800.
Pike River Coal, which was then in receivership, was convicted on nine charges in April 2013.
Judge Farish found then that the company's failure to ventilate the mine sufficiently and to manage the risks associated with methane gas were a cause of the explosions.
It was fined $760,000 and was ordered to pay $3.41 million in reparations to the two survivors of the explosions and the families of the men who died, but the company was later wound up and no reparations were ever paid.
In the middle of 2013, discussions were held between the WorkSafe prosecutor and Peter Whittall's lawyer, who made it clear his client would not plead guilty to any of the charges.
Instead it was proposed that the reparations ordered against the company would be paid, on condition that all charges against Mr Whittall be dropped.
That payment was funded by the insurer, which was liable to pay Mr Whittall's defence costs.
In December 2013, WorkSafe decided to discontinue the prosecution against Mr Whittall, saying that while it considered there was enough evidence to proceed to trial, continuing the prosecution was not in the public interest.
The court then dismissed the charges against Mr Whittall and the judge ordered that the payment which had been made into court should be used to meet the company's obligation of reparation to the families and the victims.