The Government is denying a more than $3 million payout to Pike River families was a "backroom deal" to ensure charges against the company's chief executive, Peter Whittall, were dropped.

Labour had called for the Government to come clean over why Department of Labour charges against Mr Whittall were discharged last year preventing others from taking legal action over the disaster which claimed the lives of 29 men in 2010.

The widely criticised decision last December to drop charges against Mr Whittall, saw $3.41 million in insurance money earmarked for his defence paid out to the families of the dead men, but parties close to the matter denied that represented a deal to get him off the hook.

Labour's justice spokesman Andrew Little yesterday said a letter from Mr Whittall's lawyer Stuart Grieve QC showed a deal was offered last October, nearly two months before the former Department of Labour, now WorkSafe, went to court.


"There has been speculation about a backroom deal ever since the charges against Peter Whittall were dropped. Now this letter confirms those fears."

Prime Minister John Key told Radio New Zealand he understood there was no deal for charges to be dropped.

"It was an unsolicited letter, they looked at lots of different factors.

"But in the end, they could have spent millions and millions and millions with the lawyers and actually got nowhere or practically made a payment to the families, which actually made more sense."

West Coast-Tasman MP Damien O'Connor, who said in December it appeared to be a stitch up, said today the letter confirmed his suspicions.

He said the department did not want to be exposed in court as "incompetent and arrogant" and "in a large part responsible for the systemic failure at Pike River".

Pike River widow Anna Osborne said it "reeked" of a backroom deal.

She said families handed over bank account numbers last year expecting Government compensation, and instead the payment came through from Mr Whittall and the directors.

"If I had known the charges were going to be dropped and the deal was for Peter Whittall's insurance money, I would never have handed over my bank account number," Mrs Osborne said.

In the letter to Labour, Worksafe high hazards general manager Brett Murray says he was "aware that there have been wildly inaccurate allegations" made by a number of people (and reported as "fact" by media and others) that there was some sort of "backroom deal" done between the defence and the prosecution which "let Mr Whittall off in return for these payments".

While he accepts that Mr Grieve's letter could lead to further suggestions of this kind, "I wish to make it very clear, again, that there was no such arrangement between the defence and prosecution".

Mr Murray states the offer of money "was a part, but only a part, of the Ministry's considerations about the status of the charges laid against Mr Whittall".

The critical issues in the decision were witness availability and "public interest considerations".

But Council of Trade Unions President Helen Kelly said the way the Crown dealt with Mr Grieve's letter should make all New Zealanders "seriously concerned".

"The letter makes clear that Mr Whittall's offer of payments to Pike River families was conditional on the Ministry of Business, Innovation and Employment agreeing that 'no evidence would be offered' at Mr Whittall's trial, thereby ensuring he was acquitted."

- Additional reporting by APNZ