The Thompson & Clark scandal has claimed its first scalp with the resignation of Southern Response chair Ross Butler.

Butler has stood down before a planned 'please explain; meeting with Greater Christchurch Minister Megan Woods on Tuesday night.

It came after an unflinching State Services Commission report detailed how the private investigation firm spied on Canterbury earthquake victims, at the behest of the government-owned insurer.

State Services boss Peter Hughes laid a complaint with police after it emerged an unlicensed investigator attended and recorded meetings with disgruntled claimants.

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* Police officers caught moonlighting for security firms

* Security firm spied on politicians, activists and earthquake victims

* Minister weighs up Southern Response chair's future

ROBYN EDIE/STUFF Earthquake Minister Megan Woods says Southern Response was wrong to order the monitoring of Canterbury earthquake victims

Woods says the company's actions were "wrong, plain and simple".

"A short time ago, I received the resignation of the chairperson of the Southern Response Board, Ross Butler," Woods said in a written statement on Tuesday night.

"Mr Butler has also resigned from his roles on the boards Otakaro Ltd and Regenerate Christchurch.

"The actions by Southern Response revealed in today's [Tuesday's] report do not meet my expectations as Minister.

"I acknowledge that Southern Response originally hired Thompson & Clark out of legitimate concerns for staff health and safety. That is appropriate. Every New Zealander has a right to be safe at work.

"What the report makes clear however is as the process went on, surveillance was increasingly used as a tool for reputation management, not for the protection of staff safety.

"Secretly infiltrating private claimant meetings and recording closed door conversations without anyone's knowledge are not appropriate ways for Government entities to manage their reputations.

"These actions were wrong, plain and simple. They are unacceptable to me and unacceptable to this Government.

"New Zealanders need to be able to trust that covert surveillance is only ever used in the public interest, with appropriate safeguards and to the highest ethical standards."

Woods said she would appoint an interim chair in the next few days.

A report by former deputy State Services Commissioner Doug Martin and Simon Mount, QC, revealed that Southern Response hired Thompson & Clark between 2014 and 2016, after a series of threats to staff.

They attended several meetings of disaffected claimants, which were recorded without consent. The meetings were for claimants only and two were led by lawyers to discuss strategy and legal options.

The private security firm provided Southern Response with a transcript of comments made at one of the meetings. But the investigator was unlicensed - a potential breach of laws governing private investigators.

The report's authors found Southern Response in breach of a state service code of conduct, because it allowed the snooping to continue without proper controls.

"The use of a recording device involved an element of surveillance, and the contractor's implied representation that he was a claimant perhaps even bordered on infiltration," the report said.

They said Southern Response's health and safety concerns for staff didn't justify the surveillance and they should instead have called in police.

The privacy breach was revealed earlier this year - and sparked the State Services Commission inquiry.

The scathing inquiry report also detailed a slew of revelations about the use of private investigators by government agencies.

For more than a decade Auckland-based Thompson & Clark reported on the Green and Mana parties, iwi and activists accessed private information in the motor vehicle register thousands of times.

Two Ministry for Primary Industries staff were also working for Thompson & Clark, and accessed New Zealand Transport Agency information on behalf of the security firm. They are now being investigated by the Serious Fraud Office.

Police were also found to be moonlighting for the agency and passing on police intel. One serving cop was busted for assault while carrying out a private security job.

Crown Law also hired investigators from another firm to dig up information to cross-examine witnesses in a court case alleging abuse in state care.

The inquiry has found a lack of professional distance between Thompson & Clark and public servants, and a lack of oversight or written contracts with the spy firm.

There was "system wide failings" across the public service, with staff developing "inappropriately close relationships" with the firm's staff.

Hughes, who is head of the state services, has apologised "unreservedly to those individuals whose privacy has been intruded on by state servants or their contractors".