Michael Kieran Barden v Commodities Research Unit International (Holdings) Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Vos |
| Judgment Date | 18 June 2013 |
| Neutral Citation | [2013] EWHC 1633 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC11C01348 |
| Date | 18 June 2013 |
[2013] EWHC 1633 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Rolls Building
Royal Courts of Justice
London, EC4A 1NL
Mr Justice Vos
Case No: HC11C01348
Ms Geraldine Clark (instructed by Cheyney Goulding LLP) for the Claimant
Mr Rhodri Davies QC and Mr Conall Patton (instructed by Norton Rose Fulbright LLP) for the Defendants
Hearing dates: 21st and 22nd March and 10th June 2013
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
This is an application by the Claimant, Mr Michael Kieran Barden ("Mr Barden"), for an order that the Defendants pay the sum of £673,177.16 by way of the alleged outstanding balance payable under a settlement agreement dated 19 th October 2012 (the "SA"). The SA was made between Mr Barden and the Defendants in the early hours of the morning after a mediation.
The SA was scheduled to a Tomlin Order made by Master Marsh on 5 th November 201As a result, when this dispute arose, no new action needed to be commenced, but an application notice was issued under the liberty to apply reserved in that order.
The crucial clause 3 of the SA ("clause 3") was headed " PAYMENT OF AGREED SUM" and provided that " [t]he CRU Parties shall by 4pm on 1 November 2012 pay £1,350,000 (the Settlement Sum) by telegraphic transfer into the Cheyney Goulding LLP client account at HSBC Bank, Guilford Branch, account number 73668010 sort code 40-22-26, IBAN GB64MIDL40222673168010, SWIFT CODE MIDLGB22".
Mr Barden alleges that clause 3 means that the Defendants (called the "CRU Parties" in the SA) were obliged to pay the full gross sum of £1.35 million to his solicitors' bank account, and to pay another £1.35 million by way of PAYE income tax to Her Majesty's Revenue and Customs ("HMRC"). The Defendants contend that they were entitled, indeed obliged by law, to pay only a net sum having deducted PAYE income tax.
It is common ground that the income tax payable is and remains a liability of Mr Barden (see the Court of Appeal's decision in McCarthy v. McCarthy & Stone plc [2008] 1 All ER 221 at paragraphs 40–45). In the event, the Defendants paid the net sum of £676,822.84 directly into Mr Barden's solicitors' bank account, and the balance of £673,177.16 to HMRC.
It is also common ground that section 401 of the Income Tax (Earnings and Pensions) Act 2003 (the "ITEPA") and the Income Tax (Pay As You Earn) Regulations 2003 (SI 2003/2682) (the "PAYE Regulations") required the Defendants to make the deduction, and to pay the relevant income tax on behalf of Mr Barden. Mr Conall Patton, junior counsel for the Defendants, prepared a schedule showing the complex statutory derivation of this obligation, which I need not set out, as that too was common ground. In essence, paragraph 21 of the PAYE Regulations requires an employer to " deduct or repay tax" on " making a relevant payment". Relevant payments are defined in paragraph 4 of the PAYE Regulations. But to understand why " relevant payments" include termination or settlement payments of the kind included in the SA, one has to follow through some 6 further provisions culminating in section 401 of the ITEPA which makes the deduction requirement ultimately applicable by providing that Chapter 3 of Part 6 of ITEPA applies to " payments and other benefits which are received directly or indirectly in consideration or in consequence of, or otherwise in connection with – (a) the termination of a person's employment".
A second aspect of the statutory background that also occupied some time in this litigation, but which has ultimately been shown to be something of a red herring, was the Employment Rights Act 1996 (the "1996 Act"), which contains the latest incarnation of the provisions of what was the Wages Act 1986 and, long ago, the Truck Acts. Section 13(1) of the 1996 Act provides that: " [a]n employer shall not make a deduction from wages of a worker employed by him unless—(a) The deduction is required or authorised to be made by virtue of a statutory provision or a relevant provision of the worker's contract, or (b) the worker has previously signified in writing his agreement or consent to the making of the deduction". It is now common ground that the termination payment comprised in the SA did not constitute " wages" within the definition of that term in section 27(1)(a) of the 1996 Act. The definition provides that " wages" include " any fee, bonus, commission, holiday pay or other emolument referable to his employment, whether payable under his contract or otherwise", but exclude " any payment within subsection (2)". Section 27(2) refers to: " any payment by way of a pension, allowance or gratuity in connection with the worker's retirement or as compensation for loss of office". But, this termination payment is not " wages", because of the House of Lords' decision in Delaney v. Staples [1992] 1 AC 687 (per Lord Browne-Wilkinson at page 697E-F) to the effect that the 1996 Act does not apply to termination payments of this kind.
Although there have been no pleadings, three issues arise for me to determine, which can be simply stated as follows:-
i) What is the true meaning of the SA?
ii) If the SA does mean, as Mr Barden contends, that the gross sum of £1.35 million must be paid over to him on the agreed date, should the SA be rectified so as to allow the Defendants to deduct PAYE from the payment, as a result of:-
a) Common mistake; or
b) Unilateral mistake.
iii) If not, has Mr Barden been unjustly enriched at the Defendant's expense?
Chronological background
On 1 st November 2004, Mr Barden became CEO of CRU Strategies Limited, the 2 nd Defendant ("CRU Strategies"). The parties agreed that Mr Barden should be entitled to a long term incentive payment when the CRU Group was sold (the "LTIP"). An email exchange between Mr Barden and Mr Perlman seems to have agreed that the LTIP should only be paid if the business were sold whilst Mr Barden was employed.
In 2006, Mr Barden claims, but the Defendants deny, that he became CEO of the entire CRU Group.
On 15 th August 2008, Mr Barden and CRU Strategies entered into a severance agreement and a side letter, whereby Mr Barden left the CRU group on terms including an agreement securing payment of the LTIP. It appears that both sides forgot the email agreement of 2004 when negotiating Mr Barden's severance package. Clause 4 provided expressly for the settlement sum then to be paid to Mr Barden (£220,000) to be paid net of deductions including income tax. It was pointed out that, at this time, only 20% basic rate income tax was deducted from this payment, leaving Mr Barden to pay the higher rate tax.
On 31 st December 2010, the assets and business of CRU Strategies were transferred to Commodities Research Unit International Limited, the 1 st Defendant ("CRU International"), leaving CRU Strategies as a shell company.
On 19 th April 2011, Mr Barden issued proceedings against all 4 Defendants claiming a declaration that the Defendants were liable to pay him a percentage of the sale price of the business.
On 15 th November 2011, an unsuccessful mediation took place with Mr William Wood QC as mediator.
On 18 th October 2012, a further mediation took place with Mr Charles Flint QC as mediator (the "Mediator").
In the early hours of 19 th October 2012, the parties entered into the SA including clause 3 set out above. Recital E and clauses 2.1 and 5 stressed the complete release of the parties that had been agreed, and the SA also included the following entire agreement clause:-
" 10. ENTIRE AGREEMENT
10.1 The terms of this agreement constitute the entire agreement between the Parties relating to its subject matter and supersede all prior oral and written agreements, understandings or arrangements relating to the subject matter of this agreement, and may not be modified except by an instrument in writing signed by the Parties or the duly authorised representatives of the Parties.
10.2 Each Party acknowledges that it has not entered into this agreement in reliance wholly or partly on any representation or warranty made by or on behalf of the other Party (whether orally or in writing) other than as expressly set out in this agreement.
10.3 No other terms or conditions (whether written or oral) shall be included or implied into this agreement, except that nothing in this clause 10 will exclude liability for fraudulent statements".
On 19 th October 2012, the Defendants' solicitors began an email exchange with Mr Barden's solicitors suggesting that PAYE should be deducted from the payment to be made under clause 3 of the SA.
On 23 rd October 2012, Mr Barden's solicitors wrote to the Defendants' solicitors saying that the payment had to be made gross under clause 3 of the SA.
By 1 st November 2012, the Defendants paid the sum of £676,822.84 directly into Mr Barden's solicitors' bank account.
On 5 th November 2012, a Tomlin order was made by Master Marsh reciting that "… the Claimant and the Defendants have agreed that any claim arising from an alleged breach of the terms of the Settlement Agreement contained in the confidential schedule hereto may, unless the Court orders otherwise, be dealt with by way of an application to the Court in these proceedings without the need for any party to make a new claim".
On 16 th November 2012, the Defendants paid the sum of £673,177.16 to HMRC in respect of Mr Barden's income tax liability in respect of the...
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