Galliot v Commonwealth of Australia (Department of Defence)
[2025] FedCFamC2G 418
•27 March 2025
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Galliot v Commonwealth of Australia (Department of Defence) [2025] FedCFamC2G 418
File number(s): SYG 2876 of 2024 Judgment of: JUDGE KAUR-BAINS Date of judgment: 27 March 2025 Catchwords: INDUSTRIAL LAW – Application pursuant to s 370(a)(ii) of the Fair Work Act 2009 (Cth) for an extension of time within which to make a general protections court application – whether the applicant has an explanation for the delay – whether the applicant has no reasonable prospects of successfully prosecuting the proceeding against the respondent – construction of settlement agreement which provided for release on payment of $160,000 – whether the payment was an Employment Termination Payment (ETP) under s 82-130 of the Income Tax Assessment Act 1997 (Cth) (ITAA) – whether the payment was exempt under s 82-135(i) of the ITAA – whether the respondent as employer had withholding obligations in relation to the ETP – whether time was of the essence in relation to time stipulations under the settlement agreement – extension of time denied as no reasonable prospects of successfully prosecuting the proceedings – proceedings dismissed Legislation:
Evidence Act 1995 (Cth) s 131(2)(f)
Fair Work Act 2009 (Cth) ss 131(1)(b), 341(l)(c), 342(1) 368(3)(a), 370(a)(ii), 539(2)
Federal Circuit and Family Court of Australia Act 2021 (Cth) ss 137, 143(2)
Federal Court of Australia Act1976 (Cth) s 31A
Income Tax Assessment Act 1997 (Cth) ss 82-130(1), s 82 - 135(i)
Industrial Relations Act 1988 (Cth)
Public Service Act 2009 (Cth) s 29(3)(b)
Taxation Administration Act 1953 (Cth) ss 12-85, 16-85
Public Health Act 2010 (NSW)
Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth) rr 4.01(1), 13.13(a)
Cases cited: Associated Newspapers Ltd v Bancks (1951) 83 CLR 322
Brodie-Hanns v MTV Publishing Ltd (1995) 67 IR 298
Global Network Services Pty Ltd v Legion Telecall Pty Ltd [2001] NSWCA 279
Kelly v Corporation of the Synod of the Diocese of Brisbane [2023] FCA 829
Laundy Hotels (Quarry) Pty Ltd v DycoHotels Pty Ltd (2023) 276 CLR 500
Laurinda Pty Limited v Capabala ParkShopping Centre Pty Limited (1989) 166 CLR 623
Leach v Burston [2022] FCA 87
LeGrand v Commissioner of Taxation (2002) 124 FCR 53
Lock v Bell [1931] 1 Ch 35
Louinder v Leis (1982) 149 CLR 509
Steedman v Drinkle [1916] 1 AC 275
Division: Division 2 General Federal Law Number of paragraphs: 60 Date of last submission/s: 14 March 2025 Date of hearing: 10 March 2025 Place: Sydney Solicitor for the Applicant: The Applicant appeared in person Counsel for the Respondent: Ms I Sekler Solicitor for the Respondent: Australian Government Solicitor ORDERS
SYG 2876 of 2024 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: JAI GALLIOTT
Applicant
AND: COMMONWEALTH OF AUSTRALIA AS REPRESENTED BY THE DEPARTMENT OF DEFENCE
Respondent
ORDER MADE BY:
JUDGE KAUR-BAINS
DATE OF ORDER:
27 MARCH 2025
THE COURT ORDERS THAT:
1.The application for extension of the time within which to institute a proceeding under section 370 of the Fair Work Act 2009 (Cth) is refused.
2.The application filed on 7 November 2024 and the proceedings are dismissed.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE KAUR-BAINS
In the application filed 7 November 2024, the applicant seeks an order in essence, seeking an extension of time to bring the substantive application pursuant to s 370(a)(ii) of the Fair Work Act 2009 (Cth) (FW Act). By interlocutory application in these proceedings, the respondent also seeks the following two orders:
(a)The proceedings be dismissed for want of jurisdiction on the basis the applicant did not meet the statutory precondition in s 370(a)(ii) of the FW Act.
(b)In the alterative, an order dismissing the proceedings pursuant to s 143(2) of the Federal Circuit and Family Court of Australia Act 2021 (Cth) (FCFCOA Act) and r 13.13(a) of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth) (Rules), on the basis the applicant has no reasonable prospect of successfully prosecuting the proceedings.
For the reasons which follow, an extension of time should not be granted pursuant to s 370(a)(ii) of the FW Act, because I am satisfied there are no reasonable prospects of the applicant successfully prosecuting these proceedings. For the reasons set out at [30] to [59] of this judgment, given the terms of the settlement agreement between the parties, the applicant has released and discharged the respondent from all claims, actions and liability that relate to the applicant’s employment by the respondent or the termination of the employment. Therefore, the applicant is barred from bringing these proceedings which relate to the termination of his employment. I do not need to deal specifically with the alternative orders sought by the respondent for summary dismissal of the proceedings, although, as can be seen from my reasons I have found there were no reasonable prospects of the applicant successfully prosecuting his claim.
BACKGROUND
Applicant’s employment with the respondent
From 31 January 2022 to 3 July 2024, the applicant was employed by the respondent as an ongoing EL2 (S&T Level 6) Senior Emerging Technologies Analyst working in the Human and Decisions Sciences Division in the Defence Science and Technology Group of the Department of Defence of the respondent.
Termination of employment
On 3 July 2024, the respondent notified the applicant that his employment was terminated under s 29(3)(b) of the Public Service Act 2009 (Cth). The statement of reasons provided that the applicant’s employment was terminated on the basis he did not hold any level of security clearance, and it was an essential qualification to enable the applicant to carry out his duties that he held and continued to hold a security clearance.
The applicant made allegations of workplace bullying as well as personal health concerns. The respondent noted in its statement of reasons the matters raised by the applicant were outside the scope of inquiry in relation to the termination and were not relevant to the decision to terminate the applicant’s employment due to lack of an essential qualification.
Application to Fair Work Commission
On 24 July 2024, the applicant made an application for a remedy to the Fair Work Commission (FWC) for General Protections involving dismissal. On 13 August 2024, the respondent filed a response noting the following:
(a)The applicant alleged his employment was terminated because he made a complaint or proposed to make a complaint.
(b)The respondent did not dispute the applicant exercised a workplace right within the meaning of s 341(l)(c) of the FW Act by making a complaint or proposing to make a complaint. However, the respondent denied it terminated the applicant's employment for that reason. Rather, the sole and operative reason for the applicant's dismissal was said to be that he lacked an essential qualification, specifically a security clearance.
(c)The applicant alleged the respondent ceased paying him on 1 May 2023 as retribution following correspondence sent to the respondent by his legal representative. The respondent denied that allegation.
Settlement agreement
Following a mediation at the FWC, the parties entered into a settlement agreement, which relevantly provided as follows:
Background
1. The Applicant has applied to the Fair Work Commission in case number C2024/5122 alleging he was dismissed by the Respondent in contravention of the general protections provisions of the Fair Work Act 2009 (Cth).
2. The Respondent denies the allegations.
3. On 22 August 2024, the Applicant and the Respondent agree to fully settle the matter on the following terms.
Payment
4. In addition to any money the Respondent has previously paid to the Applicant, the Respondent will pay to the Applicant $160, 000.
5. The Respondent will pay this amount to the Applicant within 14 days of the Applicant and Respondent signing this agreement.
6. The Respondent will pay this amount by electronic funds transfer to the bank account stipulated by the Applicant within three days of signing this agreement.
Discontinuance
7. When the Respondent has complied with clause 4 and confirmed in writing with the Chambers of Vice President Gibian that payment has been made, the matter will be regarded as having been settled and discontinued.
Statement of service
8. Within 14 days of the Applicant signing this agreement, the Respondent will give the Applicant a statement of service stating:
• the Applicant's position with the Respondent and the associated duties, and
• the Applicant's period of service with the Respondent.
9. The Respondent will approach Dr Dale Quinn (or such other employee of the Respondent as the Applicant may nominate) to request that Dr Quinn (or the other person nominated by the Applicant) act as a point of contact person for any reference checks conducted regarding the Applicant by employers or other parties seeking to verify the circumstances of the Applicant's employment with the Respondent and/or to provide a written reference for the Applicant.
Release
10. On the Respondent complying with clauses 4, 8 and 9, the Applicant releases and discharges the Respondent and its directors, officers and employees from all claims, actions and liability:
• to which the Respondent may now be subject, or to which the Respondent may, but for this agreement, have become subject in the future, and
• that relate to the Applicant's employment by the Respondent or the termination of that employment.
11. The Respondent releases and discharges the Applicant from all claims, actions and liability:
• to which the Applicant may now be subject, or to which the Applicant may, but for this agreement, have become subject in the future, and
• that relate to the Applicant's employment by the Respondent or the termination of that employment.
On 22 August 2024, the applicant signed the settlement agreement. On 27 August 2024, the respondent signed the settlement agreement.
Payment of $160,000
In a document dated 29 August 2024, the applicant directed the respondent to make payment to a bank account other than his own. The document relevantly provided:
2. Clause 4 of the Settlement Agreement provides that in addition to any money the Respondent has previously paid to the Applicant, the Respondent will pay to the Applicant $160,000.
3.Clause 6 of the Settlement Agreement provides that the Respondent will pay this amount by electronic funds transfer to the bank account stipulated by the Applicant.
4. The Applicant agrees that:
a.For the purpose of clause 6 of the Settlement Agreement, the bank account stipulated is:
[bank details were provided]
b. He has not stipulated payment to this bank account because he is under duress or influence.
c.Upon the Respondent's payment of $160,000 to this bank account, the Respondent’s obligations set out in clauses 4 to 6 of the Settlement Agreement are fully discharged.
On 6 September 2024, the respondent made a payment to the bank account nominated by the applicant of $108,800, which equated to $160,000 after deduction of withholding tax. The respondent remitted, as withholding tax, $51,200 to the Australian Tax Office (ATO).
On 6 September 2024, the applicant sent an email to the respondent and the Associate to the Vice President of the FWC stating, inter alia, that if he did not receive payment from the respondent of the amount of $51,200, he would 'consider [the] agreement unfulfilled and the matter unsettled'.
On 9 September 2024, the respondent said that it had treated the amount paid to the applicant as an Employment Termination Payment (ETP) as required by law, and remitted the withholding tax of $51,200 to the ATO and the respondent considered it had met its obligations under the settlement agreement.
On 13 September 2024, the Associate to the Vice President of the FWC sent an email to the parties stating that ‘although an agreement has been signed, the parties remain in dispute about whether it has been complied with. In those circumstance and having heard from the parties in conference, the Vice President is satisfied that all reasonable attempts to resolve the dispute in this matter have been or are likely to be unsuccessful.’ The Vice President issued a certificate under s 368(3)(a) of the FW Act on 13 September 2024.
By email dated 15 November 2024, the applicant informed the respondent that the applicant’s intention was to commence a general protections court application ‘within the time frame allowed’ and he would seek ‘compensation in an amount likely exceeding two million dollars.’
By email dated 18 September 2024, the respondent made it clear it considered the matter was resolved by the terms of the settlement agreement and payment had been made in accordance with that agreement.
Proceedings in this Court
By application lodged on 6 November 2024 and accepted for filing on 7 November 2024, the applicant commenced proceedings in this Court in the Fair Work Division, seeking interim orders, which included an order ‘that the application be allowed pursuant to s 370(a)(ii)’ of the FW Act for the reasons identified in annexures C and D of the Form 2 and making substantive allegations which included the following:
(a)In dismissing the applicant from his employment, the respondent took adverse action against the applicant, within the meaning of Item 1(a) of the table in s 342(1) of the FW Act.
(b)The respondent dismissed the applicant for reasons which included that the applicant had exercised his workplace right:
(i)to make the complaints and inquiries pleaded in [160] of the Statement of Claim, and
(ii)to make a submission to the Royal Commission on Defence and Veteran Suicide set out in [161] of the Statement of Claim.
RELEVANT LEGAL PRINCIPLES FOR EXTENSION OF TIME
Before dealing with the applicant’s case for an extension of time, it is useful to set out the relevant legal principles which guide this Court in exercising the discretion whether to extend time in which to make a general protections court application.
Note 2 to s 370 of the FW Act states that for the purposes of s 370(a)(ii) of the FW Act, Brodie- Hanns v MTV Publishing Ltd (1995) 67 IR 298 sets down the principles relating to the exercise of discretion under a similarly worded provision of the Industrial Relations Act 1988 (Cth). In that case, Marshall J identified, by reference to earlier authority, the following principles:
Principles for extension of time
….
Briefly stated the principles are:
1.Special circumstances are not necessary but the Court must be positively satisfied that the prescribed period should be extended. The prima facie position is that the time limit should be complied with unless there is an acceptable explanation of the delay which makes it equitable to so extend.
2.Action taken by the applicant to contest the termination, other than applying under the Act will be relevant. It will show that the decision to terminate is actively contested. It may favour the granting of an extension of time.
3.Prejudice to the respondent including prejudice caused by delay will go against the granting of an extension of time.
4.The mere absence of prejudice to the respondent is an insufficient basis to grant an extension of time.
5.The merits of the substantive application may be taken into account in determining whether to grant an extension of time.
6.Consideration of fairness as between the applicant and other persons in a like position are relevant to the exercise of the Court’s discretion.
Whether the applicant’s general protections court application has been allowed
I will first deal with the applicant’s arguments at [7] to [15] of his written submissions dated 20 February 2025, which are as follows:
(a)Section 370 of the FW Act is silent as to how the Court may ‘allow’ a general protections application beyond the prescribed 14 day period, except it may do so ‘on application made during or after those 14 days’.
(b)The Court allowed the applicant to file his application on 6 November 2024. The applicant argues the Court’s action in accepting the application was consistent with the application having been allowed pursuant to the Court’s powers in s 370(a)(ii) of the FW Act.
The applicant’s submissions that the conduct of the Court’s Registry, in accepting the application for filing on 6 November 2024, meant the Court’s power bestowed by s 370(a)(ii) of the FW Act was exercised in the applicant’s favour is not accepted. This is because:
(a)Section 131(1)(b) of the FCFCOA Act provides that this Court has such original jurisdiction as is vested in it by the laws made by the Parliament. Section 539(2), item 11 of the FW Act confers on this Court jurisdiction in relation to the contraventions alleged by the applicant under the FW Act. Section 137 of the FCFCOA Act provides the jurisdiction exercised by this Court is to be exercised by the Court constituted by a single judge.
(b)This Court only has jurisdiction in respect of a general protections court application involving a dismissal dispute if the preconditions set out in s 370(a)(i) and s 370(a)(ii) FW Act are satisfied: Kelly v Corporation of the Synod of the Diocese of Brisbane [2023] FCA 829 (Kelly) at [42] to [44].
(c)For the reasons set out in the preceding subparagraphs (a) and (b), the power to extend the time under s 370(a)(ii) can only be exercised by a single judge of this Court so to give the Court jurisdiction to determine the matter.
(d)Part 4 of the Rules sets out the process for the commencement of proceedings in this Court, and r 4.01(1) of the Rules provides that proceedings must be started by filing an application in accordance with the approved form. The applicant, by his application lodged on 6 November 2024 in accordance with r 4.01(1), started the proceedings and the Court’s Registry, in accepting the form, was carrying out an administrative function in accepting the application. The Court’s Registry, in performing the said administrative function, is not exercising the judicial power referred to in subparagraph [20(a)] of this judgment to exercise the discretion conferred by s 370(a)(ii) of the FW Act.
Explanation for the delay in bringing proceedings
Given the FWC issued the s 368(3)(a) certificate on 13 September 2024, the applicant was required to bring the application to this Court by 27 September 2024. The applicant did not bring the application until 6 November 2024, being 40 days out of time.
The applicant’s explanation proffered for the delay was set out in his letter to the Court dated 31 October 2024, in which he says (as per the original letter):
I kindly request that the honourable Court allow my application in accordance with s 370(a)(ii) of the Act or to otherwise exercise its discretion, noting the following exceptional circumstances:
1.I am a victim of ongoing domestic violence perpetrated by my ex-wife, who holds connections to Russian Foreign Intelligence, and related to my employment by way of my access to and or knowledge of classified and unclassified information of interest to the Russian Federation; and
2.because of the actions taken by the Department of Defence and the Commonwealth in relation to my employment, I have been subjected to extraordinary and traumatic events including covert surveillance, an undercover control operation, a raid of my home as well as interrogation and the cancellation of my passport by the Australian Federal Police and/or the Australian Security Intelligence Organisation.
As a consequence of (1) & (2). 1 have suffered from stress and extreme anxiety since the onset of these actions and have recently been diagnosed with Generalised Anxiety Disorder (GAD) and Post Traumatic Stress Disorder (PTSD) and cannot reasonably comply with the usual 14 day timeframe because of my condition and the need to pace my re-exposure to the traumatic events at the root of my illness in order to avoid compounding the risk to my physical and mental health, as confirmed by my long- standing general practitioner at Annexure D.
Further, I note that as per paragraphs 149-151 of my Statement of Claim included with this Originating Application, I took supererogatory steps to resolve this matter with Defence in the interests of all parties after the issuance of the s 368 certificate, but these were declined by Defence in circumstances that I find unconscionable.
Further the applicant provided a medical certificate dated 25 October 2024 from Dr Chandrika Yapa stating:
Owing to alleged nature of his termination, Mr Galliott suffers from exacerbation of his Anxiety and Depressive disorder (including symptoms such as loss of sleep, anxiety, nausea, chest pains, nightmares, flash backs, hyper vigilance and poor memory and cognition)
Mr Galliott is on medication (Escitalopram 20 mg daily) and waiting to see a local clinical psychologist.
Given Mr Galliott's condition, I support an allowance of an extra 45 days for any application given the need to pace his exposure to situations that bring back the trauma and pose the risk to his mental and physical health.
I note after the s 368 certificate was issued on 13 September 2024, the applicant, over a period of 5 days, tried to resolve the issue that arose regarding the settlement agreement with the respondent as set out in [14] and [15] of this judgment. However, by 18 September 2024, the respondent made it clear it formed the view the matter had been resolved by the terms of the settlement agreement. The applicant was aware of the dispute and aware of the time limitation in which to bring the proceedings, as he said to the respondent in his letter dated 15 September 2024, if the matter is not resolved it was his ‘current intention to commence a general protection court application within the time frame allowed by this court’.
The applicant says he did not bring the proceedings within the time frame stipulated within s 370(a)(i) of the FW Act, because he was at the material time, suffering from stress, extreme anxiety and depressive disorder. The unchallenged medical certificate indicates Dr Yapa believed the applicant had the stated medical conditions. Dr Yapa’s report also provides some evidence that the applicant needed extra time in which to bring the proceedings because he ‘needed to pace his exposure to situations that bring back the trauma and pose a risk to his medical and physical health’.
Although I am concerned about the significant delay of 40 days to bring the application, I am satisfied there has been a reasonable explanation for the delay.
Action taken by the applicant to contest termination
It is reasonable to infer the applicant has taken steps to contest the termination, from his application to the FWC within 21 days of the termination of his employment, his correspondence to the respondent in relation to his termination and his application to this Court.
Prejudice to the respondent
The respondent submits there is general prejudice in line with Kelly:
(a)It is uncontroversial recollection of relevant events, even by the best of witnesses, will necessarily be impacted by the passage of time.
(b)The applicant seeks to disturb a position the respondent was otherwise entitled to regard as settled.
There is no evidence before me that a delay of 40 days, in this case, will affect a recollection of relevant events on the part of relevant witnesses to be relied upon by the respondent. I acknowledged the principle referred to in [28(b)] of this judgment, however, overall I am not persuaded there is relevant prejudice to the respondent.
Merits of the substantive application
In relation to the merits of the substantive application, the respondent relied on the affidavit of Sarah McGregor, the ‘Director-General People, Policy and Employment Conditions of the Department of Defence’ affirmed 31 January 2025, which was read without objection and a second affidavit of Ms McGregor affirmed 7 March 2025, which was read omitting [7] and the annexures referred to in that paragraph. Ms McGregor was cross- examined by the applicant as to the settlement agreement and surrounding circumstances, amongst other matters.
The respondent contends the applicant’s application to this Court filed on 6 November 2024 has no reasonable prospects of success because the release referred to in cl 10 of the settlement agreement is such that the applicant is barred from bringing an application to this Court as it relates to a dispute in relation to the applicant’s employment with the respondent.
The applicant argues the settlement agreement does not operate as a bar to prevent him from bringing the application in this Court, because the release in cl 10 of the settlement agreement only operates if the respondent has complied with cll 4, 8 and 9 of the settlement agreement. The applicant says cl 4 has not been complied with because the respondent failed to pay him the amount of $160,000. Further, the applicant says cl 8 has not been complied with because the respondent failed to provide to the applicant, ‘within 14 days of the applicant signing’ the settlement agreement, the Statement of Service.
If cll 4 and 8 of the settlement agreement have been complied with (there being no issue cl 9 was complied with) then the release in cl 10 would operate, such that the applicant would be barred from bringing the application he filed on 6 November 2024. On the other hand, if cll 4 and 8 have not been complied with then the said release would not operate.
Therefore, to determine the merits of the substantive application lodged on 6 November 2024, the following issues arise for consideration:
(a)How, as a matter of construction of the settlement agreement, is the payment obligation in cl 4 to be properly construed?
(b)How, as a matter of construction of the settlement agreement, is the time obligation in cl 8 to be properly construed?
(c)Whether the respondent at law, was obliged to withhold and remit the amount of $51,200 to the ATO?
FWC view as to merits
Before dealing with each of the issues identified in [34] of this judgment, I note the applicant contends (at [28(b) and (c)] of his written submissions) that the FWC ‘has already determined that the case does hold a reasonable prospect of success in deciding, whilst in possession of knowledge of the settlement agreement and the payment issues, not to exercise its statutory duty to advise of there being no prospect of success under s 368(3)(b) of the FW Act and that s 131(2)(f) of the Evidence Act 1995 (Cth) permits the Court to consider the views of the FWC.
The fact that the FWC, pursuant to s 368(3)(b) of the FW Act, has decided not to advise the applicant he has no reasonable prospects of success is not to the point. This is because, this Court must consider for itself, the merits of the application in order to exercise the discretion in s 370(a)(ii) of the FW Act. Adopting the views of another body, such as the FWC, would result in the Court failing to exercise its judicial power. Therefore, I reject the applicant’s submissions that I should simply adopt the views of the FWC as to the prospects of success. Further, s 131(2)(f) of the Evidence Act does not require a Court, to accept the fact that a body such as the FWC has not advised the applicant he has no reasonable prospects of success, to find that the applicant’s case in fact has merit. Therefore, I will now turn to consider the merits, of the substantive application, but only by reference to whether the applicant is barred from bringing the proceedings by operation of the release in the settlement deed.
Construction of settlement agreement – cl 4 payment of $160,000
The applicant submits that his view is that he was to be paid $160,000, and the amount of $160,000 was to be paid to a bank account that he stipulated. The parties accept and the cross-examination of Ms McGregor was to the effect that prior to signing the settlement agreement there was no discussion as to whether the $160,000 at law would be treated as an ETP or what the tax consequences would be in relation to the $160,000 payment.
I note it is well established that the subjective views of contract parties are irrelevant, because contracts must be interpreted by what a reasonable person would objectively understand the terms to mean, which requires a consideration of the language used by the parties, the surrounding circumstances known to them, and the commercial purpose and object to be served by the contract. In Laundy Hotels (Quarry) Pty Ltd v DycoHotels Pty Ltd (2023) 276 CLR 500 (Laundy Hotels), the High Court referenced previous decisions and said at [27]:
It is well established that the terms of a commercial contract are to be understood objectively, by what a reasonable businessperson would have understood them to mean, rather than by reference to the subjectively stated intentions of the parties to the contract. In a practical sense, this requires that the reasonable businessperson be placed in the position of the parties. It is from that perspective that the court considers the circumstances surrounding the contract and the commercial purpose and objects to be achieved by it.
In Laundy Hotels, a question arose as to the proper construction of a provision of a contract of sale, which obliged the vendor, from the contract date until completion, to ‘carry on the Business in the usual and ordinary course as regards its nature, scope and manner.’ On 23 March 2020, before the completion of the contract, orders were made under the Public Health Act 2010 (NSW), during the Covid pandemic, restricting operation of hotel businesses. A dispute arose as to whether the vendor was in breach of the said clause of the contract by restricting its operation of business. The High Court at [28] and [31] held as follows (emphasis added):
It is not necessary to do more than construe cl 50.1 in its context to conclude that the obligation on the Vendor to "carry on the Business in the usual and ordinary course as regards its nature, scope and manner" incorporated an inherent requirement to do so in accordance with law. That is, the obligation imposed on the Vendor was to carry on the Business in the manner it was being conducted at the time of contract to the extent that doing so was lawful. There was no obligation (and could not have been an obligation) imposed on the Vendor to carry on the Business unlawfully. It is not necessary to have recourse to either the doctrine of implied contractual terms to impose on the Vendor an obligation to carry on the business to the extent that it was lawful, or the possible consequences of supervening illegality resulting in suspension rather than frustration of the contractual obligation imposed by cl 50.1.
……
Accordingly, a reasonable businessperson in the position of the parties would have understood cl 50.1 to mean that from the date of the contract until Completion, the Vendor was required to carry on the Business "in the usual and ordinary course as regards its nature, scope and manner" in accordance with law. The past, current, and anticipated future lawfulness of the operation of the Business was objectively essential and a commercial necessity to the parties. Without the Licence and associated Gaming Machine Entitlements, there would be no "Business". The Vendor's obligation to "carry on the Business in the usual and ordinary course as regards its nature, scope and manner", on the proper construction of that provision, could never extend to an obligation on the Vendor to act illegally. The Vendor's obligation was necessarily moulded by, and subject to, the operation of the law from time to time.
The High Court at [32] said that the contrary construction would require ‘intractable language’ and cited Global Network Services Pty Ltd v Legion Telecall Pty Ltd [2001] NSWCA 279 (Global Network Services) at [102], where Mason P said:
In this context of this poorly drafted Contract I cannot read cl 1(k) as having the absolute, unlawful and commercially inconvenient result contended for by Global (contrast Pagnan SpA v Tradax OceanTransportation SA [1987] 3 All ER 565. See discussion by Yates and Carter, “Expert Licenses, Standard of Duty and Force Majeure” (1988) 1 JCL 57). The absolute construction contended for by Global involves the parties to the Contract promising in effect that one will act in a grossly uncommercial way that would involve unlawful activity on Legion’s part and complicity on Global’s part. Unless driven to such an outcome by intractable language, such a construction should be rejected having regard to the principle that, where the words of a contract are capable of two meanings, one lawful and the other unlawful, the former construction should be preferred (Lewison, The Interpretation of Contracts 2nd ed §6.09).
Turning to cl 4 of the settlement agreement, which provided that ‘the respondent will pay to the applicant $160,000’ and cll 5 and 6, which require ‘this amount’ to be paid to a bank account nominated by the applicant, the question arises what a reasonable person in the applicant and respondent’s positions would have understood cl 4 to mean at the time the settlement agreement was signed. The applicant asserts that the respondent was obligated to transfer $160,000 to the nominated bank account. However, the subjective intentions of both the applicant and the respondent are not pertinent. The contract must be interpreted objectively, based on what a reasonable person in the parties' positions would have intended.
As the High Court said in Laundy Hotels, a reasonable person entering into contracts would assume that obligations were required to be complied with lawfully and unless the contract contained ‘intractable language’ to the contrary, that the contract is to be properly construed against the legal framework against which it operates. In this case, the legal framework included the legal obligations under the tax legislation that operated on the payment agreed. This is because the contrary construction would place the respondent in the invidious position of being required to engage in unlawful behaviour (on the assumption that it would be unlawful behaviour, which is discussed below at [52] to [54] of this judgment), in paying out the applicant the whole of the $160,000 and not withholding tax or as Dr Galliot submits the respondent paying the applicant $160,000 and then calculating an amount over and above that and remitting that additional amount to the ATO.
Therefore, consideration needs to be given to whether the respondent was correct to lawfully remit the $51,200 to the ATO. The applicant says there was no such lawful requirement.
Whether the respondent at law was obliged to withhold and remit the amount of $51,200 to the ATO
The applicant disputes the tax treatment of the $160,000, legally obliged the respondent to remit any withholding tax to the ATO.
To determine the tax treatment of the $160,000 the following sub issues arise:
(a)Whether the payment of $160,000 is properly characterised as an ETP under s 82 - 130(1) of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997).
(b)Whether the payment falls within s 82 - 135(1)(i) of the ITAA 1997 so it is not an ETP.
(c)If the amount of $160,000 is an ETP, whether the respondent was obliged at law to withhold and remit an amount from the ETP.
When is a payment an Employment Termination Payment
Section 82 - 130(1) of the ITAA 1997 defines an ETP as follows:
(a) it is received by you:
(i) in consequence of the termination of your employment; …
(b) it is received no later than 12 months after that termination (but see subsection (4)); and
(c) it is not a payment mentioned in section 82-135.
The decision of LeGrand v Commissioner of Taxation (2002) 124 FCR 53 (LeGrand) is of assistance, as it concerned a settlement payment to an ex-employee made after the employee was dismissed and following proceedings brought for breach of the employment agreement and allegations of misleading and deceptive conduct. At [33] the Federal Court said:
I do not consider that the issue can simply be determined by seeking to identify the “occasion” for the payment. The thrust of the judgments in Reseck and McIntosh is rather to the effect that a payment is made “in consequence” of a particular circumstance when the payment follows on from, and is an effect or result, in a causal sense, of that circumstance. The passages in the judgments to which I referred earlier make this clear. They also make it clear that there need not be identified only one circumstance which gives rise to a payment before it can be said that the payment is made “in consequence” of that circumstance. The passages to which I have referred make it clear that it can be said that a payment may be made in consequence of a number of circumstances and that, for present purposes, it is not necessary that the termination of the employment be the dominant cause of the payment so long as the payment follows, in the causal sense referred to in those judgments, as an effect or result of the termination.
At [35] the Court in LeGrand held that ‘the payment was in effect or result of [the termination of employment] in the sense that there was a sequence of events following the termination of the employment which had a relationship and connection which ultimately led to the payment’.
The undisputed facts in this case, are that the applicant’s employment was terminated, he then started the application before the FWC alleging contraventions of the FW Act in relation to his employment and in settlement of the applicant’s employment claims he was paid the sum of $160,000. Therefore, I find the termination of the employment had a relationship and connection which led to the payment. However, before the payment can be characterised as an ETP, consideration needs to be given to whether it is excluded as being an ETP because it is a payment of a type referred to in s 82 - 135(i) of the ITAA, which provides as follows:
82‑135 Payments that are not employment termination payments
(i) a capital payment for, or in respect of, personal injury to you so far as the payment is reasonable having regard to the nature of the personal injury and its likely effect on your capacity to *derive income from personal exertion (within the meaning of the definition of income derived from personal exertion in subsection 6(1) of the Income Tax Assessment Act 1936)
Having considered the applicant’s further written submissions on this issue dated 12 March 2025, wherein he submits that the $160,000 payment satisfies s 82-135(i) of the ITAA because it was made in settlement of claims arising from personal injury, including psychological trauma and diminished earning capacity, I find there are no reasonable prospects of the applicant establishing the payment of the $160,000 falls within the provisions of s 82- 135(i) of the ITAA for the following reasons:
(a)First, although it can be seen from ‘Form 8, General protections dismissal,’ filed in the FWC, that the applicant made an allegation at [12] that he has been severely psychologically traumatised by his treatment by the respondent surrounding his termination of employment, cl 2 of the settlement agreement makes clear that the respondent denied the allegations that the applicant made. Therefore, the evidence is to the effect that the applicant’s allegations as to suffering personal injury could not rise higher than being allegations.
(b)Section 82-135(i) of the ITAA 1997 requires that a payment be identified as being ‘for, or in respect of, personal injury’, and as said by Derrington J in Stark v Commissioner of Taxation [2023] FCA 1523 at [114] when considering a similar provision, where the payment is made by way of settlement without an admission as to liability or an acknowledgement or finding of injury, there will be no more than an allegation that an injury has been suffered, and given that there is only an allegation, the payment does not meet the statutory test of being ‘a capital payment, for or in respect of, personal injury’.
Given the matters in [46] to [50] of this judgment I find that there are no reasonable prospects of the applicant establishing that as a matter of law and on the undisputed facts that the payment of $160,000 did not fall within the definition of an ETP under s 82-130(1) of the ITAA 1997 and falls within the exclusion in s 82-135(i) of the ITAA 1997.
What was the respondent’s legal obligation to remit to the ATO
Section 12-85 of the Taxation Administration Act 1953 (Cth) (TAA) provides as follows
12 - 85 Superannuation lump sums and payments for termination of employment
An entity must withhold an amount from any of the following payments it makes to an individual:
(a) a * superannuation lump sum;
(b) a payment that is an * employment termination payment or would be one except that it is received more than 12 months after termination of employment.
Section 16-85 of the TAA provides that an entity that fails to withhold an amount as required will be subject to a penalty.
Given the provisions identified in [46] to [50] of this judgment, the respondent was under a legal obligation to remit an amount of withholding tax on the ETP of $160,000 to the ATO. There was no issue that, if the $160,000 was an ETP, then the correct amount for the respondent to withhold and remit to the ATO was the amount of $51,200.
In conclusion, I find there are no reasonable prospects of the applicant establishing that the payment of $160,000 was not an ETP. Therefore, the respondent was under a legal obligation to remit the sum of $51,200 to the ATO. I also find there are no reasonable prospects of the applicant succeeding on an argument that cl 4 was to be construed that he would be paid $160,000 in his hand because properly construed the payment obligation in cl 4 had to be construed against the legislative framework of the ITAA 1997 and the TAA. Therefore, cl 4 could not be properly construed as requiring the respondent to pay the applicant the entirety of the $160,000 when it had a legal obligation to remit $51,200 of it as withholding tax to the ATO. For the applicant’s construction to be accepted, there would have to be clear words that he was to be paid $160,000, regardless of the respondent’s obligation to withhold and remit tax to the ATO.
Whether the respondent breached cl 8 of the settlement agreement
That leaves the question of whether the time stipulation in cl 8 required the Statement of Service to be provided ‘within 14 days of the applicant signing the agreement’, failing which there was a breach of the settlement agreement. It is noted that the respondent provided the Statement of Service to the applicant 4 days outside the time provided for by cl 8.
I accept the respondent’s position as to the relevant legal principles, being as follows:
9.A condition is a contractual term any breach of which is sufficient to justify an election to terminate because the promisee would not have entered into the contract unless assured of a strict and literal performance of the promise: Associated Newspapers Ltd v Bancks (1951) 83 CLR 322, 337.
10. A contractual term specifying the time for performance is a condition if:
10.1.the contract expressly makes ‘time of the essence’: Steedman v Drinkle [1916] 1 AC 275;
10.2.the construction of the contract indicates that timely performance is of ‘the essence’: e.g. Lock v Bell [1931] 1 Ch 35.
11Where time is not of the essence, breach of a time stipulation does not itself give a right to terminate for delay. The right may arise by:
11.1.a party giving notice of the time required for completion (i.e. notice to perform) and the other party failing to comply with that notice where that conduct is repudiatory: Louinder v Leis (1982) 149 CLR 509, 526;
11.2.in the absence of notice, a party’s delay will amount to repudiation where the delay shows a demonstrable intention on the part of the delaying party to no longer to be bound by the contract. In Laurinda Pty Limited v Capabala ParkShopping Centre Pty Limited (1989) 166 CLR 623 (Laurinda), Brennan J stated at 196 – 197:
If the inference to be drawn from the circumstances is that the defaulting party intends to perform an essential promise after some minor delay, repudiation cannot be inferred; but if the inference is that the defaulting party intends so to delay performance that the promisee will be substantially deprived of the benefit of the promise, repudiation can be inferred. The inference is not lightly drawn: Progressive Mailing House Pty Ltd v Tabali Pty Ltd …
(citations omitted)
I find the applicant does not have reasonable prospects of establishing that there was a breach of cl 8, which resulted in the release in cl 10 not operating. This is because, on a proper construction of the settlement agreement, the time stipulation in cl 8 was not a condition, and the applicant did not give notice requiring completion prior to receiving the Statement of Service, which was provided 4 days late.
Further, no question of repudiation of the settlement agreement arises as I am satisfied that the applicant does not have reasonable prospects of successfully arguing that the respondent breached the terms of the settlement agreement for the reasons set out in this judgment. Therefore, the applicant’s substantive application lacks merit.
CONCLUSION AND DISPOSITION
I am satisfied, in the exercise of the discretion, as to whether to grant an extension of time to permit the applicant to bring the application, no extension should be granted because the applicant does not have reasonable prospects of successfully prosecuting the proceedings for the reasons set out in this judgment.
I certify that the preceding sixty (60) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Kaur-Bains. Associate:
Dated: 27 March 2025
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