Health Services Union NSW v Mylan; Mylan v Health Services Union NSW

[2015] NSWSC 872

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:	Health Services Union NSW v Mylan; Mylan v Health Services Union NSW [2015] NSWSC 872
Hearing dates:	30 June 2015
Decision date:	30 June 2015
Jurisdiction:	Equity Division - Commercial List
Before:	Stevenson J
Decision:	Third Defendant’s notice of motion of 24 June 2015 is dismissed with costs
Catchwords:	PROCEDURE – proceedings settled – whether there was an implied term of the settlement that the plaintiff would cooperate with the third defendant concerning the taxation implications of the settlement
Legislation Cited:	Civil Procedure Act 2005 (NSW)
Cases Cited:	BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337
Category:	Consequential orders (other than Costs)
Parties:	Health Services Union NSW (Plaintiff/Respondent) Peter Mylan (Third Defendant/Applicant)
Representation:	Counsel: B DeBuse (Third Defendant/Applicant)   Solicitors: T Rollo, Carroll & O’Dea Lawyers (Plaintiff/Respondent) Konstan Lawyers (Third Defendant/Applicant)
File Number(s):	SC 2012/347167

EX TEMPORE Judgment (REVISED)

1. In a cross-claim brought in these proceedings, the third defendant, Mr Mylan, who was at all relevant times the Deputy General Secretary of the plaintiff ("the HSU"), sought to recover "accrued entitlements" for long service leave, annual leave, annual leave loading and payment in lieu of notice.

2. On 14 May 2015 the matter was listed for hearing before me for four weeks commencing on 15 June 2015.

3. Settlement discussions took place between the parties, during which the HSU made an offer to settle Mr Mylan's claim for $300,000.

4. On 25 May 2015, the HSU's solicitors wrote to Mr Mylan's solicitors renewing an offer to settle the proceedings for $300,000 and adding:

“For this purpose the Council [of the HSU] also approved changing the break up of and strictly within the total of the $300,000 as may be reasonably requested by you and approved by the Union President or Secretary, provided that it was inclusive of all costs and tax."

5. I understand that the "break up" of the $300,000 referred to is a reference to the possibility that Mr Mylan might wish to attribute a component of the $300,000 (were he to accept the offer) to costs, as opposed to compensation for his claim for accrued entitlements.

6. I am informed that, to the extent that the HSU paid settlement monies to Mr Mylan that was compensatory of his claim set out at [1], it would be taxable income in Mr Mylan's hands, and the HSU as his employer would be obliged to withhold the applicable amount of tax and remit it directly to the ATO. I am also informed that, to the extent that the HSU paid settlement monies to Mr Mylan that were, in truth, a payment on account of his costs of the proceedings, no such obligation would arise.

7. The proceedings were settled on the basis of a deed executed by the parties on or about 26 May 2015 (“the Deed”), and on the basis of a declaration and orders made and a judgment entered by the Court, with the parties' consent, on 27 May 2015 (together, “the Settlement”).

8. The judgment entered on 27 May 2015 (as part of the Settlement) was in the following terms:

“Judgment in favour of the third defendant (as cross claimant) on the third defendant’s claims against the plaintiff (including the claims made in Federal Court Proceedings NSD1830 of 2012, which were transferred into this Court as proceedings 2013/119023, and then consolidated into these proceedings) in the sum of $300,000 (less applicable taxes) inclusive of costs”.

9. As can be seen, no "break up" of the $300,000 was specified in the judgment, which simply states that it is "inclusive of costs" and "less applicable taxes". There is also no relevant “break up” provision in the Deed.

10. On 16 June 2015, the HSU purported to discharge its obligations to comply with the judgment by paying Mr Mylan $183,600. That sum represented the $300,000 referred to in the judgment, less $116,400 which the HSU deducted and remitted to the ATO. The HSU calculated that figure on the basis that the payment to Mr Mylan should be characterised as an "Employment Termination Payment". Evidently, this was the amount the HSU thought was the "applicable" amount to be deducted from the amount of the judgment.

11. The following day, 17 June 2015, Mr Mylan's solicitors wrote to the HSU’s solicitors:

“I have just been notified by my accounts clerk that the sum of $183,600.00 [has] been deposited, without notice, into the firm’s trust account.

As you are aware, the agreement as [sic: was] that we would notify you as to the break-up of payment. That break up is as follows:

1) $240,000 as costs

2) $60,000 gross [sic] to Peter Mylan.

Please arrange for immediate payment of the balance.”

12. The reference to "the agreement" in that letter was evidently a reference to the HSU's solicitors’ letter of 25 May 2015, set out at [4] above. Before me, Mr DeBuse, of counsel, who appeared for Mr Mylan, did not contend that any relevant "agreement" arose by reason of the 25 May 2015 letter. The letter is, however, relevant, for the reasons I set out below.

13. Mr DeBuse also accepted that the reference in the 17 June 2015 letter to the $60,000 being a "gross" figure was incorrect and that the letter should have stated that the $60,000 was "less applicable tax", or something to that effect.

14. By notice of motion filed in Court before me as Commercial List Duty Judge on 24 June 2015, Mr Mylan now seeks an order pursuant to s 73 of the Civil Procedure Act 2005 (NSW) to determine "on what terms" these proceedings have been settled.

15. Mr DeBuse, with his usual candour and aplomb, did not press a contention made earlier in correspondence between the parties that there had not in fact been a settlement.

16. In effect, Mr Mylan seeks a declaration that, pursuant to the Settlement, the HSU was obliged to pay him $240,000 in “costs" (the figure in Mr Mylan's solicitors’ letter of 17 June 2015 referred to at [11] above) and $60,000 "gross". Again, Mr DeBuse accepted the word "gross" should be something to the effect of "less applicable tax".

17. As I have said, the judgment for $300,000 is expressed to be "inclusive of costs". There was no express term of the Settlement as to how much of the $300,000 was attributable to costs.

18. In those circumstances, Mr DeBuse submitted that there should be implied into the Settlement the following term:

“In making the payment the [HSU] would cooperate with [Mr Mylan] in identifying the amount of the judgment sum subject to tax and would accept from [Mr Mylan] a genuine assessment of the amount identified as the taxable component.”

19. Mr DeBuse submitted that that implication arose from the following circumstances:

1. the nature of the claims made by Mr Mylan as set out at [1] above;

2. the understanding of both the solicitors for the HSU and for Mr Mylan (albeit evidently arrived at independently) that the likely amount of Mr Mylan's recovery would not exceed $100,000;

3. the mutually known fact that, as announced in Court on 14 May 2015, Mr Mylan's costs to that date were in the order of $400,000;

4. the mutually known fact that there were a number of bases upon which the HSU might be obliged to deduct tax from the $300,000 and that the amount to be deducted would vary, depending upon what basis was correct; and

5. the fact that there was no express agreement as to what the correct basis was.

20. In order to imply a term into the Settlement, it must be shown that the familiar tests are satisfied; namely, that the term is reasonable and equitable, capable of clear expression, so obvious it goes without saying, necessary to give business efficacy to the Settlement and not inconsistent with any express term of the Settlement (see the decision of the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283, and the numerous decisions of the High Court following that decision, for example Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 347 and 404).

21. Mr DeBuse submitted that the implication of such a term was both necessary to give business efficacy to the Settlement and so obvious that it went without saying because, absent cooperation of the kind referred to in the alleged implied term, the HSU could not reasonably assess or determine how much it should deduct from the judgment sum of $300,000.

22. Mr DeBuse further submitted that, as a matter of fact, the HSU did not cooperate with Mr Mylan, as called for by the alleged implied term.

23. I see a number of difficulties with this submission.

24. First, I do not accept that the implied term advocated by Mr DeBuse satisfies the requirements laid down by the authorities.

25. Assuming that, by reason of the five circumstances upon which Mr DeBuse relied set out at [19] above (especially the last two), "business efficacy" required the implication into the Settlement of some mechanism to determine what taxes were applicable in respect of the $300,000, and assuming that some term "capable of clear expression" could be formulated (matters about which I express no opinion), the implied term advocated by Mr DeBuse (set out at [18] above) is so uncertain as to deny it any business efficacy. In my opinion, the implied term would raise more questions than it answers.

26. For example, what steps would the HSU be required to take to satisfy the obligation to "cooperate"? When would the HSU be required to take such steps? How would the HSU determine whether the assessment made by Mr Mylan of the "taxable component" of $300,000 was "genuine"? How would the HSU reconcile Mr Mylan's "assessment" with its own assessment of the matter and its own assessment of its obligations, as Mr Mylan's employer, under the income tax legislation? Upon what basis could any assessment be made of what loss Mr Mylan has suffered as a result of any alleged breach by the HSU of the term?

27. All those matters would require determination before any assessment could be made as to whether, as Mr DeBuse submits, the HSU acted in breach of the implied term.

28. These matters could, and perhaps should, have been the subject of an express, detailed and precise agreement.

29. Although the parties both evidently understood that Mr Mylan's actual costs were more than he was likely to recover in the proceedings, and indeed more than the judgment sum, they did not, as they could have, come to any agreement as to how the matter would work out in practice.

30. Under s 73(1) of the Civil Procedure Act my power is, relevantly, to make such orders as are "appropriate to give effect" to any determination made as to the "terms" of the Settlement.

31. As I have said, the HSU has now paid $183,600 to Mr Mylan and paid the withheld amount of $116,400 to the ATO.

32. On 24 June 2015, Mr Mylan's solicitors purported to "repay" the $183,600 by bank cheque delivered to the HSU's solicitors. That payment has not been accepted and the fact remains that the HSU has now paid the money to which I have referred on account of its obligations under the judgment.

33. Mr Mylan can now approach the ATO and, if his contentions before me are correct, seek repatriation of that proportion of the $116,400 remitted to the ATO by the HSU as may be his entitlement.

34. Such difficulty as has arisen in this case is caused by the fact that those advising Mr Mylan did not, either in the terms of the Deed or in the orders and judgment pronounced on 27 May 2015, nor at any time during the three week period thereafter, take up the HSU's solicitors’ invitation of 25 May 2015 to nominate a "break up" of the $300,000.

35. In those circumstances, even if I were persuaded that a term as advocated by Mr DeBuse should be implied into the Settlement, and even if it could in all the circumstances be determined that the HSU was in breach of that term, I would have declined, as a matter of discretion, to make any order under s 73 of the Civil Procedure Act.

36. The third defendant's notice of motion of 24 June 2015 is dismissed with costs.

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Amendments

02 July 2015 - Coversheet, representation, amended

Decision last updated: 02 July 2015