Hockey v WIN Corporation Pty Ltd
[2013] FCA 772
•8 August 2013
FEDERAL COURT OF AUSTRALIA
Hockey v WIN Corporation Pty Ltd [2013] FCA 772
Citation: Hockey v WIN Corporation Pty Ltd [2013] FCA 772 Parties: RODNEY HOCKEY v WIN CORPORATION PTY LTD ACN 000 737 404 File number: NSD 994 of 2012 Judge: ROBERTSON J Date of judgment: 8 August 2013 Catchwords: CONTRACTS – construction of contract of employment – whether term of contract contrary to provisions of Taxation Administration Act 1953 (Cth) requiring withholding of amount from employment termination payment – whether contract invalid or unenforceable – whether term severable
CONSUMER LAW – misleading and deceptive conduct – whether representations made as to performance of and lawfulness of contractual termsLegislation: Competition and Consumer Act 2010 (Cth) Sch 2 ss 4, 31, 236
Income Tax Assessment Act 1997 (Cth) ss 82–130, 82‑135(e), 83-175
Judiciary Act 1903 (Cth) s 39B(1A)(c)Taxation Administration Act 1953 (Cth) Sch 1 ss 12-85, 15-10, 15-25, 16-5, 16-20, 16-25, 16-30, 16-70, 250-10, 298-10, 298-15, 298-20, 298-25, 298-30
Cases cited: Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd (2007) 232 CLR 1
Burgundy Royale Investments Pty Ltd v Westpac Banking Corporation (1987) 18 FCR 212
Carney v Herbert [1985] 1 AC 301
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337Concrete Constructions Group v Litevale Pty Ltd (2002) 170 FLR 290
Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498
Felton v Mulligan (1971) 124 CLR 367
McFarlane v Daniell (1938) 38 SR (NSW) 337
McGrath v Australian Naturalcare Products Pty Ltd (2008) 165 FCR 230
Master Education Services Pty Ltd v Ketchell (2008) 236 CLR 101Miller v Miller (2011) 242 CLR 446
Nelson v Nelson (1995) 184 CLR 538Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355
SST Consulting Services Pty Ltd v Rieson (2006) 225 CLR 516
Thomas Brown and Sons Ltd v Fazal Deen (1962) 108 CLR 391
Yango Pastoral Company Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410Dates of hearing: 25, 26, 27 March 2013 Date of last submissions: 23 April 2013 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 135 Counsel for the Applicant: Mr AR Moses SC with Mr Y Shariff Solicitor for the Applicant: Laxon Lex Counsel for the Respondent: Mr NC Hutley SC with Mr R Scruby Solicitor for the Respondent: Atanaskovic Hartnell
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 994 of 2012
BETWEEN: RODNEY HOCKEY
ApplicantAND: WIN CORPORATION PTY LTD ACN 000 737 404
Respondent
JUDGE:
ROBERTSON J
DATE OF ORDER:
8 AUGUST 2013
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.The parties confer as to the quantum of damages to which the applicant is entitled, including what should be netted off and interest. Failing agreement, the applicant is to notify my associate by 15 August 2013 so that the matter may be relisted for up to half a day on a date not before 19 August 2013.
2.As to costs, I indicate provisionally that costs should follow the event such that the respondent should pay the applicant’s costs. If it is necessary to argue that question it may also be relisted to be heard on the same half day as the quantum of damages.
Note:Entry of orders is dealt with in Order 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 994 of 2012
BETWEEN: RODNEY HOCKEY
ApplicantAND: WIN CORPORATION PTY LTD ACN 000 737 404
Respondent
JUDGE:
ROBERTSON J
DATE:
8 AUGUST 2013
PLACE:
SYDNEY
REASONS FOR JUDGMENT
Introduction
Mr Hockey was employed by the television broadcasting network WIN Corporation Pty Ltd (WIN) from April 1985 in various positions. This proceeding concerned a relatively narrow issue, being the terms on which that employment ended in early February 2012. At the time of termination of his employment with WIN Mr Hockey held a senior position as Network Director of Production of WIN in Wollongong, New South Wales.
The primary claim pressed by Mr Hockey in these proceedings was that under the employment contract as amended by an addendum letter of 29 March 2011, upon giving the termination notice, he was entitled to receive a lump sum payment equal to the amount he would have received if his total remuneration for the balance of the term of the employment contract to 3 September 2013 was taxed as an employment termination payment. The gross total was stated to be $404,490.20. There was also a misleading and deceptive conduct claim directed to a similar end.
The case turned on the meaning of cl (a)(ii) of the addendum letter of 29 March 2011 and its effect on the contract.
Summary of Issues and Conclusions
The main issues and my conclusions in relation to those issues are as follows:
(i)What is the correct construction of cl (a)(ii) of the addendum letter dated 29 March 2011?
The language was not ambiguous and meant that Mr Hockey would be paid the balance of the term to 3 September 2013.
(ii)Was the contract of employment or any part of it contrary to the provisions of the Taxation Administration Act 1953 (Cth) and, if so, what was the consequence of that illegality?
In light of my conclusion on issue (i), it is unnecessary to answer this question. I nevertheless indicate my conclusion that if cl (a)(ii) of the contract was contrary to the provisions of the Taxation Administration Act 1953 (Cth) the contract was not invalid or unenforceable.
(iii) Assuming illegality, was the relevant provision of the contract severable?
In light of my conclusions on issues (i) and (ii), it is unnecessary to answer this question. I nevertheless indicate my conclusion that if the contract was invalid or unenforceable the words “as a redundancy” were not severable.
(iv)Did WIN engage in conduct that was liable to mislead Mr Hockey as to any matter relating to his employment?
WIN did not engage in such conduct.
The facts
On about 18 May 2010, Mr Hockey and WIN entered into a written contract of employment. The employment contract was contained in a letter of offer dated 10 May 2010, executed on 18 May 2010 by Mr Hockey and by Mr Andrew Gordon and Mr John Hatcher on behalf of WIN. The position was described as “General Manager NSW/QLD, Station Manager Wollongong WIN Television NSW”.
The employment contract stated that it would commence on 3 September 2010.
In its original form the employment contract stated that it would expire on 3 September 2012. In about March 2011 an amendment was made to the employment contract which changed the original expiry date to 3 September 2013.
The relevant terms of the employment contract were as follows:
19. Termination:
You may provide notice of termination of employment through the provision of four (4) weeks’ notice
However, the Company may terminate your employment, (apart from circumstances allowing the Company to summarily terminate your employment):
(a) on such terms as may be mutually agreed between the parties;
(b)by the Company, at its absolute discretion, giving you twelve (12) weeks' notice in writing (or a payment in lieu of notice) or by giving you notice for the balance of the Term, whichever is the lesser if:
(i) in the reasonable opinion of the Chief Executive Officer, of the Company, you do not carry out the duties and responsibilities of the Position, in a satisfactory manner, and you fail to remedy the deficiencies after notice has been given of those deficiencies and a reasonable period (not less than 14 days) has been provided for you to remedy them; or
(c) by the Company, at its absolute discretion, giving you four (4) weeks' notice in writing (or a payment in lieu of notice) or by giving you notice for the balance of the Term, whichever is the lesser if:
(i)in the Company's opinion you become mentally or physically unfit or unable to perform your duties, or
(ii)without the consent of the Chief Executive Officer, or other appropriate executive officer of the Company, you absent yourself or fail to perform your duties for an aggregate period of sixty (60) days in any consecutive fifty-two (52) week period, in circumstances which do not constitute a temporary absence because of illness or injury as defined in the Fair Work Act 2009 (Cth); or
(iii)if you receive, accept or solicit substantial gift or reward for the performance of your duties, without the consent of the Company.
In the event of termination of your employment or resignation prior to the Expiry Date, the Company may elect to make a payment to you in lieu of part or all of your notice period. Alternatively, the Company may require you not to report for work, or provide you with altered duties (which you agree to fulfil), during part or all of your notice period.
Any payments made to you in respect of your notice period or other statutory entitlements will be calculated on your gross annual Base Salary.
Where you provide the Company with less than the required period of notice of your resignation, you agree that the Company may withhold from your final payment (including, but not limited to, any payment in lieu of accrued and unpaid annual leave) an amount equal to the shortfall in the notice period.
…
24. General:
…
Each provision of this contract is separable from the others and the severance of a provision does not affect the remainder of the contract
On about 11, 12 and 14 March 2011, Mr Andrew Gordon on behalf of WIN notified Mr Hockey that WIN was being restructured and that Mr Hockey’s position was being made redundant.
A memorandum dated 12 March 2011 was sent by Mr Andrew Gordon on behalf of WIN to Mr Hockey. It read:
RE: Employment Options – WIN Network
This will confirm my discussion with you Friday last regarding employment options within the WIN Network as a consequence of the need to restructure the Group going forward and a further discussion today in the presence of Andrew Lancaster and Shirley Brown.
I have agreed to confirm that as a consequence of your contract of employment you have the option to –
1) Apply for the position of Southern Regional Manager;
2) Apply for the position of WIN Network Director/Head of Production; or
3) Should you not wish to continue your employment with the company, I Have [sic] agreed to pay out your contract to you as a redundancy.
Mr Hockey contended that he accepted a new position with WIN on or about 29 March 2011. Despite some difference in nomenclature, this was the position of Network Director of Production.
On about 29 March 2011 Mr Andrew Gordon, on behalf of WIN, provided a signed letter to Mr Hockey confirming that Mr Hockey would be appointed to the position of Network Director of Production within WIN. Subject to the specific addenda contained in the 29 March 2011 letter, that letter stated that all conditions of the employment contract would remain the same.
The addendum letter of 29 March 2011 was in the following terms (omitting formal parts):
Re: Addendum – Change of Position Title and Additional Agreement
This letter serves to confirm a change to your Position Title[.] Effective from Tuesday 29 March 2011 your position title will change to Network Director of Production within the WIN Corporation Pty Ltd (“the Company”)
The terms of your employment are confirmed as follows:
Expiry Date:
This contract will expire on 3 September 2013, unless terminated earlier in accordance with the contract.
No Further Alteration:
Your contract cannot be further amended unless you and the company agree.
Remuneration:
If your duties change in the future your remuneration can be adjusted but it cannot be decreased as result [sic] of such changes.
Post Employment Restraints:
The restraints in clause 17.3 of your contract will apply unless you and the company agree otherwise in writing, such agreement not be [sic] unreasonably withheld by the company
Termination by You:
(a) can terminate your employment by four weeks written notification at any time and:-
(i) if that notice is given before 30 September 2011 you will get payments on termination in accordance with your contract;
(ii) if such notice is given after 1 October 2011 and before 3 September 2013 WIN will pay out the balance if [sic] the term (3/9/13) as a redundancy
Termination by the Company:
If before 3/9/13 your Position becomes redundant the company will pay you a redundancy payment (in addition to other monies due and payable to you) representing the balance of the term then outstanding up to 3/9/13.
Additional Agreement:
Both parties have agreed that the initial period of employment in the position of Network Director of Production is six (6) months. Anytime after this period that you wish to terminate your employment such termination will occur in accordance with clause ‘Termination by You’ of this letter.
All other conditions of your employment arrangement dated 10 May 2010 with WIN Corporation will remain the same.
On about 29 March 2011 Mr Hockey communicated to Mr Andrew Gordon of WIN that he accepted the offer of employment to the position of Network Director of Production on the terms and conditions contained in the letter of 29 March 2011.
Thus it was common ground that the employment contract was varied by the making of an offer of employment to the position of Network Director of Production on the terms and conditions contained in the letter of 29 March 2011 and by Mr Hockey’s acceptance, and that the employment contract thereafter contained the additional express terms set out in that letter.
On about 29 March 2011 Mr Hockey commenced working in the position of Network Director of Production.
On 8 February 2012, by letter to Mr Andrew Gordon, Mr Hockey gave WIN four weeks written notification of the termination of the employment contract under cl (a)(ii) of the addendum letter of 29 March 2011, the termination notice being given by Mr Hockey after 1 October 2011 and before 3 September 2013. Omitting formal parts, the letter read:
In accordance with my Contract of Employment dated 10 May 2010 as corrected and further varied, and by the Addendum dated 29 March 2011, I hereby give notice of 4 weeks termination of my employment with the Company.
On the expiration of the 4 week period, and in accordance with my Contract and the variations made and the Addendum, I look forward to receipt of payment from the company of my accrued leave and the agreed redundancy payment.
In giving this notice I am aware of the post-employment restraints which shall bind me unless otherwise agreed.
I have given my notice to you, as you are the signatory to the Addendum to my Contract and I assume that you will pass this notice on to the Chief Executive Officer, Mr Andrew Lancaster.
On 13 February 2012, WIN paid Mr Hockey the gross sum of $199,405.85 (net $109,673.19) representing annual leave accrued to 13 February 2012 ($80,341.04); long service leave post-17 August 1993 ($99,124.42); and 4 weeks pay in lieu of notice ($19,940.38).
Mr Hockey contended, and WIN denied, that pursuant to the employment contract as amended by the addendum letter of 29 March 2011, upon giving the termination notice he was entitled to receive a lump sum payment equal to the amount he would have received if his total remuneration for the balance of the term of the employment contract, 3 September 2013, was taxed as an employment termination payment.
WIN admitted that it did not pay to Mr Hockey such a lump sum amount but referred to a number of provisions of the Taxation Administration Act 1953 (Cth) and of the Income Tax Assessment Act 1997 (Cth). It said that at the time when Mr Hockey gave the termination notice, the position of Network Director of Production was not genuinely redundant within the meaning of those provisions and a payment by WIN to Mr Hockey of the kind referred to in cl (a)(ii) of the addendum letter of 29 March 2011 would not involve a “genuine redundancy payment” and would involve a contravention by WIN of specified provisions of the Taxation Administration Act; would be an offence under that Act; and that in the premises Mr Hockey was not entitled to receive a payment of the kind referred to in cl (a)(ii) of the addendum letter of 29 March 2011. WIN denied that it could lawfully have paid, or that Mr Hockey was lawfully entitled to be paid, a lump sum amount equal to the amount he would have received if his total remuneration for the balance of the term of the employment contract to 3 September 2013 was taxed as an employment termination payment.
WIN therefore denied that it had breached the employment contract and that it was indebted to Mr Hockey in the amount claimed by him.
Mr Hockey put in issue whether a payment to him would involve a contravention of the Taxation Administration Act or that it would be an offence.
The submissions on the contract case
Mr Hockey submitted that he had exercised his right to terminate the employment contract and demanded payment of the balance of the term of his employment contract, that is, to 3 September 2013.
Mr Hockey submitted that what was ultimately agreed was that if he was to terminate the employment contract during a certain period he would nevertheless be paid out the balance of his employment contract. Mr Hockey submitted that, properly construed, cl (a)(ii) of the 29 March 2011 addendum letter obliged WIN to make a payment of the balance of the term of the employment contract in the event that he terminated the contract in the prescribed circumstances. The words “as a redundancy”, Mr Hockey submitted, were descriptive of the payment: they did not mean that the payment was to be taxed in a particular way (as contended by WIN).
On its proper construction, the letter at 29 March 2011 did not require WIN to treat the payment or any part of it due under cl (a)(ii) as a “genuine redundancy payment” for the purposes of the Income Tax Assessment Act. Nothing in the clause referred to taxation, let alone the words “genuine redundancy payment”.
Mr Hockey submitted that damages were to be assessed on the basis of the remuneration he would have received for the balance of the term of the employment contract being an amount of $404,490.20. The claim was for damages and the payment was to be taxed in his hands.
WIN submitted that Mr Hockey was not entitled to be paid any more than the four weeks salary which he was paid. It submitted that the term to “pay out the balance [of] the term (3/9/13) as a redundancy” was unenforceable for illegality because it required WIN to do something – pay an amount “as a redundancy” – that was prohibited by the Taxation Administration Act and which was an offence under that Act. In those circumstances, WIN submitted, the term itself was unenforceable.
WIN submitted that the particular issue between the parties was whether the words “as a redundancy” required that WIN pay the amount in question as if it were a “genuine redundancy payment” within the meaning of the legislative provisions referred to below.
WIN submitted that the evident purpose of using the phrase “as a redundancy” was to specify that payment was to be made on the basis that Mr Hockey was genuinely redundant and to quantify both the cash amount that Mr Hockey was to receive and the amount to be withheld and remitted by WIN.
If the term did not require WIN to pay the amount as a genuine redundancy payment the words “as a redundancy” had no operative effect. Further, the evident purpose and object of the term was to attempt to preserve, for the period after the first six months of Mr Hockey’s employment in the new role, the taxation consequences of his former role being made redundant in early March 2011.
An issue as to whether WIN must indemnify Mr Hockey for the difference between the amount which WIN had contractually agreed to pay Mr Hockey as a net amount and that which it could lawfully pay to him fell away in the course of the trial.
Another issue as to whether WIN’s redundancy policy, which provided for a maximum severance payment of 30 weeks in addition to notice, applied in this case fell away in the course of the trial except as a matter of calculation of any entitlement on the part of Mr Hockey.
A still further issue as to whether Mr Hockey had an obligation to mitigate his losses, and if so, to what extent he had done so, also fell away in the course of the trial.
The relevant statutory provisions
Section 12–85 of Sch 1 to the Taxation Administration Act, which was part of Div 12, provided as follows:
12–85An entity must withhold an amount from any of the following payments it makes to an individual:
…
(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.
By s 15–10 the amount s 12–85 required to be withheld from the payment was to be worked out under the withholding schedules made under s 15–25. By s 16–5, if the entity was required to withhold an amount from a payment, the entity was required to do so when making the payment.
By s 16–25(1), an entity must not fail to withhold an amount as required by Div 12. The penalty was 10 penalty units. By s 16–25(3), an offence against s 16–25(1) was a strict liability offence. A penalty unit meant $170.
By s 16–30 an entity that failed to withhold an amount as required by Div 12 was liable to pay to the Commissioner a penalty equal to that amount. Division 298 contained machinery provisions for penalties.
By s 16–70, an entity that withholds an amount under Div 12 must pay the amount to the Commissioner in accordance with Subdiv 16–B.
The phrase “employment termination payment” had the meaning given by s 82–130 of the Income Tax Assessment Act 1997, as follows:
82–130(1) A payment is an employment termination payment if:
(a) it is received by you:
(i) in consequence of the termination of your employment; or
(ii) …
(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.
(Original emphasis)
Section 82–135(e) of the Income Tax Assessment Act 1997 provided that the payment of part of a genuine redundancy payment, as defined, worked out under s 83–170 was not an employment termination payment.
Section 83–175 of the Income Tax Assessment Act 1997 provided that a “genuine redundancy payment” was so much of a payment received by an employee who is dismissed from employment because the employee’s position is genuinely redundant as exceeds the amount that could reasonably be expected to be received by the employee in consequence of the voluntary termination of his or her employment at the time of the dismissal.
It was common ground that the provision for payment to Mr Hockey was not a “genuine redundancy payment” as defined.
WIN also referred to the provisions of the Criminal Code (Cth) imposing accessorial liability in respect of offences against laws of the Commonwealth (s 11.2) and liability for agreements to commit such offences (s 11.2A).
Schedule 2 s 31 of the Competition and Consumer Law provided:
31 Misleading conduct relating to employment
A person must not, in relation to employment that is to be, or may be, offered by the person or by another person, engage in conduct that is liable to mislead persons seeking the employment as to:
(a) the availability, nature, terms or conditions of theemployment; or
(b) any other matter relating to the employment.
Note: A pecuniary penalty may be imposed for a contravention of this section.
Consideration
The broad issues are as follows.
First there is the question of construction of the contract, in particular the addendum letter of 29 March 2011. This task is to be approached consistently with Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352.
Second, if it arises, is the question of illegality, that is, the effect of the provisions of the tax laws relied on by WIN. This is an exercise in statutory construction and also involves the application of the common law: Yango Pastoral Company Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410; Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498.
Third, if it arises, is the question of any severance: McFarlane v Daniell (1938) 38 SR (NSW) 337; Thomas Brown and Sons Ltd v Fazal Deen (1962) 108 CLR 391; Carney v Herbert [1985] 1 AC 301, as considered in SST Consulting Services Pty Ltd v Rieson (2006) 225 CLR 516.
Fourth is the alternative misleading conduct case under Sch 2 s 31 of the Competition and Consumer Act 2010 (Cth).
I consider those issues in that order, Mr Hockey submitting that his case in contract was his primary case.
Construction of the contract
In my opinion the language of cl (a)(ii) of the addendum letter of 29 March 2011 is not ambiguous or susceptible of more than one meaning: it has a plain meaning and applying Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352, evidence of surrounding circumstances is not admissible.
The meaning of cl (a)(ii) is that after the initial period of six months expiring on 30 September 2011 Mr Hockey was entitled to terminate his employment at any time and, if he did so, he would be entitled to be paid out the balance of the term of his contract. In my opinion the words “as a redundancy” are no more than explanatory or descriptive of the payment for the lengthy balance of the term. He was to receive payment for that lengthy term notwithstanding that, under cl (a)(ii), he would be the initiator of the termination.
Further, those words imposed no obligation on WIN to withhold an amount from the payment on one basis or another.
I reach this conclusion more readily as I would not lightly construe the clause to mean, by implication, that either party had agreed to act in a way that was contrary to law.
This construction does not involve any reading in of words that are not part of the express terms of the contract such as “withholding from the payment an amount calculated on the basis that the payment was or included a ‘genuine redundancy payment’”. The words “as a redundancy” make no express reference to the income tax legislation of the Commonwealth and the words have a sufficient meaning in themselves.
I accept Mr Hockey’s submission that the words were referable to the balance of the term.
I reject WIN’s submissions that cl (a)(ii) meant that it was obliged by that term to withhold from the termination payment on the basis that the payment was or included a “genuine redundancy payment”. I also reject WIN’s submission that it was an agreement which required WIN to do something expressly prohibited by s 12–85(b) and s 16–25 of Sch 1 to the Taxation Administration Act.
Illegality
In light of my conclusion on the question of construction of cl (a)(ii) this issue does not arise. Nevertheless I shall indicate my views as briefly as possible. The broad question is whether the provisions of the Taxation Administration Act operate to affect the parties’ contractual rights and obligations.
As I have said, it was common ground before me that, in the events which occurred, the payment was not a “genuine redundancy payment” as defined.
As to the construction of the legislative provisions as having the consequence that the term was unenforceable for illegality, on the construction contended for by WIN, the addendum letter of 29 March 2011 was an agreement to do an act prohibited by statute. It was an agreement which required the doing of something expressly prohibited by s 12–85(b) and s 16–25. The term required WIN to make what was in fact an “eligible termination payment” without withholding the amount of tax required to be withheld on such a payment. Such an agreement was a particular case of a contract impliedly prohibited by statute: Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 at 413.6 per Gibbs A-CJ. The ordinary rule is that the contract will be void. There was nothing in the terms of the legislation indicating an intention to uphold contracts which required the commission of an offence under the Taxation Administration Act. The objects of the legislation included the efficient collection of tax and withholding tax and those objects would be defeated entirely if the agreement were enforceable. WIN referred to Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498 at [23], Miller v Miller (2011) 242 CLR 446 at [26], Nelson v Nelson (1995) 184 CLR 538 at 552.2.
In oral submissions WIN emphasised that this was a contract which obliged WIN to pay to Mr Hockey a sum in Australian dollars ascertained by the application of the regime providing for genuine redundancy payments by reason of the meaning of the contract. The content of the obligation was to pay to Mr Hockey an amount measured in a way prohibited by the Taxation Administration Act. That Act required WIN to act in a way which would constitute a breach of the contract, lest WIN commit a criminal offence. This was a contract which measured the content of WIN’s obligation, that is, the obligation to pay cash to Mr Hockey, by a requirement to act contrary to the law.
Whether the contract collapsed as a whole or did not collapse was of no consequence. WIN was not seeking to recover any money which had been paid under the employment contract.
WIN emphasised Miller v Miller (2011) 242 CLR 446 at [24]: a contract whose performance is illegal will not be enforced. WIN submitted that the performance of this contract required it to pay a sum of money by reference to a notional fact situation, a redundancy, and that performance was illegal because it required WIN to pay more money to Mr Hockey than was permissible, having regard to WIN’s obligation to withhold. The reason Mr Hockey in such a case would not get assistance from the court was because that promise was illegal. WIN submitted the matter was within (ii) of the passage in Nelson v Nelson (1995) 184 CLR 538 at 551-2: “(ii) an express statutory prohibition, not of the formation of a contract …, but of the doing of a particular act; an agreement that the act be done is treated as impliedly prohibited by the statute and illegal”. Speaking of a statute as a revenue statute or not a revenue statute diverted attention from the real question which is “what is the relationship of the promise to the prohibition?” If the promise was to pay “as a redundancy” there was a direct conflict.
The written submissions of Mr Hockey included a pleading point. In my view however paragraph [16] of the defence adequately articulated the point. It first set out the relevant provisions of the tax laws and then pleaded that because the payment would not involve a “genuine redundancy payment” and “would involve a contravention by WIN of 12–85(b) and 16–25 of Sch 1 to the Taxation Administration Act 1953 (Cth) and would be an offence under that Act”, in the premises, “Mr Hockey is not entitled to receive a payment of the kind referred to in clause (a)(ii)” of the addendum letter of 29 March 2011. I also note paragraph [18] of the defence which repeats paragraph [16] and denies that WIN could lawfully have paid, or that Mr Hockey was lawfully entitled to be paid, the amount referred to in paragraph [18] of the statement of claim. Paragraph [19] of the defence also denied that the employment contract was enforceable to the extent that it required WIN to pay that amount. The same matter was referred to in [20] and [22] of the defence. The matter was not developed in oral submissions by Mr Hockey except to submit that there had been no pleaded allegation of deliberate intention to defraud the revenue or a deliberate intent to procure an illegal tax outcome. I reject Mr Hockey’s submission that the illegality point was not or was not sufficiently pleaded.
The substantive written submissions of Mr Hockey on this point began with the proposition that not all payments characterised as redundancy payments would necessarily fall within the meaning of “genuine redundancy payment” as defined in s 83–175(1) and, even then, only certain parts of such payments would be subject to concessional tax treatment.
Mr Hockey then referred to the principles applicable to statutory illegality, referring first to the judgment of Mason J in Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 at 423-424 and 429 and of Gibbs A-CJ at 413-414. He next referred to the judgment of Kirby J in Fitzgerald v F J Leonhardt Pty Ltd (1997) 189 CLR 215 at 242-245 and 249 and also referred to Nelson v Nelson (1995) 184 CLR 538 at 612-613 per McHugh J.
Applying those principles, Mr Hockey submitted that there was nothing within the Taxation Administration Act which expressly invalidated a contract of employment pursuant to which termination payments were made and which required one party to tax those payments in a particular manner not supported by the provisions of the Income Tax Assessment Act 1997.
Mr Hockey submitted that the contention that a contract was impliedly prohibited by statute did not necessarily follow from the proposition that the contract required the doing of something expressly prohibited by the statute. First, WIN’s contention required an implication to be drawn from s 16–25 that would amount to a serious incursion and infringement into the civil rights as between the parties. The statute gave no indication of such a purpose. It would mean that in cases like the present, involving a contract of employment, an employee would lose all termination benefits and potentially other benefits by mere reason of the prohibition applying to the taxation treatment of one benefit. Second, Parliament had determined the consequences for non-compliance with the relevant provisions. The taxation Acts imposed various consequences for non-compliance such as interest and penalties in appropriate circumstances but they did not impliedly prohibit contracts in contravention of their provisions or the enforcement of the same inter partes. That the Parliament had determined the penalties for non-compliance militated against a conclusion that the courts would impose common law consequences in addition to those dictated by the Parliament. Third, the maximum fine that could be imposed, if criminal proceedings were commenced, would be $1,700. In light of the relative lack of severity of that penalty, it was submitted that the court would not conclude that the Parliament intended that additional civil penalties, such as the deprivation of contractual rights, should be imposed upon the parties. The penalty was completely disproportionate to the consequences of the invalidity of a contract itself.
The issue of intention was crucial to whether the courts could or should withhold curial enforcement of a contract on public policy grounds. Absent intention to do anything illegal, as was the position in this case, it was submitted that the court would not deny Mr Hockey its aid in enforcement of the addendum agreement on grounds of public policy. WIN had not pleaded that the contract was entered into with an intent to defraud the revenue. I do not proceed on the basis that there was an intention to defraud the revenue.
An analysis of the statutory provisions which I have set out above shows that whatever the parties said in the employment agreement had no effect on the “entity”, WIN, the subject of the statutory obligations, in the sense that the duty to withhold remained. The agreement did not change an employment termination payment which was not a genuine redundancy payment into a genuine redundancy payment. As I have said, cl (a)(ii) did not oblige WIN to withhold from the payment on one basis or another. Even if it did purportedly so oblige WIN it would have been ineffective to do so.
In my view the underlying purpose of the statute is better to effectuate the recovery of income tax. This purpose would not be advanced if the result was to make invalid or unenforceable the transaction to be taxed, as there would be no payment to be taxed. An application of Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at [93] is to ask whether it was a purpose of the legislation that an act done in breach of the provision should be invalid or unenforceable. In determining the question of purpose, regard must be had not only to the language of the relevant provision but also to the scope and object of the whole statute: see Master Education Services Pty Ltd v Ketchell (2008) 236 CLR 101 at [26].
In considering these submissions I pass over the early decisions in Brown v Duncan (1829) 10 B & C 93; 109 ER 385; Wetherell v Jones (1832) 3 B & Ad 221; 110 ER 82 and Cope v Rowlands (1836) 2 M & W 150; 150 ER 707 as being sufficiently taken up in more modern cases. Also, the legal environment in which the doctrine now operates is much more regulated than once it was: Miller v Miller (2011) 242 CLR 446 at [27] and each of the early cases was decided well before “the fully developed body of authority” in the High Court referred to in Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498 at [95].
I begin with Yango Pastoral Company Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 since passages from the judgment of Mason J were cited with approval by the plurality in Miller v Miller (2011) 242 CLR 446 at [24].
The legislation in Yango Pastoral Company Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 was s 8 of the Banking Act 1959 (Cth). Having analysed the Banking Act, Mason J continued as follows at 423:
The principle that a contract the making of which is expressly or impliedly prohibited by statute is illegal and void is one of long standing but it has always been recognized that the principle is necessarily subject to any contrary intention manifested by the statute. It is perhaps more accurate to say that the question whether a contract prohibited by statute is void is, like the associated question whether the statute prohibits the contract, a question of statutory construction and that the principle to which I have referred does no more than enunciate the ordinary rule which will be applied when the statute itself is silent upon the question. Primarily, then, it is a matter of construing the statute and in construing the statute the court will have regard not only to its language, which may or may not touch upon the question, but also to the scope and purpose of the statute from which inferences may be drawn as to the legislative intention regarding the extent and the effect of the prohibition which the statute contains.
Miller v Miller (2011) 242 CLR 446 was a tort case arising from the illegal use of a motor vehicle, injuring the plaintiff. Nevertheless, the plurality said:
[24]It has long been established that a contract whose making or performance is illegal will not be enforced [Cope v Rowlands (1836) 2 M & W 149 at 157 [150 ER 707 at 710] per Parke B]. Often enough, however, the statute in question does not expressly prohibit the making of the relevant contract and does not expressly prohibit its performance. Whether such a statute “prohibits contracts is always a question of construction turning on the particular provisions, the scope and purpose of the statute” [Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 at 425 per Mason J]. Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd identifies [at 425 per Mason J] considerations of the kind that are engaged in the task of statutory construction.
…
[26]The same kinds of question have been identified as arising in relation to allegations of illegality in the constitution or performance of a trust. In Nelson v Nelson, Deane and Gummow JJ said (1995) 184 CLR 538 at 551-552 that authorities in contract law (including Yango) suggest drawing distinctions between three cases:
“(i) an express statutory provision against the making of a contract or creation or implication of a trust by fastening upon some act which is essential to its formation, whether or not the prohibition be absolute or subject to some qualification such as the issue of a licence; (ii) an express statutory prohibition, not of the formation of a contract or creation or implication of a trust, but of the doing of a particular act; an agreement that the act be done is treated as impliedly prohibited by the statute and illegal; and (iii) contracts and trusts not directly contrary to the provisions of the statute by reason of any express or implied prohibition in the statute but which are ‘associated with or in furtherance of illegal purposes’. The phrase is that of Jacobs J in Yango (1978) 139 CLR 410 at 432; see also at 430 per Mason J.”
Deane and Gummow JJ said (1995) 184 CLR 538 at 552 that, in the last of these three kinds of cases, “the courts act not in response to a direct legislative prohibition but, as it is said, from ‘the policy of the law’”.
[27] As McHugh J explained in Nelson v Nelson (1995) 184 CLR 538 at 611, to approach the doctrine of illegality in this way, in cases where the statute in question does not expressly or impliedly prohibit the contract or trust, or the doing of some particular act that is essential for carrying it out, recognises that the legal environment in which the doctrine now operates is much more regulated than once it was. Moreover, as McHugh J also pointed out (1995) 184 CLR 538 at 611, Lord Mansfield's statement in Holman v Johnson (1775) 1 Cowp 341 at 343 [98 ER 1120 at 1121] that “[n]o Court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act”, by its all-embracing generality, fails to take sufficient account of the different ways in which questions of illegality may arise. Hence the emphasis given in Nelson v Nelson (1995) 184 CLR 538 at 570, 616-618, and in both Fitzgerald v F J Leonhardt Pty Ltd (1997) 189 CLR 215 at 227 and International Air Transport Association v Ansett Australia Holdings Ltd 2008) 234 CLR 151 at 180 [72] to the discernment, from the scope and purpose of the statute, of whether the legislative purpose will be fulfilled without regarding the contract or the trust as void and unenforceable. But implicit in, indeed at the very heart of, that process lies the recognition that there are cases where the breach of a norm of conduct stated expressly or implied in the statutory text requires the conclusion that an obligation otherwise created or recognised is not to be enforced by the courts.
The first question is whether the provisions of the tax legislation which I have set out expressly prohibited the making of the contract of employment? This question must be answered in the negative. As Mason J said in Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 at 424, the prohibition against the making of contracts, if there be one, can only arise by way of necessary inference, there being no reference at all in the provisions of the sections to contracts as such.
The second question is whether by implication, by way of necessary inference, such a prohibition can be discovered in the provisions of the tax legislation which I have set out? This is a question of construction turning on the particular provisions and the scope and purpose of the legislation and the consequences of the suggested implication with a view to ascertaining whether it would conduce to, or frustrate, the object of the statute: see Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 at 425 and 426 per Mason J.
It was submitted by WIN that the proper analysis was that the entire contract of employment was affected by the illegality but that the Court need only be concerned with the termination payment as now in dispute because WIN, although it may not have been obliged to do so, had paid the other amounts and did not seek to recover them. This approach would seem to mean that the entire employment contract was relevantly illegal notwithstanding that cl (a)(ii) may never have been invoked. In my opinion, this is not an express or implied effect of the tax legislation to which I have referred.
In the present case there is a statutory command to withhold an amount: s 12–85. What is in issue is the amount which that section required to be withheld from the payment. By s 15–10 that amount was to be worked out under the withholding schedules made under s 15–25. All of those provisions must be read together.
On the assumption that the agreement is to be construed as WIN contended, the agreement between the parties was that in the event that Mr Hockey terminated the agreement in the circumstances which he did, Mr Hockey and WIN agreed that it would withhold less than the amount worked out under the withholding schedules.
The essential question, in my opinion, is whether the provisions should be construed so as to invalidate the entire contract and thus the entire termination payment with the result that no amount at all would be withheld and no tax would ultimately be payable because there would be no payment.
The relevant statutory context includes that these were machinery provisions for the better collection of income tax from the payer of the employment termination payment rather than from the payee.
More importantly, by s 16–25(1) it was an offence for an entity to fail to withhold an amount and, on conviction, the person may be ordered by the court to pay to the Commissioner an amount up to the amount required to be withheld, as defined in s 995–1(1) of the Income Tax Assessment Act 1997, in addition to the penalty.
Still more importantly, by s 16–30 an entity that failed to withhold an amount as required by Div 12 was liable to pay to the Commissioner a penalty equal to that amount. Division 298 contained machinery provisions for penalties. Section 298–10 provided that the Commissioner must give written notice to the entity of the entity’s liability to pay the penalty and of the reasons why the entity is liable to pay the penalty. By s 298–15 the penalty became due for payment on the day specified in the notice, which must be at least 14 days after the notice was given to the entity. By s 298–20, the Commissioner had authority to remit all or a part of the penalty. By s 298–25, if any of the penalty remained unpaid after it was due, the entity was liable to pay the general interest charge on the unpaid amount of the penalty for each day of the relevant period. By s 298–30, the Commissioner was required to make an assessment of the amount of an administrative penalty under Div 284. By item 140 in s 250–10, the administrative penalty was a tax-related liability and Pt 4–15 applied to its collection and recovery.
The approach to statutory construction I would take is, in my opinion, supported by Yango Pastoral Co Pty Ltd v First Chicago Australia (1978) 139 CLR 410, Miller v Miller (2011) 242 CLR 446 and also byAustralian Competition and Consumer Commission v Baxter Healthcare Pty Ltd (2007) 232 CLR 1 at 29 [45]-[46] where Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ said, having set out the passage from the judgment of Mason J in Yango Pastoral Co Pty Ltd v First Chicago Australia (1978) 139 CLR 410 at 423, which I have set out above, said:
That passage was cited by Kerr LJ in Phoenix General Insurance Co of Greece SA v Halvanon Insurance Co Ltd [1988] QB 216 at 270, where his Lordship said that when a statute contains a unilateral prohibition on entry into a contract, it does not follow that the contract is void [1988] QB 216 at 273 . Whether or not the statute has this effect depends upon the mischief which the statute is designed to prevent, its language, scope and purpose, the consequences for the innocent party, and any other relevant considerations. Ultimately, the question is one of statutory construction: See also Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410 at 413-414 per Gibbs A-CJ; Australian Broadcasting Corporation v Redmore Pty Ltd (1989) 166 CLR 454 at 457 per Mason CJ, Deane and Gaudron JJ.
I do not find any assistance in the Queensland decisions relied on by WIN: not only were those decisions concerned with very different statutes but, again, each of them was decided well before “the fully developed body of authority” in the High Court referred to in Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498 at [95].
I note those cases as, first, Buckland v Massey [1985] 1 Qd R 502 especially at 507-508 concerning the sale of a second-hand motor vehicle in contravention of s 32 of the Motor Vehicles Safety Act 1980 (Qld). Second was Gaffney v Ryan [1995] 1 Qd R 19 (CA) which concerned s 58(1)(a) of the Builders’ Registration and Home-owners’ Protection Act 1979 (Qld). Third was Burmic Pty Ltd v Goldview Pty Ltd [2003] 2 Qd R 477 concerning Local Law No. 7 (Control of Devices) which provided by s 8(1) that an advertisement must not be exhibited unless the exhibition of it was approved by the local government. Fourth was Australia Meat Holdings Pty Ltd v Kazi [2004] 2 Qd R 458 concerning an unlawful non-citizen who claimed to have suffered an injury in the course of his employment by the appellant. The majority held that the respondent was not a “worker” within the meaning of s 12(1) of the WorkCover Queensland Act 1996 (Qld) because the section required the person to work under a valid contract of service and that contract was contrary to s 235(3) of the Migration Act 1958 (Cth) and invalid. Section 235(3) provided that an unlawful non-citizen who performed work in Australia, whether for reward otherwise, committed an offence against the subsection.
If it were necessary to decide this question I would conclude that the agreement was not void or otherwise ineffectual so as to mean that WIN was not obliged to make the termination payment.
Severance
It is unnecessary to decide the issue of severance, as it assumes illegality and illegality itself assumes the construction of the contract which I have rejected. I shall nevertheless indicate my views. Again, I do not proceed on the basis that there was an intention to defraud the revenue.
The relevant authorities begin with McFarlane v Daniell (1938) 38 SR (NSW) 337, although that was a restraint of trade case and, as the High Court has recently said, it is important to distinguish between cases which consider contracts which are void or parts of which are void and contracts which are illegal or parts of which are illegal. Mr Hockey relied on the following passage in the judgment of Jordan CJ, at 345, with whom Davidson and Owen JJ agreed:
When valid promises supported by legal consideration are associated with, but separate in form from, invalid promises, the test of whether they are severable is whether they are in substance so connected with the others as to form an indivisible whole which cannot be taken to pieces without altering its nature … If the elimination of the invalid promises changes the extent only but not the kind of the contract, the valid promises are severable … If the substantial promises were all illegal or void, merely ancillary promises would be inseverable.
Next is Thomas Brown & Sons Ltd v Fazal Deen (1962) 108 CLR 391, referred to sufficiently in Carney v Herbert [1985] AC 301, below. Thomas Brown & Sons Ltd v Fazal Deen was a case involving illegality, being failure to deliver up gold to the Commonwealth Bank contrary to the National Security (Exchange Control) Regulations.
In Carney v Herbert [1985] AC 301 the Privy Council said:
To some extent each case must depend on its own circumstances, and in particular on the nature of the illegality. Two colliery cases, Netherseal Colliery Co. Ltd v Bourne (1889) 14 App Cas 228 and Kearney v. Whitehaven Colliery Co. [1893] 1 QB 700, provide a useful starting point for a consideration of this branch of the law.
In the Netherseal case two miners were suing for the balance of their wages. In the Kearney case the colliery was suing a miner for damages for his failure to give the contractual period of notice before leaving his employment. In the latter case the miner sought to defeat the claim by relying on the illegality of a term in the contract which, it was said rendered the entire contract of employment void. The same illegal term was present in both cases. It was a term, illegal by statute, which purported to authorise the colliery owner to make a deduction from a miner's wages in respect of coal brought to the surface of the mine which was so small as to pass through a screening device known as “Billy Fairplay.” Neither the House of Lords nor the Court of Appeal had difficulty in upholding the claims of the respective plaintiffs despite the presence of this illegal term. It was not argued in the Netherseal case that the illegal term vitiated the whole contract, so severability was not an issue. It was nevertheless raised and disposed of by Lord Halsbury LC in his concluding observations, at p. 236:
“as the whole contract is not illegal but the deductions are not enforceable, the plaintiffs had a right to sue for the wages due to them without any such deduction.”
Severability was directly in issue in the second case, and it may be helpful to quote from the judgment of Lopes LJ, at p. 713:
“The law is clear that where the consideration for a promise or promises contained in the contract is unlawful, the whole agreement is void. The reason is that it is impossible to discriminate between the weight to be given to different parts of the consideration, and therefore you cannot sever the legal from the illegal part. But where there is no illegality in the consideration, and some of the provisions are legal and others illegal, the illegality of those which are bad does not communicate itself to, or contaminate, those which are good, unless they are inseparable from and dependent upon one another. Here the consideration moving from the master to the men is the employment and the payment of wages. The consideration moving from the men to the master is the services rendered by them. Both are good and lawful considerations. Then we come to the stipulation with respect to deductions. I am of opinion that that stipulation is altogether separable from and independent of the consideration.”
This approach was echoed by Jordan CJ in McFarlane v. Daniell (1938) 38 SR (NSW) 337. This was a case in which an actor sued for his remuneration under a contract of employment which contained a restrictive covenant which was void as being in unreasonable restraint of trade. The employer boldly contended that the actor could not recover his remuneration because the contract was wholly void. Jordan CJ said, at p. 345:
“When valid promises supported by legal consideration are associated with, but separate in form from, invalid promises, the test of whether they are severable is whether they are in substance so connected with the others as to form an indivisible whole which cannot be taken to pieces without altering its nature … If the elimination of the invalid promises changes the extent only but not the kind of the contract, the valid promises are severable … If the substantial promises were all illegal or void, merely ancillary promises would be inseverable.”
He added later, at p. 346:
“The exact scope and limits of the doctrine that a legal promise associated with, but severable from, an illegal promise is capable of enforcement, are not clear. It can hardly be imagined that a court would enforce a promise, however inherently valid and however severable, if contained in a contract one of the terms of which provided for assassination.”
Their Lordships agree with both observations. There are therefore two matters to be considered where a contract contains an illegal term, first, whether as a matter of construction the lawful part of the contract can be severed from the unlawful part, thus enabling the plaintiff to sue on a promise unaffected by any illegality; secondly, whether, despite severability, there is a bar to enforceability arising out of the nature of the illegality.
At 311 the Privy Council said:
The classic case where a contract containing an illegal provision was severed into its lawful and unlawful parts, and the lawful part enforced, was decided in 1962 by the High Court of Australia, Thomas Brown & Sons Ltd. v. Fazal Deen (1962) 108 CLR 391. In that case the plaintiff Fazal Deen had lodged with the defendant in 1943 a safe containing gold and gems under a contract of bailment. The bailment was illegal as regards the gold, which ought to have been delivered to the Commonwealth Bank under exchange control regulations. The contents of the safe disappeared in unexplained circumstances at some time during the ensuing 16 years, whereupon the plaintiff sued the company in detinue. The company resisted the claim on the ground, inter alia, that the entire contract of bailment was tainted by the illegality of the bailment of the gold. The High Court, at p. 411, approved the observation of Jordan CJ in McFarlane’s case, 38 SR(NSW) 337, 345: “If the elimination of the invalid promises changes the extent only but not the kind of the contract, the valid promises are severable.” That test was clearly passed, because under the contract of bailment the plaintiff was entitled at any time to demand the return of part only of the property bailed without thereby affecting the bailment of the residue. Accordingly the plaintiff could sue in detinue on the contract of bailment in respect of the safe and the gems. The High Court rejected the submission of the company's counsel, at p. 393, that: “If any part of the contract is illegal, public policy will not allow any part of the contract to be enforced.”
Most recently, in SST Consulting Services Pty Ltd v Rieson (2006) 225 CLR 516 the plurality of the High Court said in a joint judgment, Kirby J dissenting, at [47]-[48]:
Thomas Brown and Sons Ltd v Fazal Deen concerned not a covenant in restraint of trade but a contract of bailment for certain gold bars and a parcel of gems. Performance of the contract, so far as concerned the gold bars, contravened a law of the Commonwealth and was illegal; but this Court held that an action lay to recover the value of the gems because the terms of the bailment relating to the gold were severable. Kitto, Windeyer and Owen JJ held that the test of severability was that stated by Jordan CJ in McFarlane, a restraint of trade case.
In McFarlane, Jordan CJ stated the applicable rule as being: “If the elimination of the invalid promises changes the extent only but not the kind of the contract, the valid promises are severable.” But different circumstances may arise in cases of illegality from those that fall for consideration when the enforcement of certain provisions is contrary to public policy. That is why it is necessary to distinguish between cases in which a promise made by a party to a contract is void or unenforceable, but not illegal, and cases in which the contract or the performance of a promise would be illegal. And as Jordan CJ rightly observed, there is particular difficulty in identifying the limits of a doctrine that permits enforcement of a legal promise associated with, but said to be severable from, an illegal promise:
“It is difficult to see how, in principle, a legal promise associated with an illegal promise can ever be enforceable unless it is supported solely by a separate consideration so exclusively attributable to it that there are in substance two independent contracts and not one composite contract.”
(footnote references omitted)
In my opinion SST Consulting Services Pty Ltd v Rieson requires the earlier cases, particularly Thomas Brown & Sons Ltd v Fazal Deen and Carney v Herbert to be applied with care, especially in their consideration of what Jordan CJ said in McFarlane v Daniell at 345. What Jordan CJ said must not be taken out of context.
Chief Justice Jordan was distinguishing between restraint of trade clauses and cases of statutory illegality. Further, Jordan CJ was distinguishing been textual severability, on the one hand, and the question of severable consideration for a promise, on the other hand. The words I have quoted above from the judgment in McFarlane v Daniell at 345 “When valid promises supported by legal consideration” are not to be ignored. This provides the context for what follows the paragraph at 345 which I have set out above:
In considering whether in the case of a non-specialty contract a valid promise is enforceable notwithstanding that it is severably associated with an invalid promise, it is necessary to have regard not only to the validity of the promise but to the validity of the consideration for the promise; and it is convenient to deal separately with the cases where the invalid promise or consideration is illegal and where it is void but not illegal.
After consideration of what was stated in the textbooks, Jordan CJ then stated the proposition cited with approval in SST Consulting Services Pty Ltd v Rieson (2006) 225 CLR 516 at [48], which I have set out above, and continued at 346 as follows:
… it is at least well established that, as a general rule, a promise (not itself capable of further subdivision) is unenforceable if it is to do an act or acts all or any of which is illegal, and that a promise to do a lawful act is unenforceable if all or any part of the consideration for the promise is illegal.
With reference to Netherseal Colliery Co. Ltd v Bourne (1889) 14 App Cas 228 and Kearney v Whitehaven Colliery Co [1893] 1 QB 700, considered by the Privy Council in Carney v Herbert [1985] AC 301 and set out above, Jordan CJ said there were cases which appeared to decide that if the illegality took the form of an agreement to qualify illegally promises which, apart from any such illegal qualification, were valid and legal, the illegal agreement for qualification might be regarded as severable from the promises, which might then be enforced as if they were unqualified by the illegal term. However the provision for the deduction and non-payment of slack coal, which was held to be merely unenforceable, was treated as a severable agreement which did not make the whole contract illegal.
Thus although textual severability is possible in the present case, by deleting the words “as a redundancy”, particularly given the express words of the contract “Each provision of this contract is separable from the others and the severance of a provision does not affect the remainder of the contract”, that is by no means the end of the enquiry since the further necessary analysis is whether or not the consideration is severable.
On the assumption of illegality, the correct analysis here would be that part of the consideration provided by WIN was its promise to withhold from the employment termination payment an amount calculated as if that payment were a “genuine redundancy payment”. It would be impossible to discriminate between the weight to be given to different parts of the consideration, and therefore it would not be possible to sever the legal from the illegal part. To use the words of Jordan CJ there are not in substance two independent contracts but, rather, one composite contract.
The matter is to be tested at the time the contract is entered into. I would reject Mr Hockey’s submission that cl (a)(ii) should be severed because, on the present assumptions, the promise to pay out the balance of the term was not dependent on the promise that it be taxed as though it was a genuine redundancy payment and was not dependent on any illegal consideration having been provided by Mr Hockey.
For completeness, I would not accept in terms the submission by WIN that cl (a)(ii) was to be construed as meaning the employer was obliged to pay a single amount and that therefore severability was impossible. Nevertheless, I would have come to the same conclusion, that is, that because on the present assumptions the words “as a redundancy” formed part of the consideration severance of that phrase is not possible.
Misleading conduct
As to his alternative misleading and deceptive conduct case, Mr Hockey relied only on the pleading that by publishing and then sending the letter of 29 March 2011 to him, Mr Andrew Gordon on behalf of WIN expressly represented to Mr Hockey that if he gave notice of termination after 1 October 2011 and before 3 September 2013 WIN would pay Mr Hockey an amount equivalent to what he would have received if he was paid his total remuneration for the balance of the term (to 3 September 2013) as a redundancy payment, and impliedly represented to him that WIN was and would be able in law to make an offer to him in those terms and it was and would be lawful for WIN to make such an offer. Mr Hockey then pleaded that he was induced by and relied upon those representations in communicating that he agreed to the terms of the 29 March 2011 letter and accepted the redeployed position on that basis.
WIN denied the allegations that Mr Hockey was induced by and relied upon the pleaded representations and said further that Mr Hockey was receiving legal advice regarding the terms and conditions on which he might accept an offer of employment in the redeployed position and in negotiating the terms and conditions of the 29 March 2011 letter, and in deciding to accept an offer of employment in the redeployed position on the terms and conditions contained in the 29 March 2011 letter, Mr Hockey relied at all material times on his legal advice.
WIN admitted that those representations were made in trade and commerce within the meaning of the Competition and Consumer Act 2010. It denied that the representations were misleading or deceptive or likely to mislead or deceive and said they were representations as to future matters within the meaning of s 4 of Sch 2 of that Act. WIN also contended that it had a reasonable basis for making the representations in that it believed on reasonable grounds that Mr Hockey was seeking legal advice as to the lawfulness of paying the amount referred to “as a redundancy” and believed on reasonable grounds that Mr Hockey had obtained such advice and that that advice was to the effect that paying the amount would be lawful.
In Mr Hockey’s written submissions, his case under the Competition and Consumer Act was said to arise only if the Court accepted WIN’s interpretation of the contract that cl (a)(ii) obliged WIN to tax the relevant payment as a “genuine redundancy payment”. If that was the contractual promise, Mr Hockey submitted it was misleading and deceptive for WIN to have held out to him that the payment would be taxed as a “genuine redundancy payment”.
Mr Hockey submitted that there were three misrepresentations which were misleading and deceptive: the representation that if he gave notice during the period 1 October 2011 to 3 September 2013 WIN would pay him an amount equivalent to what he would have received if he was paid his total remuneration for the balance of the term as a redundancy payment; the representation that WIN was and would be able in law to make an offer to him in those terms; and the representation that it was and would be lawful for WIN to make such an offer.
Mr Hockey submitted that WIN made a specific offer as to the taxation treatment of the payments without any knowledge as to the true position about such a taxation treatment. WIN’s conduct misled Mr Hockey, or was liable to mislead him, as to the true nature, terms and conditions of his employment with WIN. Mr Hockey then submitted that he relied upon the representations to take up the offer that had been made by WIN. By reason of those matters he said he suffered loss or damage within the meaning of Sch 2, s 236 of the Competition and Consumer Act. His loss and damage was to be assessed by reference to the counterfactual scenario as to what would have happened had he not been misled. In the present case, Mr Hockey submitted, he would have taken up the redundancy option in March 2011 and this would have resulted in him receiving his salary for the balance of the term, plus the benefits under the redundancy policy less the income he earned in the period from March 2011 to February 2012.
Mr Hockey emphasised the evidence of Mr Andrew Gordon as follows:
A. I encouraged him to take on the role that he would settle into the role; he would probably long term find the role enjoyable; all his interactions would be quite simplified, and he would be quite successful and good at handling the role; as well as the fact that if he did not wish to – did not enjoy the role, if it was – if he didn’t find himself suited it, he couldn’t adapt to it, that, yes, he could leave the company and end his contract. I also – I very, very seriously encouraged him not to leave the company at any time to – well, within any time like a six-month period before the end of his contract so as not to probably be said to be taking the Mickey out of his employment agreement.
Q. Well, basically what you wanted was to make sure that he gave the position a real go; correct? --- More or less, yes, yes.
…
Q. If your father would not honour the third option – that is the payment of the contract out as a redundancy – you told Mr Hockey that you were prepared to resign; correct? ---No, I would doubt that – to actually that as per this word redundancy being entered into everything, that at the time that I felt fairly passionate about his position that – in a little bit of solidarity that, you know, I would just about resign if his contract was not paid accordingly.
Q Okay. So - - -?---There was no word of redundancy in that.
Q. Okay. So if his contract was not paid out then you were prepared to resign; correct?---Well, I made a fairly passionate sort of statement to him along those lines.
Q. Well, were you being honest with him when you said that to him?---Well, I was passionate. I mean, my mind can change, so – I’m a human being.
Q. Sure, but were you telling him the truth when you told him? --- I was fairly convicted in what I was saying as a longstanding mate, in that sense.
Q. Were you telling the truth when you told him that?---Yes, yes, I would agree with that.
Q. You were taking a stand to protect and look out for a long serving and loyal employee; a mate whom you respected?---Yes, that’s fairly correct, yes.
Q. Now, if you go to page 81 of the cross-examination folder. Now, you will see there there’s an email exchange between you and Mr Hockey?---Yes.
Q. And that, of course, is referrable to the third option, correct, that in the event that he needed to leave there would be that parachute for him to receive the payment he was otherwise entitled to; correct?---That he could execute the – yes, his contract in that form, yes.
Q.Okay. And the serious stand in supporting you refers to ensuring that this deal could be delivered; that is this third option could be delivered; correct?---Well, in terms of backing him in the role he was doing and his employment till a time at which it came to a parting of the ways.
Q. And Mr Hockey’s reference to what has happened was a reference you understood to be his treatment at the hands of your father?---Yes, that’s my interpretation of his words.
Q. Yes. Okay. And the “serious stand” reference in your email is that this was an important issue for you, so that in the event that it was not agreed then it’s something that you would regard as an issue to force your resignation from the company?---I wouldn’t tie that to that particular statement.
Q. Okay?---Just that I would be fairly strong in my views, that’s all.
Q. So in paragraph 18 of your affidavit, in your version of a conversation you had with Mr Hockey, you don’t recount any of this in terms of a serious stand being taken by you; correct?---No, not in my affidavit, no.
Q. No, but that’s what you were telling Mr Hockey you were doing; correct?---Well, if you look back at the emails, yes, you can see that I was, but again in my recollection it was that long ago when I was doing this affidavit that, you know, it wasn’t something that I held on to in my thought process.
Q. But the support you were referring to in your email at page 81 – that is “it’s a mirror of your support of me over the years,” you mean by that, of course, that Mr Hockey had stood up for you in differences between your father and you in the company?---No, not at all, no.
Q. No?---Just that he was one of my corporate supporters; that he believed in my sort of management philosophies, that’s what that means.
Q. Thank you. Is this the case – can we accept this as your evidence then, that you promised protection to Mr Hockey in the event that he took up the new position and later had to leave because of reasons – whether it be your father or other reasons – in which case he would be paid out the balance of his contract; correct, that was the protection you were going to give him?---That was essentially the goal of his contract.
Q. Okay. Thank you. And is the memorandum that you executed – I withdraw that – the memorandum that you signed on page 79 of the bundle, has that now caused you embarrassment within the company, the fact that you signed that memorandum?---No, not in any way.
Q. So is this the case, but you just tell me. Has this memorandum caused you embarrassment to the extent now that you’re taking a position to deny that you read it or read it properly?---No, there’s no such embarrassment, it’s just all – myself, including my colleagues, were all rather bemused at the contents of it and that - - -
Q. Bemused?--- - - - bemused that the contents are what they are and a little bit, say, sceptical that any of us, you know, would not have picked up on such wording.
Q. Sceptical. What do you mean “sceptical” or you mean or embarrassed?---No, no embarrassment whatsoever to be taken.
Mr Hockey submitted that he relied on both the addendum and the representations made by Mr Andrew Gordon in the meetings leading up to the addendum being signed in order to forego what would have been a lucrative payment as a redundancy payment and decided to take up an alternate position with the protection contained in the addendum. Had that protection not been forthcoming, that is, the parachute payment in (a)(ii), he would not have accepted the alternate position because of his long-standing concerns as to his personal treatment at the hands of Mr Bruce Gordon. He was enticed to take on the alternate position because Mr Andrew Gordon guaranteed a number of things to him, not least of which was that if he chose to depart at a time of his choosing he would receive the sizeable termination payment that he was otherwise going to receive at that time.
Mr Hockey submitted that if he failed on the contract claim for the reason that it was void against public policy that did not take away from the force and effect of the representation to the same effect as the void contractual term and did not rob it of the force and effect of being a representation which was an inducement for him to act, to his detriment, to remain with WIN and to forego what was a valuable opportunity. The representation was a representation as to whether or not the term was void on public policy grounds.
WIN referred to the representations arising at two different points in time. The first representations were said to have arisen from the events of 11-14 March 2011. WIN noted that at the time this first representation was alleged to have been made the three options that Mr Andrew Gordon gave to Mr Hockey were recorded in a memorandum dated 12 March 2011. WIN submitted that it was difficult to see why, if such a representation was made at that time, it was misleading and, further, why any such representation could have had any operative effect. Mr Hockey’s decision ultimately to enter into the employment contract constituted by the letter about three weeks later was based on his view that WIN would be bound by its terms and on whatever legal advice he received regarding it.
The second set of representations was said to arise out of the execution by Mr Andrew Gordon of the letter. In that respect WIN submitted that the mere combination of a contractual promise and a later breach of that promise does not amount to misleading or deceptive conduct. Mr Hockey contended that entry into the employment contract carried an implied representation that it would be lawful to perform the promises therein contained. There was, however, WIN submitted, no basis for implying from the execution of the document some representation over and above what its terms stated. Further, and in any event, it was difficult to see why one would imply any representation from Mr Andrew Gordon regarding the legality of the new contract in circumstances where the relevant part of it was drafted by Mr Hockey’s lawyers and presented by Mr Hockey to Mr Andrew Gordon for signature. It was also not possible to see how Mr Hockey could have been relying on anything other than the contractual rights he obtained from the letter and whatever advice he had been given by his lawyers.
WIN submitted that Mr Hockey was not entitled to recover the amounts claimed under the Competition and Consumer Act.
In oral submissions, WIN began with the history of the 29 March 2011 addendum letter. WIN referred first to a meeting deposed to by Mr Hockey, being a discussion between Mr Hockey and Mr Andrew Gordon on 11 March 2011 where the following was said:
RH: “So that means I would effectively be made redundant if I don’t take any of these roles? I have a contract that runs until 2013. How does it affect that?”
AG: “If you don’t want any of the roles, I will agree to pay out your contract as a redundancy. But I really want you to stay and take on this Network Production role.”
RH: “All right. It is a lot to digest. I will need to have a think about it. My one concern is the abuse and treatment of your old man over the past 3 years. If I take one of these roles, how can you guarantee that won’t continue?”
AG: “I will have to talk to Lancaster, Shirley and Collis and make sure we protect you from him. If you don’t like the role, I will pay out the remainder of the contract as a redundancy.”
WIN next referred to the document, dated 12 March 2011, which I have set out above referring to three options.
WIN noted that this memorandum dealt with three alternative options rather than there being an opt-out clause if Mr Hockey took up one of the two roles referred to, such that Mr Hockey could terminate whenever he wanted and receive a payout if he took up one of those roles.
By 23 March 2011 it appeared that Mr Hockey wished to be able to terminate after six months and receive a payout of the period that would be left under his current contract. It seemed to have been some part of the discussion that if Mr Hockey took up a position for six months he would have an option to leave at the end of the six months. A file note made by Mr Hockey contained the following, referring to a 12 month period:
They were keen to dsee [sic] me try the production role for 12 months and then if the intimidation continues they would pay me out – they are also worried that the pay out amount of 2.5 years will put BG into a confrontational mind set and he would try and defend it as not to pay me any money – they thought by taking the production role for 12 months that the payout after that would not be so bad in his mind. – This tells me they are not confident to defend me against BG if I stay.
WIN referred to a proposal dated 29 March 2011 which contained the following:
The terms of your employment are confirmed as follows:
Expiry Date:
This contract will expire on 3 September 2013, unless terminated earlier in accordance with the contract.
Additional Agreement:
Both parties have agreed that the initial period of employment in the position of Network Director of Production is six (6) months. Anytime after this period that you wish to terminate your employment, WIN will pay the remainder of the contract in accordance with the taxation laws that are applicable.
All other conditions of your employment arrangement dated 10 May 2010 with WIN Corporation will remain the same.
WIN submitted that by 29 March 2011 a draft was being developed by lawyers engaged by Mr Hockey. This draft, under the heading “Termination by You”, recited Mr Hockey’s former position of General Manager having been made redundant and provided that where notice of termination was given on or before 30 September 2011, WIN had agreed to pay Mr Hockey a redundancy payment in addition to any other monies due and payable to him on termination, calculated on the basis of the number of weeks remaining under the term of the contract, that is, from the termination date to the expiry date of 3 September 2013 less applicable taxation upon the redundancy payment. That draft provided that where any such notice was given on or after 1 October 2011 and prior to the expiry date, Mr Hockey would receive payments on termination in accordance with the contract.
A further draft was prepared by Mr Hockey’s legal advisers which provided, under the heading “Termination by You”, that where any such notice was given by Mr Hockey on or before 30 September 2011 he would receive payments on termination in accordance with the contract and where any such notice was given on or after 1 October 2011 and prior to the expiry date the company had agreed to pay Mr Hockey a redundancy payment in addition to any other monies due and payable to him on termination, calculated on the basis of the number of weeks remaining under the term of the contract, that is, from the termination date to the expiry date of 3 September 2013 less applicable taxation upon the redundancy payment.
That was the final draft which was submitted by Mr Hockey and rejected by WIN.
WIN then submitted another draft on 5 April 2011 re-putting the version referred to above as a proposal dated 29 March 2011.
This was rejected by Mr Hockey who put to WIN a redrafted version of the addendum letter which was accepted by WIN on 7 April 2011.
Thus, it was submitted by WIN, Mr Hockey on legal advice forwarded the final version of the addendum letter; it was in a form in which his lawyers had advised him to formulate it. The form was proposed by him, on advice from his lawyers, in the face of a different proposal from WIN. Mr Hockey put his final draft which WIN accepted.
Mr Hockey agreed that he understood that any arrangement between himself and WIN would be reduced to writing and that until it was reduced to writing and accepted by him, nothing was agreed. He also agreed he had been communicating with his lawyers as required and relied on them to give him advice as to what was legally effective and they gave that advice. He assumed that the draft he had got from his lawyers would be lawful. Mr Hockey agreed he made no secret that he was getting legal advice and that Mr Andrew Gordon knew that Mr Hockey was getting legal advice.
The conduct here was not a matter of express representations but of representations being implicit in the propounding of the terms of the contract. The steps appeared to be as follows. First, on this limb of the case, WIN promised to make a payment to Mr Hockey but to withhold tax on the basis that the payment was a “genuine redundancy payment”. The second step is that that promise was unlawful such as to excuse or prevent, in law, WIN from making that payment. The third step is that WIN represented to Mr Hockey that the promise to make a payment to him but to withhold tax on the basis that the payment was a “genuine redundancy payment” was lawful and not such as to excuse or prevent WIN from making that payment.
In my opinion, on the facts of this case, something more than the making of the promise in the contract would be needed in order to found conduct liable to mislead Mr Hockey, being an implied representation that the term of the contract was lawful. I bear in mind the discussion of the relevant principles in the judgment of Allsop J in McGrath v Australian Naturalcare Products Pty Ltd (2008) 165 FCR 230 at [138] that, without setting any artificial constraints on the operation of what was then s 51A and s 52 and the balance of Division 1 of Part V of the Trade Practices Act 1974 (Cth), the divining of representations from the making of contractual promises and the entry into contracts is a task to be approached with caution and with an eye to all the facts and not by reference to implying representations mechanistically from equivalent promises: see Concrete Constructions Group v Litevale Pty Ltd (2002) 170 FLR 290 per Mason P.
My conclusion is that WIN did not engage in conduct that was liable to mislead Mr Hockey.
The factors I take into account in reaching this conclusion are, first, that it was Mr Hockey who propounded the form of words which, on the hypothesis which founds this limb of the case, led to the unlawfulness and unenforceability of the payment. Second, Mr Hockey had thoroughgoing access to lawyers and the benefit of legal advice in relation to the addendum letter of 29 March 2011. Third, there was no secret that Mr Hockey was getting legal advice and Mr Andrew Gordon knew that Mr Hockey was getting legal advice. Fourth, Mr Hockey puts the case that WIN lacked legal advice, but that of itself does not found conduct that is liable to mislead: it is not suggested WIN said that it had legal advice. Fifth, the relevant officer of WIN, Mr Andrew Gordon, gave affidavit evidence as follows:
34.I did not focus closely on the terms of the 29 March Letter before signing it…
35.If I had had any reason to think that the 29 March Letter, or any aspect of it, might be unlawful then I would not have signed the 29 March Letter. It did not occur to me that the 29 March Letter might be unlawful or ineffective in any way. On the contrary,… I assumed that the 29 March Letter was in order for me to sign.
36.… I did not seek any legal advice about the terms of the 29 March Letter before signing it. Nor, to the best of my knowledge and belief, did anyone else at WIN seek any such legal advice before the 29 March Letter was signed.
Mr Hockey also pleaded that the representations were representations as to a future matter within the meaning of Sch 2 s 4 of the Competition and Consumer Act and there were no reasonable grounds for making the representations. WIN denied those allegations.
This aspect of the matter does not appear to have been the subject of the first outline of written submissions on behalf of Mr Hockey, filed before the trial. However, it was referred to in Mr Hockey’s written submissions in reply, filed before the trial, but only where it was said:
4.7To the extent that these representations were as to a future matter (as pleaded in paragraph 27 of the Statement of Claim), it is further plain that Mr Gordon had no reasonable grounds for making that assertion. No evidence has been led by the Respondent to discharge its onus in that regard.
The assertion there referred to seems to be that the contract gave rise to a promise and representation to make a payment taxed in a specific manner but without any basis for making the representation.
Although not dealing with this aspect of the matter in its written submissions, WIN submitted that it had reasonable grounds for making the representation being that Mr Hockey, after taking legal advice, formulated a covenant in his favour and that would be the very best basis for thinking that what WIN was going to execute was likely to be legally effective, thus providing reasonable grounds. As to the representations as to law, WIN again submitted that it had reasonable grounds because Mr Hockey, whose interest it was to have such a covenant, after taking legal advice wanted WIN to execute a covenant for his benefit.
In my opinion, to the extent that the representations were with respect to any future matter, for the reasons advanced by WIN in the submissions which I have set out in the immediately preceding paragraph, WIN had reasonable grounds for making them.
Mr Hockey is not entitled to recover the amounts claimed under the Competition and Consumer Act.
I note that while it may have been necessary, originally, to plead a case under the Competition and Consumer Act 2010 in order to enliven the jurisdiction of this Court, the abandonment of that claim would not have deprived the Court of jurisdiction: Burgundy Royale Investments Pty Ltd v Westpac Banking Corporation (1987) 18 FCR 212. Further, by the time the defence was filed it was clear that the matter also arose under the Taxation Administration Act, because WIN pleaded its duties and obligations under provisions of that Act as a defence to Mr Hockey’s claim. Thus the matter also arose under that Act and thereby the matter was within the original jurisdiction of the Court under s 39B(1A)(c) of the Judiciary Act 1903 (Cth): see Felton v Mulligan (1971) 124 CLR 367.
Orders
This leaves the question of remedy. In an exchange of written submissions on 22 April 2013 the parties failed to reach agreement on the assessment of damages. The only point of agreement seemed to be that the total value of the lump sum payment was $404,490.20. Even if that figure was agreed the parties appeared to be at issue on whether the assessment of damages should be made on the basis of the gross income of Mr Hockey or on a net basis.
I therefore direct that the parties confer as to the correct figure, including what should be netted off and interest and, failing agreement, notify my associate so that the matter may be relisted for up to half a day on a date not before 19 August 2013.
The parties asked me not to make a costs order but to give them an opportunity to make submissions about costs if they wished to do so. I indicate provisionally that, in my view, costs should follow the event with the result that WIN pay Mr Hockey’s costs. If it is necessary to argue that question it may also be relisted to be heard on the same half day as the assessment of damages.
I certify that the preceding one hundred and thirty-five (135) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Robertson. Associate:
Dated: 8 August 2013
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