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England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Barden v Commodities Research Unit & Ors  EWHC 1633 (Ch) (18 June 2013)
Cite as:  EWHC 1633 (Ch)
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Royal Courts of Justice
London, EC4A 1NL
B e f o r e :
| MICHAEL KIERAN BARDEN
|- and –
|COMMODITIES RESEARCH UNIT INTERNATIONAL
CRU STRATEGIES LIMITED
CRU INTERNATIONAL LIMITED
CRU PUBLISHING LIMITED
Mr Rhodri Davies QC and Mr Conall Patton (instructed by Norton Rose Fulbright LLP) for the Defendants
Hearing dates: 21st and 22nd March and 10th June 2013
Crown Copyright ©
Mr Justice Vos:
i) What is the true meaning of the SA?
ii) If the SA does mean, as Mr Barden contends, that the gross sum of £1.35 million must be paid over to him on the agreed date, should the SA be rectified so as to allow the Defendants to deduct PAYE from the payment, as a result of:-a) Common mistake; orb) Unilateral mistake.
iii) If not, has Mr Barden been unjustly enriched at the Defendant's expense?
"10. ENTIRE AGREEMENT
10.1 The terms of this agreement constitute the entire agreement between the Parties relating to its subject matter and supersede all prior oral and written agreements, understandings or arrangements relating to the subject matter of this agreement, and may not be modified except by an instrument in writing signed by the Parties or the duly authorised representatives of the Parties.
10.2 Each Party acknowledges that it has not entered into this agreement in reliance wholly or partly on any representation or warranty made by or on behalf of the other Party (whether orally or in writing) other than as expressly set out in this agreement.
10.3 No other terms or conditions (whether written or oral) shall be included or implied into this agreement, except that nothing in this clause 10 will exclude liability for fraudulent statements".
The evidence for Mr Barden
i) Paragraph 12: "I only agreed to settle my claim for £1,350,000 because the agreement provided that that was the sum I would receive. I did not agree to settle my claims for £1,350,000 less the amount that the Defendants would become liable to pay to HMRC as my former employer if they paid £1,350,000 to me. I certainly did not agree to settle my claim against the Defendant for a payment of £676,822.84".
ii) Paragraph 15: "… from my experience as an employer and as an employee both as CEO of the CRU Group and with other companies, I am well aware that employers are liable to account to HMRC for PAYE on termination payments made to employees. I had this in mind during the mediation and I anticipated that the [Settlement Sum] of £1,350,000 would be worth more to me because I would be able to claim a tax credit for the amount of the PAYE paid by the Defendants to HMRC. I thought at the time that the tax credit would be worth 20% (£270,000) making the total value of the settlement £1,620,000. However, since the Settlement Agreement was made I have learned that the value of the tax credit is likely to be higher than 20% because there has been a change in the law since I had last enquired. I have been referred to reg. 37(2) [of the PAYE Regulations] as amended by reg. 3 of the Income Tax (Pay as You Earn) (Amendment) Regulations 2003 SI 2011/1054".
i) Paragraph 12: "At the early stages of the negotiations, after we had made an initial offer to settle the [Mediator] informed us that the defendant had requested that any offer should not be made as a figure plus costs but should rather be made on [an] "all-in basis". I assumed that this request was to avoid any uncertainty about the final amount of legal costs that might be payable. From that time onwards I consider[ed] all offers and counter offers to comprise settlement for the claim and the legal costs that I had incurred. However, there was no agreement or understanding that the basis of the offers was "as a gross figure, before deduction of Mr Barden's income tax" nor that I agreed that CRU would be entitled to deduct any tax liability, as has been alleged in correspondence".
ii) Paragraph 15: "During the negotiations I did raise the issue of tax. I told the mediator that there was an asymmetry in the tax situation between myself and CRU. Notably I said that I had had to pay VAT on my legal costs where CRU could claim theirs back and that any settlement would be subject to income tax whereas CRU could deduct the same payment as an expense for corporation tax. The purpose of this statement was to indicate to the other side the strength of my resolve not to accept an unreasonably low settlement offer in the same way that Mr Perlman had made equivalent positioning statements in the opening session of the mediation (Goodman paragraph 31). I did not discuss with the Mediator at any stage, either during the negotiations or after the figure was agreed, the issue of any deductions being made from the [Settlement Sum] for tax or any other purpose".
iii) Paragraphs 23 and 24: "23. One of the key final negotiating issues I was anticipating, was that I would want the agreement to separate out the part of the £1.35m that reflected my legal costs in the agreement so that those costs would be tax deductible. The draft did not do that. However, it was already late at night and I expected that even small further changes would be difficult to achieve given Mr Perlman's absence and the time taken earlier in the evening to respond to previous rounds of offers. I realised that in CRU agreeing to make this payment that they would need to pay the PAYE and I would get a 20% tax credit from the payment that CRU made to HMRC (I was mistaken as to the percentage as I explain in paragraph 15 of my first statement) and this … benefit would offset my legal costs probably not being tax deductible. 24. As a consequence I decided that there was therefore no need for any further negotiation and I signed the settlement agreement as drafted by Norton Rose".
i) First, Mr Barden accepted that the various financial offers and counter-offers made by the parties in the course of the negotiations at the mediation immediately leading up to the SA would have been reasonably understood to be inclusive of income tax. Indeed he accepted that he had passed a message to the other side, through the Mediator, that the Settlement Sum would be subject to tax (and that he had to pay VAT on his costs and expenses, and possibly tax on a payment for legal costs as well).
ii) Secondly, Mr Barden accepted that he knew, when he read the draft SA that was presented to him by the Defendants' solicitors, that a mistake had been made in not providing for the deduction of income tax. He thought that the Defendants would have to pay 20% in PAYE, which as it turned out was inaccurate. In evidence, Mr Barden also accepted that he considered whether to raise the question of providing specifically for his legal costs in the SA so as to avoid paying tax on them, but he decided not to do so, thinking that he would take the benefit of the mistake instead. He accepted this proposition put to him by Mr Rhodri Davies Q.C., leading counsel for the Defendants: "[s]o that's the trade you made in your mind, you thought "looks as if they have made a mistake here, which will give me an extra 20 per cent, and I can either point that out and then negotiate my legal costs, or shut up and leave the legal costs out of it", and you decided the latter?"
Q. Mr Barden, at the very least it must have been so likely that it was a mistake, that the honest and straightforward thing to do was to ask, wasn't it?
A. Sorry, this is a negotiation, it is about achieving the best commercial outcome for both respective parties. If the other side volunteers something that I haven't asked for in a negotiation, I do not believe it's my duty of care to go to them, especially when they are professionally acquitted [sic], and say "Have you made a mistake here? Are you offering me something that I shouldn't have?"".
The Defendants' evidence
i) Paragraph 32:- "around mid-afternoon, the [Mediator] conveyed an offer from the Claimant to the Defendants to settle the dispute for a sum of £2m plus costs. We were informed by the mediator that the £2m sum had been calculated as follows. The Claimant's starting point was the figure of £7m pleaded in the draft Re-Amended Particulars of Claim. The [Mediator] explained that the Claimant contended he had a 60% chance of winning the claim, giving rise to a figure of £4.2m, to which the Claimant had then applied a further 50% discount to reflect the fact that the LTIP might never be triggered or might not be triggered for a significant period of time, giving a figure of £2.1m. On this basis, the Claimant was offering to settle for £2m plus costs (pages 20 and 25 of RG2). There was no suggestion that there was any tax to be added to this figure and, indeed, the calculation explained to us left no room for any additional sum for tax".
ii) Paragraph 35: "…probably by now around 7pm or 8pm, the [Mediator] informed us that the Claimant was willing to come down to £1.9m "all-in" … This was not accompanied by any supporting calculations. I believe it was simply a reduction from the Claimant's previous offer designed to try to elicit a corresponding movement upwards by the Defendants. The mediator told us that the £1.9m was not a final offer, but the Claimant wanted a "swift and substantial response" to it. Like the earlier offer of £2m I understood the £1.9m to be inclusive of tax and, in addition, it was now expressed to be inclusive of costs as well (in contrast to the previous £2m offer)".
iii) Paragraph 36: "the [Mediator] came into the Defendants' room and, unprompted by us, relayed to us a message regarding tax. The [Mediator] delivered this message as soon as he entered the room, while he was still standing, which indicated to me that the message was coming directly from the Claimant or his advisers. I cannot recall the exact words he used but the clear import of what he said was that the Claimant knew and accepted that he would incur an income tax liability as a result of any settlement and that such tax would come out of any settlement sum, leaving the Claimant with much less than the headline settlement figure. This confirmed my, and I believe the Defendants', existing understanding. Within the context of the ongoing negotiations, this message served (and I assume was intended) to remind us to take into account the fact that, after paying tax, the Claimant would end up with considerably less than the gross sums being discussed, applying a 50% tax rate".
iv) Paragraphs 38 and 39: "38. The [Mediator] told us that the Claimant wanted £1.5m, but his final offer was £1.35m "all-inclusive" (pages 24 and 26 of RG2). I believe this offer was made at around 9.30pm. … I informed Mr Perlman of the offer by telephone and, after about an hour, I was instructed by Mr Perlman to accept the offer on behalf of the Defendants. We asked the mediator to come into our room and informed him that the Claimant's final offer of £1.35m was accepted by the Defendants. The [Mediator] then left our room to communicate this to the Claimant. At this point I understood that we had a deal and that all that remained was to document and sign it. 39. It was my understanding and I believe that of everyone on the Defendants' team, that the agreed settlement sum was a gross figure, which represented the totality of what the Defendants would have to pay. At no stage had there been any suggestion from the [Mediator], the Claimant, or the Claimant's advisers, that the Claimant expected the Defendants to pay all or any part of his income tax liability on top of the settlement sum which had been agreed. On the contrary, as described above in paragraph 36, the Defendants had been informed by the mediator that the Claimant's liability for income tax would be satisfied out of the settlement sum".
v) Paragraph 43: "It was an obvious piece of background to the claim and the mediation that, if the Claimant recovered any sum from the Defendants, he would have to account for it for tax purposes. What was not obvious at the mediation was that the [PAYE Regulations] would apply to any payment by the Defendants to the Claimant, even though it was more than four years since he had left the Second Defendant's employment. However, following discussions with colleagues in Norton Rose's tax department, I learned the morning after the mediation (i.e. the morning of Friday 19 October 2012) that the Defendants were obliged to account to HMRC on the Claimant's behalf for the income tax arising in respect of the settlement"
i) Paragraph 7: "Firstly, as mentioned in Mr Wanambwa's statement at paragraph 6a., I specifically made the point at this time to the [Mediator] that I did not want to and was not interested in dealing in offers where we were going to need to add costs onto the figure. I said I wanted the Claimant to make a global all-in offer. The reason I said this was because I wanted to know we had certainty as to the amount under discussion so that if and when that number was agreed I and the Defendants would know precisely what we would have to pay and that would be all we would have to pay. I confirm that this remained my understanding throughout the mediation".
ii) Paragraph 8: "Late in the evening I received notification by telephone from Mr Goodman that the Claimant had offered to settle for payment of £1.35 million, as referred to in Mr Goodman's statement at paragraph 38. My understanding was that the offer made by the Claimant was that we pay him an all-in figure of £1.35 million. I thought about the offer, and I then accepted the offer on this basis, and then communicated that acceptance to Mr Goodman. I accepted the offer on the understanding that we would not have any further liability to pay over and above £1.35 million".
iii) Paragraph 9: "When the final form agreement was delivered to me at about 12.30am on Friday morning for signing, I understood clearly that the £1.35 million settlement sum we had agreed, which was in clause 3 of the [SA], was an all-in global sum and that £1.35 million was the full extent of our liability to pay. Any tax due on that sum would be for the Claimant to pay. This was my understanding prior to signing the agreement and my understanding at the time I signed the agreement. It remains my understanding today. So far as I was aware, there had been no further negotiation of the substantive terms of the settlement after I had authorised the acceptance of the Claimant's final offer on the basis described above. I understood that the purpose of the settlement agreement was simply to record the agreement which had previously been reached on that basis".
Issue 1: Construction
i) That, when the SA was made, each party was separately aware that Mr Barden would have to pay income tax on the Settlement Sum;
ii) There was no discussion or agreement between the parties as to the amount of income tax that would be payable, who would pay it, or how it was to be paid;
iii) The Defendants were or ought to have been aware that they were or might be liable to account for PAYE on the Settlement Sum because (a) they had paid PAYE in respect of two previous payments to the Claimant in relation to the 2008 settlement; (ii) they are experienced employers; and (c) they had experienced legal advisers at the mediation, who failed to consider whether PAYE was payable.
iv) Both parties intended at the mediation that the Defendants would pay the entire Settlement Sum to Mr Barden.
Issue 2: Rectification
i) the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified;
ii) which existed at the time of execution of the instrument sought to be rectified;
iii) such common continuing intention to be established objectively, that is to say by reference to what an objective observer would have thought the intentions of the parties to be; and
iv) by mistake, the instrument did not reflect that common intention.
"[t]he CRU Parties shall by 4pm on 1 November 2012 pay £1,350,000 (the Settlement Sum), net of any PAYE due to HMRC, by telegraphic transfer into the Cheyney Goulding LLP client account at HSBC Bank, Guilford Branch, account number 73668010 sort code 40-22-26, IBAN GB64MIDL40222673168010, SWIFT CODE MIDLGB22" (amendment underlined).
Issue 3: Unjust enrichment