Barden v Commodities Research Unit & Ors

A settlement sum payable under an agreement connected with employment is ordinarily understood as payable net of PAYE properly due from the employee, unless the agreement clearly provides otherwise. Construction is objective and takes account of the relevant legal and factual background, but not the parties’ negotiations or subjective intentions. The statutory requirement for an employer to account for PAYE may form part of the background even where the parties were unaware of its detailed operation.

If construction had produced a different result, rectification for common mistake would have been available where the parties had objectively reached a continuing common accord which the written instrument failed to record.

Mr Barden applied under a Tomlin order for payment of £673,177.16, alleging that a settlement agreement required the defendants to pay him the gross settlement sum of £1.35 million and a further equivalent amount to HMRC. The defendants had paid £676,822.84 to his solicitors and £673,177.16 to HMRC under PAYE.

The issues were the construction of the settlement agreement, alternatively rectification for common or unilateral mistake, and unjust enrichment. The central question was whether the agreed settlement sum was payable gross or net of PAYE.

1. Construction. The settlement agreement objectively required payment of £1.35 million net of PAYE due to HMRC. The court considered the admissible factual matrix under Investors Compensation Scheme v West Bromwich Building Society [1998] 1 W.L.R. 896. Negotiations and subjective intentions were inadmissible.

2. The statutory background formed part of the objective context. Employment-related payments ordinarily attract income tax, and PAYE is normally accounted for by the employer on the employee’s behalf. The relevant provisions were not so obscure that they could be disregarded. Reading the clause as requiring a further £1.35 million payment to HMRC would produce commercial absurdity and contradict the description of £1.35 million as the Settlement Sum.

3. The same result could have been reached by implying words such as “net of any PAYE due”, and the entire agreement clause did not prevent that necessary implication.

4. Common mistake. If the agreement had required gross payment, the requirements identified in Daventry District Council v Daventry & District Housing Ltd [2012] 2 All ER (Comm) 142 would have been satisfied. The parties had objectively reached a continuing common accord that £1.35 million was their total liability, but the written agreement would not have reflected it. No requirement of dishonesty or sharp practice forms part of common mistake rectification.

5. Rectification is discretionary, but equity would not have refused it on these facts. The claims for unilateral mistake rectification and unjust enrichment therefore did not require determination.

The application was dismissed in substance. The court directed that the form of order and costs be addressed separately.