FEDERAL COURT OF AUSTRALIA Le Grand v Commissioner of Taxation [2002] FCA 1258 TAXATION – eligible termination payment – retained amount of eligible termination payment - whether payment constituted an eligible termination payment for purposes of Termination Payments Tax (Assessment and Collection) Act 1997 (Cth) – payment in compromise of claim of wrongful termination and misleading and deceptive conduct – whether payment "in consequence of" termination of employment – where termination need not be only or dominant cause of payment – whether whole or part of payment constituted retained amount of the eligible termination payment - whether retained amount of an eligible termination payment defined entirely by s 27AC(2)(a) Income Tax Assessment Act 1936 (Cth). WORDS & PHRASES – "eligible termination payment", "in consequence of termination", "retained amount" Termination Payments Tax (Assessment and Collection) Act 1997 (Cth): s 7(2) Income Tax Assessment Act 1936 (Cth): s 27A(1), 27AC(2) Reseck v Commissioner of Taxation (1975) 133 CLR 45, followed McIntosh v Federal Commissioner of Taxation (1979) 25 ALR 557, followed Paklan Pty Ltd (in liq) v Federal Commissioner of Taxation (1983) 67 FLR 328, distinguished ANDRE PHILLIPE LE GRAND v COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA W 103 of 2001 GOLDBERG J 15 OCTOBER 2002 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY W 103 of 2001 BETWEEN: ANDRE PHILLIPE LE GRAND Applicant AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent JUDGE: GOLDBERG J DATE OF ORDER: 15 OCTOBER 2002 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The appeal be dismissed. 2. The applicant pay the respondent's costs of and incidental to the appeal. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY W 103 of 2001 BETWEEN: ANDRE PHILLIPE LE GRAND Applicant AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent JUDGE: GOLDBERG J DATE: 15 OCTOBER 2002 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 The applicant appeals against the decision of the respondent ("the Commissioner") disallowing the applicant's objection to the Commissioner's assessment of termination payments tax of $82,194 pursuant to the provisions of the Termination Payments Tax Imposition Act 1997 (Cth) and the Termination Payments Tax (Assessment and Collection) Act 1997 (Cth) ("the TPT Act"). The assessment was in respect of the applicant's income for the year ended 30 June 1999 and occurred as a result of the applicant accepting an offer of compromise of $547,959.54 in respect of claims brought by him against his former employer, Business Computers of Australia Pty Ltd ("BCA"), and its chairman, in relation to the termination of his employment. 2 The issue to be determined is whether the amount accepted by the applicant pursuant to the compromise, either in whole or in part, is an "eligible termination payment" for the purposes of s 7(2) of the TPT Act and s 27A(1) of the Income Tax Assessment Act 1936 (Cth) ("the ITAA") that is to say, whether the amount was a payment made in respect of the applicant in consequence of the termination of his employment. 3 The payment of $547,959.54 to the applicant came about in the following circumstances. On or about 30 August 1997 the applicant entered into an employment agreement with BCA whereby he was employed as its managing director. His base remuneration under the agreement was an annual package of $250,000 together with a profit sharing component whereby he was to be paid 10% of BCA's management profit (as defined) and 5% of the management profit in excess of budget for annual management profit. Under the agreement the applicant's employment was to commence on 3 November 1997 and could be terminated by BCA on one month's notice, provided that if the notice was given prior to 3 October 1999 he was to be paid the balance of his base remuneration for the period from the date of termination to 2 November 1999. In short, the agreement provided for a minimum period of employment of two years. 4 On 23 February 1998 the applicant's employment with BCA terminated. The applicant contended that his employment was wrongfully terminated by BCA whereas BCA contended that the employment agreement was terminated by mutual consent. 5 On 3 March 1998 the applicant's solicitors wrote to the chairman of BCA, Mr Richard Mizgala, claiming that BCA had terminated the applicant's employment wrongfully without giving any notice. The letter claimed that due to the premature termination of the agreement the applicant had lost the opportunity to earn his share of profits in accordance with the terms of the agreement and a claim was made that he was entitled to damages of $2,198,860, comprising base remuneration, profit share and compensation for distress, humiliation and loss of reputation. 6 On 25 March 1998 the applicant issued a writ in the Supreme Court of Victoria against BCA and Mr Mizgala. In his statement of claim the applicant alleged that on or about 23 February 1998 BCA wrongfully in breach of the terms of the employment agreement terminated his employment without notice and without accounting to him for benefits by way of base salary and share of profits. It was alleged that as a result of the wrongful termination the applicant had lost the benefit of his employment which could reasonably be expected to have yielded total entitlements over two years until November 1999 of $2,098,860. The statement of claim alleged a further cause of action against BCA and Mr Mizgala that the applicant was induced to cease his prior employment and enter into the employment agreement with BCA and not pursue the opportunity for alternative employment on the basis of representations made by Mr Mizgala, which representations were untrue. By reason of these matters the applicant alleged that BCA engaged in conduct that was misleading or deceptive or likely to mislead or deceive contrary to the provisions of s 52 of the Trade Practices Act 1974 (Cth) or s 11 of the Fair Trading Act 1985 (Vic) and that Mr Mizgala had aided and abetted the contraventions and was knowingly concerned in and a party to them. He alleged that he had suffered loss and damage as a result of such conduct, comprising the loss of the benefit of his employment with BCA or, alternatively, the loss of expected earnings from continued employment with his former employer, or the loss of expected earnings from the alternative employment which he had not pursued. 7 BCA and Mr Mizgala filed a defence to the statement of claim on or about 22 May 1998 in which they denied that the employment agreement had been wrongfully terminated and alleged that it had been terminated by mutual consent and that they and the applicant had entered into an oral agreement as to the amounts he would receive on termination. 8 On 16 June 1998, BCA and Mr Mizgala made an offer of compromise to the applicant in accordance with O 26 r2 of the Supreme Court General Rules of Procedure in Civil Proceedings 1996. The offer was to pay the applicant $547,959.54 including interest plus costs. The offer did not indicate or set out how that amount was calculated. 9 The Commissioner sought to tender two letters from the solicitors for BCA and Mr Mizgala to the accountants for BCA and Mr Mizgala which showed that the amount of $547,959.54 was calculated by reference to two years base salary less amounts already paid in respect of that period, plus a share of management profits in accordance with the agreement plus interest. However, those calculations and break down were not communicated, or otherwise made available, to the applicant and I reject the letters as inadmissible in evidence as they are not relevant to any issue before the Court, not having been communicated to the applicant. 10 On 25 June 1998 the applicant's solicitors wrote to the applicant recommending that he accept the offer of compromise. The solicitors set out calculations in relation to the amount of $547,959.54 noting that he had an entitlement to salary of $516,475 in respect of management profit and that the difference between his agreement termination entitlement and the amount offered was $31,484.54, of which $16,000 was attributable to interest and approximately $15,500 was attributable to what the solicitors called "margin for error". The solicitors advised the applicant that his maximum claim for damages for breach of contract was in accordance with their calculations and that they believed that the claim under the Trade Practices Act would not add any further benefit to his claim. 11 On 26 June 1998 the applicant accepted the offer of compromise and the amount of $547,959.54 was paid to and received by the applicant on 8 July 1998. 12 In his income tax return for the year ended 30 June 1999 the applicant disclosed the payment, rounded up to the nearest dollar, as income on the basis that $105,588 was an eligible termination payment other than the "excessive component", and that the "excessive component" was $442,372. The applicant later contended, and submitted before the Court, that neither of these amounts was properly described as an "eligible termination payment" for the purposes of s 7(2) of the TPT Act or s 27A(1)(a) of the ITAA. Nothing turns on this change of view by the applicant. 13 On 16 May 2000 the Commissioner issued a notice of assessment to the applicant in which he noted that the applicant's taxable income included an excessive component of $442,372 which had been taxed at a flat rate of 47%. 14 On 15 August 2000 the Commissioner issued a termination payments tax assessment notice to the applicant in which he assessed termination payments of $82,194 calculated at the rate of 15% on $547,960. 15 The applicant accepted that he was properly liable to pay income tax on the excessive component of $442,372 at the marginal rate of taxation of 47%, but lodged a notice of objection against the notice of assessment of termination payments tax on 20 September 2000. The objection contended, in summary form, that the amount of $442,372, being the excessive component of his eligible termination payment of $547,960, did not meet the definition of a termination payment liable to surcharge under s 7(2) of the TPT Act and that the payment of $547,960 was not made in consequence of the termination of his employment and was not an eligible termination payment pursuant to s 27A(1)(a) of the ITAA. 16 On 8 February 2001 the Commissioner disallowed the objection in full on the basis that the excessive component of an eligible termination payment is included in the meaning of "retained amount" pursuant to s 27AC(2) of the ITAA and that damages for breach of an employment agreement were paid in consequence of the termination of the applicant's employment within the meaning of par (a) of the definition of eligible termination payment in s 27A(1) of the ITAA. 17 The applicant contended that, put this way, the Commissioner had asked the wrong question as the subject of the payment was not damages, rather it was the acceptance of an offer of compromise of litigation and was not paid for breach of an employment agreement but instead was paid in settlement of the litigation. Relevant legislative provisions 18 The object of the TPT Act is to provide for the assessment and collection of the termination payments surcharge. Section 5 of the TPT Act provides: "The object of this Act is to provide for the assessment and collection of the termination payments surcharge. The surcharge is payable on payments of kinds commonly known as golden handshakes that are made to high‑income taxpayers in consequence of the termination of their employment." 19 Section 8 of the TPT Act provides that termination payments surcharge is payable on any "termination payment" made to or for a taxpayer. A "termination payment" is defined in s 7(2) of the TPT Act in the following terms: "A termination payment is a payment that: (a) is made after 7.30 pm by legal time in the Australian Capital Territory on 20 August 1996; and (b) is the retained amount of an eligible termination payment for the purposes of Subdivision AA of Division 2 of Part III of the Income Tax Assessment Act because of paragraph (a) of the definition of eligible termination payment in subsection 27A(1) of that Act; but does not include the retained amount of any post‑June 1994 invalidity component of such a payment or an eligible termination payment from an employee share acquisition scheme." Section 31 of the TPT Act defines "retained amount" as having: "the meaning given by section 27AC of the Income Tax Assessment Act." 20 Section 27AC(2) of the ITAA provides: "For the purposes of this Subdivision: (a) the retained amount of the ETP [eligible termination payment] is so much of the ETP as was not rolled‑over; and (b) the retained amount of a concessional component of the ETP is so much of the concessional component as was not rolled‑over; and (ba) the retained amount of the post‑June 1994 invalidity component is so much of the post‑June 1994 invalidity component as was not rolled‑over; and (c) the retained amount of the undeducted contributions in relation to the ETP is so much of the undeducted contributions as was not rolled‑over; and (ca) the retained amount of the CGT [capital gains tax] exempt component is so much of the CGT exempt component as was not rolled-over; and (d) the retained amount of the pre‑July 83 component of the ETP is whichever is the lesser of the following amounts: … (e) the retained amount of the post-June 83 component is the retained amount of the ETP, reduced by: (i) the retained amount of the concessional component of the ETP; and (ia) the retained amount of the post‑June 1994 invalidity component of the ETP; and (ii) the retained amount of the undeducted contributions in relation to the ETP; and (iia) the retained amount of the CGT exempt component of the ETP; and (iii) the non‑qualifying component of the ETP; and (iv) the excessive component of the ETP; and (v) the retained amount of the pre‑July 83 component of the ETP." 21 Section 27A(1) of the ITAA defines "eligible termination payment" in relation to a taxpayer as meaning, relevantly: "(a) any payment made in respect of the taxpayer in consequence of the termination of any employment of the taxpayer, other than a payment: …" A number of exceptions are then set out which are not relevant for present purposes. 22 Section 27AA(1) of the ITAA sets out the various components of an eligible termination payment. It relevantly provides that an eligible termination payment consists of one or more of the following components: "(a) the concessional component; (aa) the post‑June 1994 invalidity component; (b) the undeducted contributions; (c) in the case of an immediate annuity eligible termination payment—the non‑qualifying component; (ca) the excessive component; (cb) the CGT exempt component; (d) the pre‑July 83 component, which is the lesser of the following amounts: … (e) the post‑June 83 component, which is the ETP reduced by the other components." 23 Section 27A(1) of the ITAA defines the "excessive component" in relation to an eligible termination payment as meaning so much of the eligible termination payment as the Commissioner has determined under s 140R(1) exceeds the reasonable benefit limits. The issues before the Court 24 The applicant accepted that of the payment of $547,959.64, $442,372 was subject to income tax at the marginal rate of 47% but contended that the payment of $547,959.64 was not subject to the termination payment surcharge of 15%. In support of this submission he pointed to the fact that the TPT Act was specifically directed to payments made by employers to employees on termination which were commonly known as "golden handshakes": see s 5 of the TPT Act. This was confirmed by the Second Reading Speech for the Bill which was enacted as the TPT Act in which it was said that: "The bill ensures that the surcharge will also apply to individuals who receive golden handshakes. Golden handshakes are termination payments that are funded by an employer rather than through the superannuation system." The applicant contended that it was to be inferred from the terms of the TPT Act, the Second Reading Speech and the Explanatory Memorandum that the TPT Act was directed to payments which enjoyed concessional tax treatment in the hands of the recipient. The applicant submitted that there was nothing in the terms of the TPT Act or the extrinsic material which suggested that it was the intention of Parliament to impose surcharge tax on payments, such as the payment presently under consideration, which were already subject to tax at the highest marginal rate. 25 The first issue to determine is whether the payment made was made "in consequence of the termination" of the applicant's employment. The expression "in consequence of" has been the subject of judicial consideration, albeit in the context of s 26(d) of the ITAA. In Reseck v Commissioner of Taxation (1975) 133 CLR 45 ("Reseck"), the Commissioner assessed the taxpayer to income tax in respect of amounts paid to him by his employer at the end of two periods of employment, to which amounts he was entitled under an agreement between the employer and the taxpayer's union. One of the issues before the Court was whether part of the amounts came within s 26(d) of the ITAA which relevantly provided that: "The assessable income of a taxpayer shall include: … (d) five per centum of the capital amount of any allowance, gratuity or compensation where that amount is paid in a lump sum in consequence of retirement from, or the termination of, any office or employment …" Gibbs J concluded that the two amounts were an allowance within s 26(d) of the ITAA and then continued at 51: "The question that then arises is whether the allowance was paid in consequence of the termination of the employment of the taxpayer. Within the ordinary meaning of the words a sum is paid in consequence of the termination of employment when the payment follows as an effect or result of the termination. In the present case the payment did follow as a result of the termination of the taxpayer's services. It is not in my opinion necessary that the termination of the services should be the dominant cause of the payment. The reasons for holding that 'purpose' in s. 26(a) refers to the main or dominant purpose actuating the acquisition of the property have no place in the different context of s. 26(d). For example, a retiring allowance is plainly intended to be within s. 26(d) but such an allowance is made in consequence of the employee's past service as well as in consequence of his retirement and in many cases it could not be said that the retirement rather than the service was the substantial cause of the payment or that the former cause predominated over the latter … In the present case the allowance was paid in consequence of a number of circumstances, including the fact that the taxpayer's service had been satisfactory and that the industrial agreements provided for the payment, but it was none the less paid in consequence of the termination of the taxpayer's employment." 26 Jacobs J said at 56: "I have no doubt that the amounts were allowances to the appellant, that they were paid in lump sums and that they were paid in consequence of the termination of his employment. It was submitted that the words 'in consequence of' import a concept that the termination of the employment was the dominant cause of the payment. This cannot be so. A consequence in this context is not the same as a result. It does not import causation but rather a 'following on'." 27 In McIntosh v Federal Commissioner of Taxation (1979) 25 ALR 557 ("McIntosh") the Full Federal Court considered whether payments out of a provident fund established by a bank for the payment of benefits to bank officers on their retirement came within s 26(d) of the ITAA so that only 5% of any payments out of the fund was to be included within the assessable income of a bank officer. The court concluded that payments out of the fund came within s 26(d). The taxpayer contended that the amounts paid out of the fund should not have been assessed in whole or in part as income. All the members of the court addressed the issue whether the payments received out of the fund were paid "in consequence of" retirement from, or the termination of, an office or employment. Brennan J quoted a substantial part of the passage from the judgment of Gibbs J in Reseck (par [25] above) and continued at 282‑283: "To say that a payment 'follows as an effect or result of the termination' imports causation as the relevant nexus between the termination and the payment, but it is clear that termination need not be the dominant cause of the payment. Though Jacobs J. speaks in different terms, his meaning may not be significantly different from the meaning of Gibbs J., Jacobs J. said: 'It was submitted that the words 'in consequence of' import a concept that the termination of the employment was the dominant cause of the payment. This cannot be so. A consequence in this context is not the same as a result. It does not import causation but rather a 'following on'.' His Honour denies the necessity to show that retirement is the dominant cause, but he does not allow a temporal sequence alone to suffice as the nexus. Though the language of causation often contains the seeds of confusion, I apprehend his Honour to hold the required nexus to be (at least) that the payment would not have been made but for the retirement. In the Supreme Court Andrews J. in McIntosh v. Federal Commissioner of Taxation [1978] Qd. R. 354 said: 'I think it clear that the statement of Jacobs J. refers to something more than the occurrence of events in a purely temporal progression and that it connotes a relationship between events or states of things and the payment in question to which some persons might apply the adjective causal, while others would see the link in that one or more of such events or states of things must necessarily exist or occur as precedent to the payment, so as to constitute a condition or conditions precedent, both meaning the same thing'. It may not be appropriate to speak of conditions if a payment is made voluntarily, but if a payment is made to satisfy a payee's entitlement, the phrase 'in consequence of retirement' requires that the retirement be the occasion of, and a condition of, entitlement to the payment. A sufficient causal nexus between the payment and the retirement is thus established." (footnotes omitted) 28 Toohey J referred to those passages in the judgments of Gibbs J and Jacobs J that "a sum is paid in consequence of the termination of employment when the payment follows as an effect or result of the termination" and that "[a] consequence in this context is not the same as a result. It does not import causation but rather a 'following on'". Toohey J continued at 287: "In the present case it may be true to say that the immediate cause of the payment to the taxpayer of the sum of $27,006.84 was the exercise by him of the right to commute a percentage of the pension to which he was entitled. To say that is not to exclude the notion that the payment was in consequence of the taxpayer's retirement or that it followed on his retirement. In my view, the payment followed on the taxpayer's retirement, the only intervening event being the exercise of the option to commute. The connexion was not simply temporal; retirement was a prerequisite to payment and in that sense there was a 'following on' as I understand the language of Jacobs J." 29 Lockhart J noted the definition of "consequence" in the Shorter Oxford English Dictionary as being: "1. A thing or circumstance which follows as an effect or result from something preceding. 2. The action, or condition, of so following; the relation of a result to its cause or antecedent." His Honour then quoted the passage from the judgment of Gibbs J in Reseckreferred to in par [25] above and continued at 295: "His Honour was rejecting the test propounded by the learned trial judge that it is necessary for the termination of the services of the employee to be the dominant cause of the payment. His Honour said that payment to an employee may be due to more than one cause. In saying that the allowance in Reseck's case was paid in consequence of a number of circumstances, including the fact that the taxpayer's service had been satisfactory and that the industrial agreements provided for the payment, but that the allowance was nevertheless paid in consequence of the termination of the taxpayer's employment, I do not myself understand his Honour to be saying that the phrase 'in consequence of' is necessarily speaking only of causation. It is difficult to see how the fact that a taxpayer's services had been satisfactory could be said to be a cause of the payment to him upon his employment being terminated; but it would be a condition precedent to payment and a circumstance providing a link or connexion between termination of his employment and the payment. In my opinion his Honour was saying that the phrase includes the case where retirement or termination is a cause of the payment in question; but he was not excluding from the ambit of the phrase, payments which, although not following as a matter of causation from the termination of employment, nevertheless followed on the termination of employment and had connexion therewith." 30 In response to the submission that the phrase "in consequence of" was construed by Jacobs J in Reseck fundamentally differently from the construction referred to by Gibbs J, Lockhart J said at 296: "In my opinion his Honour did not use the words 'following on' as referring merely to a temporal progression of events. Rather his Honour had in mind a connexion between the retirement from or the termination of employment and the payment in question as well as a temporal progression of events. I do not read the words of his Honour as excluding a connexion that is causal in character; rather his Honour enunciated a wider test than one merely of causation and expressed it as a 'following on'; a concept that may in an appropriate case include a relevant causal connexion. In other words a payment that is caused by the act of retirement from or termination of employment would fall within the test of a 'following on', but so would other payments that do not have such causal connexion, provided there is a link or connexion between the termination of or retirement from employment and the making of the payments. In my opinion Gibbs J. and Jacobs J. were not construing the phrase 'in consequence of' differently. In my opinion, although the phrase is sufficiently wide to include a payment caused by the retirement of the taxpayer, it is not confined to such a payment. The phrase requires that there be a connexion between the payment and the retirement of the taxpayer, the act of retirement being either a cause or an antecedent of the payment. The phrase used in s. 26(d) is not 'caused by' but 'in consequence of'. It has a wider connotation than causation and assumes a connexion between the circumstance of retirement and the act of payment such that the payment can be said to be a 'following on' of the retirement. Sometimes the relevant connexion may be that the retirement is a condition precedent to the right to payment of the sum in question." 31 The applicant submitted that the payment was made not "in consequence of the termination" of his employment, but rather, to compromise the proceeding brought against both BCA and Mr Mizgala in respect of the causes of action raised against both of them. In support of his submission that the payment was not made in consequence of the termination of his employment the applicant referred to the following circumstances: (a) the immediate cause of the payment was the court proceeding and the making and acceptance of the offer of compromise in accordance with the rules of the Supreme Court; (b) the court proceeding was substantially concerned with misleading and deceptive conduct claims which did not depend upon the breach of contract claim. It was said that the misleading and deceptive conduct claims were not a peripheral part of the claim but were rather a substantial part of it; (c) the misleading and deceptive conduct claims were brought against Mr Mizgala as well as BCA; (d) the offer of compromise was made by both defendants in the proceeding and not just the employer; (e) the offer was made to settle all claims including the misleading and deceptive conduct claims; (f) the payment was made in circumstances where the defendants had denied liability so that the payment made was a voluntary payment rather than a payment pursuant to an entitlement of the applicant. 32 The applicant submitted that these circumstances demonstrated that the "occasion" of the payment was not the termination of the applicant's employment. In so characterising the payment the applicant was relying on the observation of Brennan J in McIntosh (par [27] above). 33 I do not consider that the issue can simply be determined by seeking to identify the "occasion" for the payment. The thrust of the judgments in Reseck and McIntosh is rather to the effect that a payment is made "in consequence" of a particular circumstance when the payment follows on from, and is an effect or result, in a causal sense, of that circumstance. The passages in the judgments to which I referred earlier make this clear. They also make it clear that there need not be identified only one circumstance which gives rise to a payment before it can be said that the payment is made "in consequence" of that circumstance. The passages to which I have referred make it clear that it can be said that a payment may be made in consequence of a number of circumstances and that, for present purposes, it is not necessary that the termination of the employment be the dominant cause of the payment so long as the payment follows, in the causal sense referred to in those judgments, as an effect or result of the termination. 34 The applicant's emphasis on the observation of Brennan J in McIntosh that the termination must be the "occasion" of the payment before it can be held to be an eligible termination payment fails to pay sufficient regard to the judgments in Reseck and the other judgments in McIntosh. I do not consider that Brennan J was departing from the reasoning in Reseck. His observation that the phrase "in consequence of retirement" required that the retirement be the occasion of, and a condition of, entitlement to the payment was made in the context of explaining what Andrews J meant in McIntosh v Federal Commissioner of Taxation [1978] Qd R 354; it was not intended to be an exclusive or definitive explanation of what the phrase required in order to be satisfied. 35 I am satisfied that there is a sufficient connection between the termination of the applicant's employment and the payment to warrant the finding that the payment was made "in consequence of the termination" of the applicant's employment. I am satisfied that the payment was an effect or result of that termination in the sense that there was a sequence of events following the termination of the employment which had a relationship and connection which ultimately led to the payment. True it is that the payment was made not only to settle the applicant's claim for common law damages for breach of the employment agreement but also for statutory damages pursuant to the provisions of the Trade Practices Act and the Fair Trading Act in respect of the claims for misleading and deceptive conduct. But, as is pointed out in the judgments to which I have referred, it is not necessary for the termination of the employment to be the dominant cause of the payment. 36 Although the claims in the proceeding for misleading and deceptive conduct related to representations which had occurred prior to the termination of the employment and, indeed, prior to the making of the employment agreement and are conceptually separate causes of action, the claim that the representations were untrue was, in part, based upon the fact that the applicant's employment was terminated on 23 February 1998 and that by reason of that termination he was unable to receive his remuneration package and had suffered loss and damage. Thus the fact of the termination of the applicant's employment was interwoven, and intertwined, with the claims for misleading and deceptive conduct. I do not consider that the claims for misleading and deceptive conduct and the settlement of those claims insofar as they were settled by the acceptance of the offer of compromise broke the causal relationship which existed between the termination of the applicant's employment and the payment of the offer of the compromised amount. The fact that the offer was made by both defendants in the proceeding and not just the employer does not detract from the characterisation of the payment that it was related to, and was an effect or follow on from, the termination of the applicant's employment. 37 The applicant submitted that the circumstances presently before the Court were analogous to those relating to the retirement benefits considered in Paklan Pty Ltd (in liq) v Federal Commissioner of Taxation (1983) 67 FLR 328. The factual situation before the court in that case demonstrated that there was no necessary causal relationship between the relevant retiring amounts made and the termination of the directors' employment with the company. Northrop and Fisher JJ, at 347, accepted that the trial judge correctly formulated the test to be applied as being whether the retirement of the taxpayers was "the occasion" of the payment. Relying on the passage in Brennan J's judgment in McIntosh referred to in par [27] above, their Honours analysed the matter in terms of determining whether there was a sufficient causal nexus between the payment and the retirement. Northrop and Fisher JJ said at 347‑348: "In the present case it can not be said that the taxpayers had any entitlement, in the sense of enforceable entitlement, to be paid the lump sums. They were essentially voluntary and gratuitous payments by the old company. Thus in our view the question is, in circumstances such as the present, whether there was sufficient causal nexus between the payment and the retirement to make the retirement the occasion of the payment. This is essentially a question of fact. The trial judge saw as a relevant circumstance the fact that it was more than six months after the retirement of the taxpayers before a decision was made to pay the retiring sums. This as it happens was at the time when the bulk, if not all of the book debts totalling $35,393.44 had been got in by the old company. Moreover virtually twelve months had expired before the various retiring amounts were paid. If there was any 'occasion' to which it might be said the payments were referable or linked it was in our opinion the time when funds had to be found to enable Partners to pay the outstanding purchase money. The trial judge concluded in reliance on these and other circumstances that the termination of the taxpayers' employment was not the occasion of the payments, and in our opinion he rightly so concluded." The factual situation before that court was quite different from the present circumstances under consideration and I do not consider that factual situation to be analogous to the present circumstances. 38 I am therefore satisfied that the payment made as a consequence of the acceptance of the offer of compromise was a payment made in consequence of the termination of the applicant's employment and is therefore an "eligible termination payment" for the purposes of s 7(2) of the TPT Act and s 27A(1) of the ITAA. 39 It is then necessary to turn to the second principal submission advanced by the applicant that surcharge tax is payable only in respect of $105,588 and not the whole of the subject payment of $547, 959.54. 40 Section 7(2)(b) of the TPT Act provides that a termination payment is a payment that "is the retained amount of an eligible termination payment for the purposes of Subdivision AA of Division 2 of Part III" of the ITAA because of par (a) of the definition of an eligible termination payment in subs 27A(1) of the ITAA. The definition of "the retained amount of an eligible termination payment" for the purposes of subdiv AA of Div 2 of Pt III of the ITAA is found in s 27AC(2)(a) (par [20] above). 41 The applicant submitted that s 27AC(2)(a) did not provide the relevant definition of "retained amount" for the purposes of s 7(2) as this would result in the applicant being taxed at a rate of 63.5% on the payment. Such a result would, the applicant submitted, be harsh and inequitable and was not contemplated by the legislature. The applicant submitted that, when viewed in the context that the payment had been taxed not at a concessional rate but at the full marginal rate, the proper subsection to refer to for the definition of "retained amount" was s 27AC(2)(e) (par [20] above) which refers to the definition of "the retained amount of the post‑June 83 component." The application of this definition would result in the surcharge being payable in respect of $105,588 only. The applicant submitted that s 27AC(2) was to be construed "flexibly" so that the provision most appropriate to the relevant payment applied. Sub‑paragraph (a) was said to be a general provision which would only apply in the event that the more specific sub‑paragraphs, such as (e), were inappropriate to the relevant payment. 42 The Commissioner submitted that the retained amount referred to in s 7(2) was defined by s 27AC(2)(a) only, as par (a) was the only sub‑paragraph which dealt with and defined "the retained amount of the ETP". Other sub‑paragraphs, such as (e), dealt with and defined the retained amount of certain components of an eligible termination payment, not with the eligible termination payment as a whole. An eligible termination payment as a whole would include several components, including the "excessive component" and the post‑June 83 component in accordance with s 27AA(1). Section 27AC(2)(e) only dealt with and defined the retained amount of the post‑June 83 component. Thus the Commissioner submitted that the relevant definition for s 7(2) was that contained in s 27AC(2)(a), and on this basis the whole of the subject payment constituted the retained amount. 43 I accept the Commissioner's submission. There is no ambiguity in the relationship between s 7(2) of the TPT Act and s 27AC(2) of the ITAA which requires me to conclude that "the retained amount of the ETP" should be described or defined as "the retained amount of the post‑June 83 component" notwithstanding the fact that the post‑June 83 component is one of the components of the eligible termination payment. Section 27AC(2)(e) refers to and defines "the retained amount of the post‑June 83 component". That is a different retained amount from the retained amount of the eligible termination payment defined in s 27AC(2)(a) of the ITAA. 44 Put another way, the expression "the retained amount of the post‑June 83 component" in s 27AC(2)(e) does not wholly answer or satisfy the description of "the retained amount of an eligible termination payment". An eligible termination payment includes the "excessive component" and the post‑June 83 component in accordance with s 27AA(1). 45 I do not accept the applicant's submission that the definition in s 27AC(2)(e) is most appropriate as the definition of "the retained amount of the eligible termination payment". Sub‑paragraph (a) of s 27AC(2) is not a fall‑back provision which only applies if the definitions in the other sub‑paragraphs of s 27AC(2) are not appropriate. Rather sub‑paragraph (a) of s 27AC(2) is the only sub‑paragraph in s 27AC(2) which defines "the retained amount of the ETP" as such. The other sub‑paragraphs define components of, or subject‑matter related to, "the retained amount of the ETP", but not that expression itself. 46 The result is that the appeal should be dismissed. I certify that the preceding forty‑six (46) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Goldberg. Associate: Dated: 15 October 2002 Counsel for the Applicant: MK Moshinsky Solicitor for the Applicant: Foster Hart Lawyers Counsel for the Respondent: P Sest Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 6 June 2002 Date of Judgment: 15 October 2002