When is a Release a release?

Deeds are a very common legal instrument that are used for almost infinite purposes. Deeds are a special kind of binding promise or commitment to do something made under seal.  Accordingly, deeds are seen as particularly solemn promises and may attract special legal consideration if breached.

Commonly, deeds will be used when settling disputes or ending relationships such as partnerships or employment.  Often a deed will contain a clause that acts as a bar to bringing future or further legal proceedings.  As a result, there is a perception that action will be prevented even when unscrupulous conduct of a party later comes to light.  However, a recent Queensland Court of Appeal decision demonstrates that this may not always be the case.

The decision of Wichmann v Dormway Pty Ltd [2019] QCA 31 concerned a former office manager who had diverted the employer’s money into her own accounts. Upon discovering that an amount of $2,809.42 had been diverted, the employer terminated the employee despite her offer to repay the money.  As part of the termination procedure, the parties entered into a deed of release containing the following clauses purporting to bar future action:

Recital E stated:

The parties have agreed to settle all matters effective from the 30 April 2018, relating to the employment and the cessation of the employment of WICHMANN, and any matters arising therefrom, save as to any statutory rights concerning superannuation or worker’s compensation, or the subsequent enforcement by either party of the terms of this deed; and without any admissions of liability by either Party; as set out herein.

Clause 4.2 stated:

In consideration for the agreements herein, DORMWAY hereby releases and discharges WICHMANN from all causes of action, actions, suits, arbitrations, claims, demands, costs, debts, damages, expenses and legal proceedings whatsoever arising out of or in any way connected with:

  • The Employment or its termination or any circumstance relating to its termination; or
  • Any matter, act or circumstances occurring between the date of termination of the Employment and the date of this agreement; save as to any unlawful act; and
  • Whether arising under statute, common law or equity,

Or any of these which DORMWAY now has or had the right to bring against WICHMANN at any time hereafter, but for the execution of this agreement; save as to any matter relating to the enforcement of this deed.

Shortly after executing the deed, the employer discovered that the former employee had actually diverted a total amount of $321,593.85 to her own accounts.  The employer sued the former employee for recovery of this money and successfully obtained judgment in their favour. The employee appealed this decision asserting that the judgment was based in an error of law on the basis that the clauses must be taken to have the effect of barring action in regard to her misappropriation, regardless of whether disclosed or not.

The Court of Appeal rejected this argument noting that as the above clauses were in general terms and did not identify specific conduct, it was the responsibility of the employee to demonstrate the release applied to the specific claims against her; it was not for the employer to demonstrate that they would not have entered into the deed had they known of the true extent of misappropriation. As the employee had knowingly not disclosed the extent of her misappropriation to her employer, her duty of good faith was breached.  This gave rise to an entitlement to avoid the deed and recover any money paid under it.

Additionally, it was arguable that the employee had committed common law fraud, which would allow the entire deed to be set aside, a relevant argument but not one that the employer had made.

With these conclusions, the Court dismissed the appeal ordering costs against the employee.

From this case several principles in relation to deeds become apparent:

  1. When entering into a deed both parties should take steps to disclose all relevant information;
  2. A deed will not protect against unconscionable behaviour simply because it has been executed;
  3. Non-disclosure of information may give rise to allegations of fraud or inducement which may result in the setting aside of a deed;
  4. A party relying on a deed must establish that the terms apply to the situation facing them, it is not enough to simply rely on broad general terms.

James Conomos is the Managing Director of James Conomos Lawyers where he practices in the areas of insolvency, bankruptcy and commercial litigation. If you or your business needs assistance navigating a legal dispute, please do not hesitate to contact him.

3004 8201  |      |  jim@jcl.com.au