Australia: Deeds of release and their effectiveness - update 2019

Last Updated: 18 September 2019
Article by Richard Ottley

Introduction

Releases and in particular, deeds of release, play a significant role in resolving disputes across a wide range of issues and at different stages in their evolution. It is a reasonable expectation to have, as the beneficiary of a release, that it will provide certainty going forward and that the person providing the release (releasor) will cease to have any further claim.

However, in a small number of cases, the expectations of the person released (releasee) have been dashed, with claims being brought following the entering into of a deed of release. The outcome of a number of fairly recent decisions of the Federal Court and Federal Circuit Court in the employment setting, have brought into sharp focus, issues around deeds of release (usually somewhat of a legal backwater).

This article looks at factors which may impact upon the certainty and durability of deeds of release and also the extent if any, to which a deed of release entered into in the employment setting, operates to minimise or preclude the intervention of the Fair Work Ombudsman in exercising its functions under the Fair Work Act.

This article looks at 3 decisions:

  • Kowalski vs Trustee, Mitsubishi Motors Australia Ltd Staff Superannuation Pty Ltd and anor [2003] FCAFC 18 (28 Feb 2003).
  • Atkins Freight Services Pty Ltd vs Fair Work Ombudsman [2017] FCA 1134 (22 September 2017).
  • Doyle vs Oil Basins Ltd [2017] FCCA 2758 (14 November 2017).

Decision in Kowalski vs Trustee, Mitsubishi Motors Australia Ltd Staff Superannuation Pty Ltd

In Kowalski the applicant, a former employee of Mitsubishi, had in earlier proceedings asserted that a mediation agreement entitled 'Heads of Agreement' entered into between him and his employer, should be disregarded on the basis that his employer had not entered into the agreement in good faith.

On appeal from the Federal Court to the Full Bench of the Federal Court, the employee argued, not that the 'Heads of Agreement' did not bind him, but rather that the agreement could not keep him from an entitlement to receive monies that were said by him to be lawfully his, if those monies exceeded the amount payable under the agreement.

In essence, the employee asked the Court to calculate whether more was due to him by way of award and other statutory entitlements and under the superannuation deed (to which he was a beneficiary) than he had received under the Heads of Agreement, and to pay him the excess.

The Full Bench of the Federal Court noted that the consideration involved in the Heads of Agreement was over $250,000 (if costs foregone were included). In the absence of the employee seeking to set aside or repudiate the Heads of Agreement, it determined that the agreement should be upheld notwithstanding that it dealt with "statutory public rights" (being in this case award entitlements). In the Full Bench's words:-

"[17] In these circumstances to view the Heads of Agreement as simply involving some diminution of the appellant's statutory rights is to misunderstand the agreement reached. Plainly the appellant and the second respondent had litigation outstanding. Plainly enough each party was put in a particular position in that litigation. There were risks to each. True it is that statutory public rights cannot be waived or compromised. However, this does not prevent the parties from compromising litigation on foot and in contemplation, having regard to the various risks to the parties in that litigation. See e.g. Lieberman vs Morris [1944] HCA13; (1944) 69CLR69 at 80. That is clearly what occurred in this case."

The Full Bench also agreed with the judgment of Mansfield J (being the judge whose decision was appealed against) that to the extent to which the claim encompassed common law, that in the face of the Heads of Agreement, any such claim had no prospect of success.

Decision in Atkins Freight Services Pty Ltd vs Fair Work Ombudsman

In Atkins Freight, a claim was brought by 2 employees of Atkins Freight and also by the Fair Work Ombudsman (FWO) on behalf of 8 other employees, seeking payment of award and statutory entitlements.

On appeal from the decision of the Industrial Magistrate in the IRC of South Australia to the Federal Court, Atkins Freight, pursued 2 grounds of appeal relevant to deeds of settlement and release.

The first ground of appeal was that Deeds of Settlement entered into by certain employees meant that no orders for underpayment of wages could be made against the employer under the Fair Work Act and its predecessor (the claims spanned 2 industrial relations Acts).

The second ground was, that the Industrial Magistrate should have declined to exercise his discretion to pay the employees the amounts claimed because of the existence of the Deeds of Settlement.

In considering the appeal, White J of the Federal Court provided some useful insights as to the role of the FWO and the relationship between the Fair Work Act and deeds of settlement and release.

The employer argued that the express terms of the Deed made it clear that there had been a compromise of all the various employees' claims, irrespective of whether those claims arose under contract, statute or award. In particular, it referred to the principle in Kowalski that parties cannot contract out of minimum entitlements imposed by an award, but that does not apply to the compromise of bona fide disputes concerning the underpayment wages.

The employer also submitted that the FWO's claim in respect of unpaid wages or allowances was subject to the same limitations which would have been applicable had the employees brought their own claims. Also, that the employer did not need to establish any correlation between the subject matter of the underlying claims for wages as set out in the deeds, and the claims made by the FWO in the proceedings.

White J in looking at the merits of these submissions, reviewed the FWO's standing to bring proceedings and whether there was any relevant statutory limitations on the power of the Industrial Magistrate. He considered that plainly the FWO had standing to pursue claims of award underpayment in the present case. He noted the functions of the FWO included the function of commencing proceedings in a Court to enforce the Fair Work Act and 'fair work instruments' (which include awards).

In relation to the proceedings under consideration, he noted that the FWO was exercising enforcement powers (as distinct from the FWO's power to represent employees). In the exercise of the statutory function to enforce the Act and fair work Instruments (section 682 (1) (d) of the Act) the FWO was not representing the legal interests of the employees concerned and was therefore not bound by agreements made between the employer and those employees. The Deeds themselves could not give rise to any limitation on the Industrial Magistrate's jurisdictional power nor on the powers of the FWO.

White J also noted that as the FWO was not a party to the Deeds the FWO could not be bound by them and therefore could not give rise to an estoppel which bound the FWO.

Having regard to White J's analysis of the FWO's role under legislation he considered that question for the Industrial Magistrate was whether the employer had been required under the relevant Act or award to make the claimed payments and had not made them. On the topic of whether this might result in a double recovery by an employee of their entitlements, White J stated as follows:-

"35. It is true there could be the prospect of double recovery by an employee whose compromised claims are later pursued by the FWO in the exercise of her independent function. There may also be circumstances, of which Kowalski is an example, in which it would be appropriate for the IRCSA to have regard to compromises of bona fide disputes concerning the underpayment of wages. However, when the circumstances of these kinds arise, account can be taken of them by a Court in the exercise of the discretion which is the subject of Ground 2(b) in the Notice for Appeal."

To conclude on this point, White J determined that the Deeds of Settlement did not have the effect contended for by the employer and that the employer could be liable to recovery of underpayments pursued by the FWO. However, the compromise of bona fide disputes concerning underpayment of wages for example, may be a relevant factor to be taken account of by the Industrial Magistrate.

An alternative submission put by the employer was, that the Industrial Magistrate should because of the entering into of the Deeds, have declined to exercise discretion to make an order in favour of the employees.

It was acknowledged by the FWO that under the Fair Work Act (section 545(3)) and also under the applicable section of its predecessor, that a Court has a discretion in relation to the ordering of payments of money for award underpayments. It also noted that a dispute about the same matters which were the subject of a claim by the FWO might provide a proper basis for not making an order for underpayment at least to the extent of the underpayment. As recorded in White J's judgment:-

"38. FWO also accepted that, if there had been a dispute 'on foot' about the same matters which were the subject of the FWO's claims in respect of Mr Freckleton and Mr Gedling and those employees who had voluntarily compromised their claims, there may have been a proper basis for the exercise of the discretion by the IRCSA not to make an order for underpayment, at least to the extent of the underpayment."

The FWO also acknowledged that the general principle that it is not possible for employers to contract out of minimum award entitlements did not preclude parties from compromising bona fide current and contemplated litigation. As recorded in White J's judgment:

"49. The FWO's first contention on the appeal concerning the deeds was that no effect should be given to them because it was not possible for employers and employees to contract out of the minimum entitlements established by awards. That principle is well established: Josephson vs Walker [1914] HCA 68; (1914) 18 CLR 691 at 700; Textile, Clothing And Footwear Union of Australia vs Givoni Pty Ltd [2002] FCA 1406 at [23][35]; Metropolitan Health Service Board vs Australian Nursing Federation [2000] FCA 784 (2000) 99 FCR 95 at [17] [25]. The FWO accepted that this general principle does not preclude parties from compromising bona fide current and contemplated litigation. So much was confirmed by the Full Court in Kowalski at [17]:."

However, the FWO submitted that the principles which recognised the validity of compromises of claims to award entitlements had no application in this case because there was no evidence that there had been any contemplated litigation or even a dispute between certain of the employees on the one hand and the employer on the other, which could have been the subject of any compromise.

There was no recital of litigation or disputes in the deeds. On the contrary the deeds only referred to claims which the employees might have and went on to say that it did not matter 'whether you are presently aware of any right to make such a claim'.

White J noted that the Deeds of Settlement referred to 'any' wages claims and to 'any' claims and not to identified claims. He considered that terminology of these kinds was inconsistent with the deeds actually being in settlement of current or contemplated litigation or indeed of an existing dispute.

White J noted that there was simply no evidence that either Mr Freckleton or Mr Gedling had taken any actions with respect to the underpayments or that they were the ones that that raised the issue with Mr Atkins. White J considered that these circumstances were very different to those considered by the Full Court in Kowalski as there was no evidence of an existing bona fide dispute.

In response to the employer's submission that statutory policy supported the understanding that the legislative intention was that agreements such as contained in the Deeds of Settlement should be enforceable, White J commented as follows:-

"53. It is not altogether clear that the dispute resolution procedures contemplated by the WR Act and the FW Act do apply in the case of non-compliance by employers with their payment obligations under awards and enterprise agreements. However, it is not necessary to express a concluded view on that issue. First, it was also the policy of the WR Act and is the policy of the FW Act that employers and employees should comply with their obligations under awards and industrial agreements and that there should not be any contracting out of those obligations other than in confined circumstances. Secondly, there is no evidence that Atkins Freight was invoking any dispute resolution procedure in the Oil Industry Award.

White J concluded that the present case was not shown to be within the Kowalski principle. Instead he found that the deeds contravened the principle that it is not open to parties to contract out of award obligations.

White J noted that the Industrial Magistrate had rejected the employer's claim for set off and that this had not been appealed. He considered that the fact of the claim for set off having failed, was another factor which militated against the Court making an order in favour of the employer, to decline in the exercise of its discretion to make any order with respect to established underpayments.

To conclude, the appeal was dismissed with the Deeds of Settlement failing to provide the employer with a shield against the claims for underpayment.

Decision in Doyle vs Oil Basins Ltd

In Doyle, an application was brought by the respondent employer for summary dismissal of a claim which had been commenced by the employee applicant concerning various alleged entitlements under his Executive Services Agreement. The employee had attended a mediation and entered into a Deed of Release. He asserted that, amongst other things, it did not bind him as the respondent employer had failed to exchange and provide a valid counterpart of the Deed.

Judge O'Sullivan who heard the matter, accepted the employer's submissions that the terms of the Deed of Settlement Release were binding on the employee as the employer complied with all its obligations under the Deed, the employee had acted on the basis the Deed was effective and accepted the benefits under the Deed. By accepting them he was bound to perform his obligations under the Deed including the release provisions. Further, the employer was entitled to take the benefit of the Deed including the release provisions because it had performed all its obligations under the Deed as though it was bound by it. Consequently, the Deed was a complete bar to the applicant's claim.

In the course of considering this matter O'Sullivan J accepted the employer's submissions on the approach to the decision of the Full Court in Kowalski (which it had submitted was, that parties to a bona fide dispute about the content of an employee's entitlements, can settle their dispute).

O'Sullivan J went on to note that it was wrong to compare the decision in Atkins Freight to the circumstances under consideration, as in the case before him it was not, amongst other things, a case where award entitlements had not been appropriately identified.

He noted the authorities concerning the correct approach to the interpretation of a Deed of Release. In particular, he noted with approval, reference to a majority decision of the High Court in Grant vs John Grant Sons Pty Ltd [1954] HCA 23 in which the majority had stated the following proposition at 131:

"The question is whether upon a proper interpretation of the deed the general release clause should be restrained to matters in dispute within the meaning of these recitals. The question depends primarily on the application of the prima facie canon of construction qualifying the general words of a release by reference to particular matters which recitals show to be the occasion of the instrument. But it is also affected by the general tenor of the deed. It is unnecessary to say more about the canon of construction or to discuss further the contents of the deed. As to the first, all that remains is to apply the principle that prima facie the release should be read as confined to the matters forming the subject of the disputes which the deed recites

In conclusion, he noted that the scope of the Deed clearly covered the matters the subject of the allegations in the statement of claim and ordered that the employee's claim be summarily dismissed.

Conclusion

As to whether deeds of release provide finality to claims for employee entitlements, and the relationship between deeds of release and the Fair Work Act, the following points emerge:

  • It is well established that statutory public rights cannot be waived or compromised and, for example, that parties cannot contract out of award entitlements;
  • The function of the FWO to enforce the Fair Work Act including to pursue claims in relation to underpayment of, for example, award entitlements cannot be compromised or impeded simply because the employer and employee have signed a deed of release;
  • The general principle that it is not possible for employers to contract out of minimum award entitlements, does not preclude parties from compromising bona fide current and contemplated litigation (however this is would seem does not affect the ability of the FWO to seek orders for compensation);
  • The fact that an employer and employee have settled bona fide current and contemplated litigation would be a matter that a court in exercising a discretion under the Fair Work Act (s545(3)) would be likely to have regard to, in determining whether to make an order relating to underpayment of monies said to be due under a fair work instrument;

Points to note regarding the form of a deed of release, include the following:

  • A failure to adequately describe the nature and character of the dispute and its scope, may make a deed more susceptible to challenge;
  • A lack of correlation between payments made and entitlements said to be satisfied by such payments may, amongst other things, impair a possible future argument as to "set off" should the deed subsequently be challenged;
  • It is advisable to:
    • record the existence of a bona fide dispute which has resulted or may result in litigation
    • identify and record the dispute
    • note the context in which the dispute has arisen
    • identify the entitlements (including referencing any applicable award or statutory provisions etc) said to be satisfied by the payment of money
    • note the period of time to which the entitlements claimed, relate
    • note that the employee was given the opportunity to obtain legal advice.

Acceptance by parties to a deed as to the deed's effect, and performance of obligations under the deed pursuant that acceptance, may well outweigh any technical arguments subsequently advanced as to the deed's validity on the basis that counterparts had not been exchanged.

For further information please contact:

Richard Ottley, Partner
Phone: +61 2 9777 8380
Email: rbo@swaab.com.au

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions