Deeds of Release and their effectiveness – update 2019
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  FCAFC 18 (28 Feb 2003).
- Atkins Freight Services Pty Ltd vs Fair Work Ombudsman  FCA 1134 (22 September 2017).
- Doyle vs Oil Basins Ltd  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:-
“ 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  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  HCA 68; (1914) 18 CLR 691 at 700; Textile, Clothing And Footwear Union of Australia vs Givoni Pty Ltd  FCA 1406 at ; Metropolitan Health Service Board vs Australian Nursing Federation  FCA 784 (2000) 99 FCR 95 at  . 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 :….”
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  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.
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 more information about the update contact Partner, Richard Ottley on
+61 2 9777 8380.