Pub­li­ca­tions

Deeds of Release and their effec­tive­ness – update 2019

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 more infor­ma­tion about the update con­tact Part­ner, Richard Ott­ley on
+61 2 9777 8380.