Release of liability clauses: how far can they go?

It is a well-established legal principle that a release clause in a settlement deed will only be effective to the extent it releases a party from liability in respect of matters that are in the contemplation of the parties at the time it is provided. Notwithstanding this, it is not uncommon to see release clauses that are very wide in their scope and that purportedly extend to claims a prospective claimant might have against a releasee, “whether known or unknown“, “whether suspected or unsuspected” or words to that effect.

In the recent case of Wichmann v Dormway Pty Ltd [2019] QCA 31, the Court of Appeal of the Supreme Court of Queensland considered whether an employee could enforce a release clause in a deed to prevent her former employer from bringing a claim in respect of money she stole prior to the termination of her employment. The former employer was unaware of the theft – or at least the extent of it – when it agreed to the terms of the deed.

The facts

The material facts are as follows:

1. 1. The Appellant, Wichmann, was the office manager of the Respondent, Dormway, and was responsible for managing its accounts.
   2. Wichmann falsified Dormway’s accounts in order to divert money into her own bank account. Specifically, she described payments in Dormway’s payment system as being payments to its creditors, whereas in fact the payments were made to her.
   3. Dormway (initially) discovered Wichmann had misappropriated $2,809.42, though Wichmann asserted that the diversion of funds was inadvertent and offered to repay the money. Dormway nevertheless decided to terminate her employment.
   4. On 30 April 2018, the parties executed a deed which provided (amongst other things) that Dormway would make redundancy payments to Wichmann and Wichmann would reimburse Dormway for the $2,809.42.
   5. Recital E to the settlement deed provided: 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.
   6. Clause 4.2 of the settlement deed provided: 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:
      1. The Employment or its termination or any circumstance relating to its termination; or
      2. 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
      3. Whether arising under statute, common law or equity,
   7. Soon after executing the deed, Dormway discovered Wichmann had in fact stolen $321,593.85 and commenced proceedings against her to recover that sum. Wichmann defended the proceedings upon the basis that recital E and clause 4.2 precluded Dormway’s claim.

Court findings

The judge at first instance granted judgment against Wichmann summarily.[1] Her Honour accepted that Wichmann’s only basis for a defence was that her theft and fraud were released by operation of the deed, and held that such an argument had no prospects of succeeding because Dormway did not know Wichmann had committed the fraud and stealing when it entered into the agreement, and there was no language in the deed which suggested that fraud or theft was to be forgiven. In this regard, her Honour remarked, “in order to forgive and release from that kind of liability, in my view, the language would have had to be plain to show that was the intention of the parties.”

In the appeal,[2]President Sofronoff delivered the lead judgment with which Justices Gotterson and Morrison agreed. His Honour had particular regard to the High Court case of Grant,[3]and extracted the following relevant principles:

1. 1. A release will be confined to the subject matter contained in the recitals (based on common law principles);
   2. A release is to be construed so that it is confined to the known disputes between the parties (based on common law principles);
   3. It would be unconscientious for a party to rely upon a release obtained when the releasee knew of a liability (later sought to be enforced) but the releasor did not know (based on equitable doctrines).

His Honour also noted an additional fourth basis that would preclude reliance on a release clause: where the releasee knew of a liability of which the releasor is unaware, and was under a duty to disclose it to the releasor before entering into the deed, but did not do so (based on the tort of deceit).

In reliance on these principles, the Court of Appeal dismissed the appeal. President Sofronoff observed that the recitals were in general terms and did not identify the precise dispute that was the subject of the compromise contained in the deed. Wichmann also did not plead that the dispute existed at the time of the execution of the deed and was within the parties’ contemplation at that time.

His Honour also noted that in any case, reliance on the deed would have been unconscientious and therefore equity would have prevented Wichmann from raising the release as a defence. Furthermore, as an employee Wichmann was arguably under a duty to disclose the truth about her improper diversion of money and her failure to do so would have constituted common law fraud. Given the plethora of reasons why the argument should fail, he did not consider it necessary to consider the argument about the release being void on the ground of public policy.

Key message

Though this decision is heartening for releasors, careful consideration must still be provided when negotiating a release clause. Releasors should be careful to ensure they do not unwittingly agree to providing a release that could evince an intention that the release is to apply to unknown liabilities. In that regard, it is relevant to note that liabilities that are not known to the releasor can still be within the scope of a release clause provided that the language makes that intention plain.[4] Releasors should also be mindful to include clear misrepresentation and disclosure clauses in their deeds to further protect their interests, noting the fourth principle that was raised by President Sofronoff.

[1] Dormway Pty Ltd & anor v Wichmann [2018] QSC 277 per Atkinson J.

[2] Wichmann v Dormway Pty Ltd [2019] QCA 31.

[3] Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 112. NB: this was also one of the principal authorities relied upon by Atkinson J.

[4] [2018] QSC 277, Atkinson J at [38]; [2019] QCA 31, Soffronoff at [9], citing the decision of Santow J in Karam v ANZ Banking Group Ltd [2001] NSWSC 709.