What claims am I releasing as part of my litigation dispute settlement?
And what claims am I being released from?
Are you settling a dispute? Be aware of your release clauses.
Settlement agreements, often accompanied by broad release clauses, are customary in resolving disputes and avoiding potential future litigation. These clauses are typically fashioned to absolve parties from known and unknown claims arising post-settlement. However, the effectiveness of these broad release clauses may encounter limitations contingent upon the circumstances and knowledge of the parties at the time of agreement.
The Reid v Commonwealth Bank of Australia [2022] NSWCA 134 case serves as a pertinent illustration of how the broad terms of a release clause can be restricted by unforeseen circumstances and the subjective understanding of the parties at the time of settlement.
Reid v Commonwealth Bank of Australia [2022] NSWCA 134 (the “Reid case”)
In the Reid case, Mr. Reid and Commonwealth Bank of Australia (CBA) reached a settlement, formalised in a Deed of Settlement, following legal proceedings related to loan facilities. The Deed contained a release clause seemingly designed to encompass any and all liabilities arising from the loans, the property, and associated proceedings, including future and unknown claims.
However, a twist in the tale emerged when the property, which the CBA took possession of to sell as part of the settlement, suffered substantial vandalism before the sale. Consequently, the CBA allowed a deduction of $370,000 from the sale price due to the damages. Mr. Reid, later dissatisfied with this deduction, initiated legal action against CBA, claiming that the bank failed in its obligation to protect the property while in possession, leading to the damages and subsequent deduction in the sale price.
The central issue before the Court of Appeal was the interpretation of the release clause and whether Mr. Reid had indeed released CBA from liability concerning the property damage caused during the possession period. The release clause, encompassing a broad range of potential claims, appeared comprehensive at first glance.
However, the Court scrutinised the clause in light of Mr. Reid’s knowledge and intentions at the time of the settlement. It found that the unforeseen circumstances surrounding the property damage were not within Mr. Reid’s contemplation when he entered into the Deed of Settlement. He did not anticipate the property’s vandalism or the subsequent deduction in the sale price due to damages. The Court held that the general words of the release should be construed narrowly and confined by Mr. Reid’s understanding and intentions at the time of agreement. Therefore, the Court ruled that the broad release clause did not shield CBA from liability for the damage.
What now?
It is crucial to consider the parties’ actual understanding and intentions when drafting and interpreting release clauses in settlement agreements. The Court’s decision emphasises that unforeseen circumstances, not contemplated by the parties, can limit the broad application of release clauses. It urges caution and the need for specificity in the drafting of release clauses to avoid unintended releases from liabilities.
Greenhalgh Pickard’s experienced Litigation Solicitors are here to assist you considering these types of release clauses to minimise the risk of future liabilities.
Contact the team today.
Disclaimer:
The information contained in this article is for general informational purposes only and is not intended to provide legal advice or substitute for the advice of a professional. This information does not consider your personal circumstances and may not reflect the most current legal developments. Should you need advice, please contact our firm for targeted information relating to personal your situation.
