By David Allen -
Snapshot
- In equity, the general words of a release may be limited by the subjective knowledge and intention of the releasor, if they were unaware of the obligation released or did not intend to release it.
- Equitable doctrine also guards against the unconscientious exercise of legal rights conferred by releases.
- While it is theoretically possible for a release to cover unknown or future claims, it is problematic to try to use the terms of a deed of release in an application for summary dismissal to conclude there is no scope for equitable intervention where other factors are present.
In the recent decision of Reid v Commonwealth Bank of Australia [2022] NSWCA 134 (‘Reid’), the Court of Appeal reviewed the special equitable principles that apply to the construction and efficacy of a deed of release expressed in very general terms. It was found that equitable doctrine governs how such a deed of release is construed, as well as potentially restraining the enforcement of it. No proof of unconscientiousness is required for such a release to be construed using evidence of the releasor’s subjective intention.
The case overturned a District Court decision that had concluded the terms of the deed of release in question demonstrated an intention to release all unknown and future claims in relation to the sale of a mortgaged property, leaving no room for the equitable principles to operate. The Court of Appeal held it was problematic to reach that conclusion on an application for summary dismissal where the plaintiff’s claim arose after the date of the release and where the released party had not disclosed what had occurred to the plaintiff.
Background
Mr Reid was the director of various companies that had facilities with the Commonwealth Bank. He and his wife were guarantors. After a dispute and the commencement of litigation, he and his wife came to a settlement with the Bank, which contemplated the sale of a property owned by them personally. By a settlement deed, Mr Reid released the Bank from all ‘… accounts, actions, proceedings, claims, demands … which Mr Reid … has or had or at anytime in the future may have against the Bank for or by reason or in respect of any act, cause, matter or thing arising out of or in connection with or incidental to the Loans, the Loan Agreement, the Property, the Sale, the Mortgage, the Guarantee , the Bank proceedings, the Family Court proceedings, the Companies’ proceedings, or in any way relating to the matters referred to in the recitals’ (at [13]).
The Bank subsequently sold the property as mortgagee in possession. After exchange of contracts, but before settlement, the property was vandalised. The Bank allowed the purchaser an allowance of $370,000 which was deducted from the sale price.
Mr Reid claimed the Bank should account to him as mortgagee for the allowance because he claimed it was caused by a breach of the Bank’s obligation as mortgagee to take reasonable care to protect the property while it was in the Bank’s possession. The Bank applied for summary dismissal of Mr Reid’s claim, pleading the release.
Judgment
On appeal, the Bank’s application for summary judgment was dismissed.
The evidence of Mr Reid was that he did not contemplate that the vandalism might occur or that an allowance of $370,000 be given, and he had no intention to release the Bank from a claim in respect of such matters (at [53]).
A substantial allowance for a claim arising out of highly unusual circumstances – serious vandalism to the property while the Bank was in possession and after contracts had been exchanged – was arguably outside the proper construction of the deed of release. It was also arguable that it would be unconscionable for the Bank to rely upon the release on the facts.
The construction and enforceability of the release was to be determined at trial following evidence of the respective parties’ knowledge concerning the existence, character and extent of the liability, the actual intention of the releasor, and the conscientiousness of the Bank’s conduct after the date of the release.
