In a recent case brought in front of the Supreme Court of Queensland, the Court had cause to consider whether a Deed of Settlement and Release entered into between two parties could be set aside for fraud.
The parties to the Deed were an employer and their employee.
The employee was the office manager, who had been responsible for managing the employer’s accounts which put her in a position where she was able to falsify the accounts and divert some of the employer’s money into her own bank account.
Initially, the employer discovered that she had misappropriated $2,809.42. and decided to terminate her employment despite the office manager offering to repay the money.
On 30 April 2018, the parties executed a Deed of Settlement and Release which included the terms of the employee’s departure from the business.
Under the terms agreed, the now ex-office manager was to be paid a redundancy and she would have to repay the employer the $2,809.42 sum which had been diverted.
The deed contained mutual releases and the following recitals and terms:
- Effective as of a particular date, both parties agreed to settle all matters that concerned the woman’s employment or the termination of her employment unless it was a matter that had to do with superannuation or worker’s compensation claims
- The business agreed not to pursue any form of action, arbitration, claims, suits, demands, costs, debts, damages, expenses and legal proceedings against her in connection to her employment and the events which led up to and included her termination
- The business could not pursue any action against the ex-employee regarding anything that happened during the time between when she was let go to when the Deed of Settlement was signed unless there was any illegal activity which occurred. Giving up any legal rights they possessed over her after the agreement had been signed.
All appeared to be in order, however, not long after the Deed of Settlement and release was executed, the employer discovered that the employee had misappropriated much more than just $2,809.42.
In actual fact $321,593.85 was found to be missing, and the employer then sued the former employee for the total sum discovered.
The employee defended the employer’s actions by saying that under the terms of the Deed of Settlement and Release, recital E and clause 4.2 precluded the employer suing for any more money and pleaded the Deed of Settlement and Release as a complete defence to the recovery of money by the employer.
In February this year, the Court decided that the Deed of Settlement and Release must be construed so that it does not extend to the claims made in the current proceeding.
If that were wrong then, in any case, the employee would have been precluded from reliance upon the release for two other reasons. Such reliance would have been unconscientious, and equity would have prevented the employee from raising the release as a defence.
Further, as an employee who has correctly admitted that she owed the employer a duty of good faith, it would be arguable that she was under a duty, before the employer executed the deed, to disclose the truth about her improper diversion of money.
Being under such a duty, her failure to disclose the truth, in circumstances in which her silence induced the employer to execute the deed, would have constituted common law fraud.
The employer would have been entitled to void the whole deed and, not only deny the employee reliance upon the release but also to recover the money paid under the deed.
So what is the key lesson we should be taking away from this cautionary tale?
When preparing to settle any dispute it is prudent to take legal advice to ensure that the terms of the settlement are as agreed and cover off on all the matters between the parties.