A deed of doubt: how a settlement agreement failed to bar a claim for employee entitlements

09 October 2023

The case related to an appeal from a decision that summarily dismissed the applicant’s claim against his former employer based on a deed of settlement. The applicant argued that the deed did not cover his claim. The FCA allowed his appeal, finding that the deed was not clear and that his claim was different from the previous proceeding.

In issue

  • The main issue in this case was whether the applicant, Mr David Woods, was barred from bringing a claim against the respondent, T&F.S. Woods Pty Ltd (the Company) and its directors, by a deed of settlement and release (the Deed) that the parties had entered into on 27 November 2019.

The background

Mr Woods was a director and shareholder of the Company, which operated a transport and logistics business. He had a dispute with his brother, who was also a director and shareholder, over the misappropriation of funds from the Company and the breach of fiduciary and director’s duties. He commenced proceedings in the Federal Court of Australia (the FCA Proceeding) against his brother and his brother’s wife, who was an employee and former director of the Company. He also sought the winding up of the Company and the appointment of liquidators.

The FCA Proceeding was settled by the Deed, which released the parties from any claims arising from the FCA Proceeding. Mr Woods also sold his shares to his brother and resigned as a director.

Mr Woods then commenced proceedings in the Federal Circuit and Family Court of Australia (Division 2) (the FCFCOA Proceeding) against the Company, claiming breaches of the Fair Work Act 2009 (Cth) for failure to pay annual leave, minimum wages and allowances, overtime and superannuation, wrongful detention of property, and damages for breach of the Deed.

The Company applied for summary dismissal of the FCFCOA proceeding on the ground that it was barred by the Deed.

The decision at FCFCOA

The court granted the Company’s application and summarily dismissed the FCFCOA Proceeding.

The primary judge, Judge Vasta, in the first instance, held that Mr Woods’ claims were within the scope of the Deed, which was intended to be a comprehensive and final settlement of all matters relating to his employment and shareholding in the Company.

Judge Vasta rejected Mr Woods’ argument that the Deed only applied to claims that were known or reasonably foreseeable at the time of its execution. Judge Vasta found that the Deed was not ambiguous or uncertain, and that it contained broad and general language that covered any claims arising from or in connection with his employment or shareholding, regardless of whether they were known or unknown at the time.

The issues on appeal

Mr Woods sought leave to appeal from the decision of the FCFCOA Proceeding on several grounds. He contended that the judge:

  • erred in law by construing the Deed too broadly and failing to give effect to its true meaning and intention;
  • made findings of fact adverse to him without evidence or proper reasons;
  • failed to consider and determine if there were serious, important, complex and difficult or unsettled real questions of fact and law as to whether the Deed should be construed in a manner such that the FCFCOA proceeding was not barred by it;
  • failed to apply the appropriate legal standard when deciding that the FCFCOA Proceeding ought to be dismissed; and
  • exercised his discretion to dismiss the FCFCOA Proceeding erroneously.

The decision in the FCA

Bearing in mind that this was an appeal of a summary judgment, Judge Thomas of the Federal Court of Australia (the FCA) granted Mr Woods’ application for leave to appeal and otherwise allowed his appeal. In reaching this conclusion, Judge Thomas noted that it was not the Court’s role on appeal to make findings or reach concluded opinion on the outcome of the proceedings in first instance, rather, the 'central question' was whether 'it was so clear that (the appellant) had no prospects of successfully prosecuting the proceeding such that the grant of summary relief was warranted'.

On that basis, Judge Thomas held that the primary judge erred in granting summary judgment because there was at least an arguable case that Mr Woods’ claims were not barred by the Deed for the following reasons:

The Deed should be construed by reference to its recitals, which indicated that it was intended to settle only the disputes arising out of or in connection with the FCA proceeding.

The expression 'arising from' required some form of causal or consequential relationship between Mr Woods’ claims and the FCA proceeding, which was not clearly established on the evidence.

The FCA Proceeding was confined to specific allegations of misappropriation, breach of fiduciary and director’s duties, and winding up of the Company, which were distinct from Mr Woods’ claims in relation to his employment entitlements, property rights, and breach of contract.

The parties to the FCA Proceeding were different from those in the FCFCOA Proceeding, as Mr Woods sued in his capacity as director and shareholder in one case, and as employee in another case.

Implications for you

This case illustrates that summary judgment is a discretionary power that must be exercised with caution. Courts should not grant summary judgment unless they are satisfied that there is no reasonable prospect of success for a party’s claim.

While the views expressed by the Court were not conclusive, this case highlights the importance of carefully drafting and reviewing deeds of settlement and release, as they can have significant consequences for parties who wish to pursue further claims in relation to a dispute. Parties should ensure that they understand the scope and effect of a deed before signing it and seek legal advice if they have any doubts or concerns. Notwithstanding this, parties should also be aware that, when appropriately drafted and executed, courts will generally uphold deeds of settlement and release unless there are exceptional circumstances that justify setting them aside.

Woods v T&F.S. Woods Pty Ltd [2023] FCA 1108

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