The construction of the full common law release

Litigation was settled for several million dollars. The release said

‘5. The plaintiffs hereby release the defendants from all claims, actions, suits, demands arising from or in any way connected with the Proceedings, the allegations contained in the Statement of Claim and of the liquidation of the third plaintiff.’

That’s the kind of release you can get when you’re willing to pay several mil for it. But what does it mean? ‘Don’t even think of bugging me ever again, in relation to anything that happened in the past, whether you’re aware of it or not’ or something more confined?  It is a question which crops up relatively often in practice, but the law on the subject has always seemed pretty obscure.  When several mil’s on the table people jump into these kinds of releases. Sometimes, they come to regret it. Justice Einstein explained the principles, in Shepherds Producers Co-operative Limited v Lamont [2009] NSWSC 294, commencing with the handy summary of the principles applicable to the construction of releases reproduced below. Unless the parties adopt plain language to make clear that the release giver is giving up claims or rights of which it is and could not reasonably be aware, there is a risk that the release will be read down so as to encompass only to matters specifically in contemplation between the parties at the time when the release was given.   But in this case, his Honour found that the release was a defence to the subsequent proceeding between the parties which was the subject of this decision. Though he admitted evidence of the dispute as described in the mediation agreement which governed the mediation at which the settlement was agreed upon, his Honour did not consider it to be a particularly important piece in the puzzle.  Furthermore, because to read ‘and’ conjunctively would have produced a silly result, he construed ‘in any way connected with the Proceedings, the allegations contained in the Statement of Claim and of the liquidation of the plaintiff’ as really having been intended to mean ‘… or of the liquidation of the plaintiff’.  This is what his Honour said:

‘(1) In construing a release… the Court should ascribe to the release the meaning that the release would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties at the time that they signed the document containing the release: ICS v West Bromwich BS [1998] 1 All ER 98 per Lord Hoffman at 114.

(2) In order for the Court to give effect to what in an objective sense the contracting parties intended, it is clear that a party may agree to release claims or rights of which it is unaware and of which it could not be aware, provided clear language is used to make plain that that is its intention: see Salkeld v Vernon (1758) 1 Eden 64, 28 ER 608 per Lord Keeper Henley.

(3) Consistent with this emphasis on intention, general words in a release are limited to what was specifically in the contemplation of the parties at the time when the release was given: Grant v John Grant and Sons Pty Ltd (1954) 91 CLR 112 per Dixon CJ, Fullagar, Kitto and Taylor JJ; Iletrait Pty Limited v McInnes (NSWCA, 17 April 1997, unreported) per Priestley JA with whom Grove AJA and Handley JA agreed).

(4) Although there are no special rules of construction, such as a contra proferentem requirement, in the absence of clear language courts have been slow to infer that a party intended to surrender rights and claims of which it was unaware and could not have been aware: BCCL v Ali [2001] 1 All ER961 at 966 per Lord Bingham, (contrast Lord Nicholls in BCCL v Ali (supra) at 971-72 who was of the view that for the purposes of construction a general release is simply a term in the contract).

(5) Although each release should be considered against its own matrix of facts, an example of this line of “cautionary principle” (Lord Bingham’s phrase) is the frequently cited judgment of the High Court of Australia in Grant v John Grant & Sons Pty Limited (supra), where Dixon CJ, Fullagar, Kitto and Taylor JJ (at 125) referred with approval to the proposition put by Sir Frederick Pollock in his “Principles of Contract” (Stevens: London, 1950) 13th ed at 412, that “in equity a release shall not be construed as applying to something of which the party executing it was ignorant.”

(6) Despite the fact that, strictly speaking, releases are subject to no special rules of construction, a transaction in which one party agrees in general terms to release another from any claims upon it does have special features: BCCL v Ali at 984 per Lord Hoffman.

(7) In such circumstances it may well be appropriate to imply an obligation upon the beneficiary of such a release to disclose the existence of claims of which it actually knows and which it also realises might not be known to the other party: BCCL v Ali at 984 per Lord Hoffman, for such an obligation is consistent with a concern to protect parties from sharp practice, by preventing advantage being taken of the known ignorance of the conceding party; BCCL v Ali per Lord Nicholls at 973. (The Bank made no such disclosure here.)

(8) Most recently in this Court in Amaca Pty Limited formerly known as James Hardie & Coy Pty Limited v CSR Limited [2001] NSWSC 324, Bergin J adopted the principles of construction broadly as outlined above, including the “cautionary principle” and taking into account the purpose of the contract and the circumstances in which made.’

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