Publications

The Freedom of Contracts: The Child Sex Abuse Exception

Published on August 14, 2019 by Martin Slattery and Edward Ren

I. Introduction

The matter of TRG v The Board of Trustees of the Brisbane Grammar School[1] is the first reported Supreme Court of Queensland decision regarding an application to set aside a settlement agreement under the recent Limitation of Actions Act 1974 (QLD) amendments.[2] This decision and its associated legislation is one of the most recent examples of the legislature uprooting common law principles for the public good.  Given the heavy scrutiny and publicity around these new judicial powers, it is likely that this decision will play a key role in the years to come.

This paper will first explore the key principles that permeate contract law before then discussing some of the statutory inroads that have been made in this area.  We will then analyse the decision in TRG and its associated legislation, and consider how this decision sits alongside similar decisions in this space.

II. Contract Law

A.  In the Common Law

Contracts have traditionally been conceptualised as the consensual assumption of obligations between parties.  As such, the essence of a contract is that parties voluntarily assume a legally enforceable duty.[3]  At a general level, this voluntary nature upholds the freedom of parties, with no relevant disability, to agree upon the terms of their future relationship.[4]  Any exceptions to this freedom of contract will require good reason to attract judicial intervention to set aside the agreement that was entered into by the parties.[5]  There are significant commercial reasons as to why commercial certainty and freedom of contract ought to be upheld in law.[6]  Whilst the maintenance of this freedom is of abiding importance, this maintenance must be subject to statute.[7]

The common law has only recognised a narrow set of grounds upon which a contract can be rendered void or voidable.  The difference between a voidable and void contract is that a voidable contract still requires a party to approach the court for an order setting aside the contract.  The traditional categories upon which either of these results can occur are:

1. Misrepresentation;
2. Mistake;
3. Duress;
4. Undue influence; and
5. Unconscionable conduct.

The first three factors are common law concepts, whilst the latter two have their origins in equity.  These factors are reflective of the emphasis that a court places upon the consent of parties in contract.[8]  The presence of any of these factors would indicate to the court that a party’s consent has not been entirely voluntary or has been affected by some manner.

B. Statutory Intervention

Despite the common law principles established, legislation will either codify broad principles of common law or the operation of such factors in specific circumstances.[9]    These statutes may differ from State to State,[10] with some States codifying aspects of the common law whilst others choose not to.[11]  A prime example of such legislation is the Contracts Review Act 1980 (NSW), whereby courts are now empowered to deal with “unjust” contracts.[12]

III. The New Frontier

The legislative amendments in Queensland to allow for deeds of releases to be set aside is one of the latest examples of the legislature altering the common law approach to the freedom of contracts.  The above-mentioned amendments in Queensland were made in response to the Royal Commission into Institutional Responses to Child Sexual Abuse.  It was noted during the Royal Commission hearings that many litigants did not receive adequate compensation or receive appropriate legal advice before signing a deed of release.  These deeds purported to release the relevant institutions from any further claims being made by the claimant.

The provision enabling deed set-asides reads as follows:

“[a]n action may be brought on a previously settled right of action if a court, by order on application, sets aside the agreement effecting the settlement on the grounds it is just and reasonable to do so.”[13]

A deed that is set aside in this fashion will be regarded as void.[14]  The wording of this provision is similar to the wording adopted in the Western Australian[15] and the Northern Territory[16] jurisdictions.  Unlike some other pieces of legislation in this space, this type of provision appears to create a new ground upon which parties may seek to void a deed or contract.

IV. The TRG Application

TRG was a student at Brisbane Grammar School (‘School’) between 1986 and 1989.  He alleges that he was sexually abused by Kevin Lynch on a number of occasions during 1986 and 1987.  Mr Lynch was employed as a counsellor at the School at the relevant times.  Mr Lynch was charged with child sex offences in 1997 but committed suicide before a verdict was handed down.

The applicant had previously commenced proceedings against the respondent for personal injuries suffered as a result of the alleged abuse in 2001 as part of a group of 64 former students who had instituted proceedings against the School.  This class of claimants participated in a bulk mediation process. The applicant’s earlier proceedings were settled in 2002 by way of a settlement agreement.  The claimant received $47,000 through this settlement.

TRG applied for this previous settlement to be set aside on the basis that it would be just and reasonable to do so.

V. What factors are to be considered in determining ‘just and reasonable’

The term ‘just and reasonable’ is not defined within the Queensland legislation and the legislation does not provide a guide as to what factors need to be considered.  As such, it is a matter of judicial interpretation.  In handing down his decision, Davis J made the following comments:

• Whether it would be ‘just and reasonable’ to set aside a previous settlement requires the balancing of the interests of both parties.[17] It is the balance struck that must be just and reasonable.[18]
• The starting point of any application is “that there is a binding settlement agreement which defines the rights and obligations of the parties.”[19] The real issue to be determined is whether the state of affairs ought to be disturbed by allowing the application.[20]
• The onus is on the applicant to establish that it is ‘just and reasonable’ to disturb the status quo and set aside the settlement agreement.[21]
• Settlements are not prima facie subject to being set aside.[22]
• The legislature sought to redress the following issues in introducing this amendment:[23]
  • High-handed behaviour by an institution;
  • Summary dismissal of claims which would have had good prospects but for the limitation defence;
  • Unequal bargaining power between the parties;
  • Claims being settled for a nominal amount or an amount that was heavily discounted to account for the limitation issues; and
  • Settlements which were generally unfair.
• The assessment of whether it would be ‘just and reasonable’ to set aside the settlement must take into account all that has happened up until the date of the judgment.[24]

His Honour made reference to the following factors in determining whether it would be just and reasonable to set aside the settlement.

A. The prospect of success in any re-opened proceedings[25]

His Honour considered that the applicant would have strong prospects of establishing vicarious liability for the sexual assaults and the damages inflicted upon him by the alleged perpetrator against the school.[26]  As such, His Honour was of the view that any re-opened proceedings would likely succeed.

B. The quantum of the claim if brought today[27]

His Honour was of the view that any new proceedings would yield a significantly higher figure than the original settlement amount.[28]  This conclusion was reached by considering how the various heads of damages would be calculated in accordance with the standards of today.

C. The impact that the Limitation Act had on the quantum of the 2002 settlement[29]

Davis J noted that the respondent had initially relied on any available limitation defence in the 2001 proceedings.[30]  In considering the settlement figure of $47,000, His Honour noted that this amount was just below the figures nominated by Counsel in 2002 as the bottom range for an appropriate settlement.[31]  Despite the early reliance, there was no direct evidence that indicated that the limitation issue was accounted for in the calculation of the final settlement figure.[32]  His Honour pointed out that the limitation issue was not the primary bar to the claimant’s claim – the biggest issue that arose was that the applicant had to convince the court that an experienced school principal did nothing about his knowledge that Lynch was sexually abusing children.[33]  His Honour considered this issue to be the primary factor as to why the applicant’s settlement figure was below expectations.

On this basis, His Honour concluded that the limitation issues did not materially affect the quantum of the settlement sum and was not a material factor in the applicant’s decision to settle the 2001 proceedings.[34]

D. The reasonableness of the mediation process[35]

His Honour considered the prior mediation process to have been reasonable on the following grounds:[36]

1. “an experienced mediator was engaged;
2. the mediator was engaged in setting up the structure of the mediation process;
3. the respondent paid for the mediation;
4. the applicant was represented by experienced solicitors and very able counsel;
5. the sessions were organised so the claimants were not involved in legal argument but could concentrate on giving input into their individual claims;
6. although the applicant may now consider that the mediations were rushed, they were not. The individual sessions were each between one and two hours and it appears clear that the applicant was given ample opportunity to put his point of view;
7. during the mediation there was no challenge to the applicant’s allegations of being abused by Lynch; and
8. The respondent’s acceptance of the truth of the allegations was reinforced in the apology session.”

E. The reasonableness or otherwise of the settlement figure[37]

His Honour rejected the submission that contemporaneous quantum assessments were inherently superior.  He considered there to be no logical basis as to why he ought to have regard to submissions on quantum made now based on material available in 2002 in order to assess the reasonableness of the settlement figure reached.[38]  His Honour instead considered the process undertaken in reaching the settlement figure and considered it to be a fair and reasonable reflection of the applicant’s case as it stood in 2002.  In particular, his Honour noted that the earlier settlement “was the product of an arm’s length bargain facilitated through a fair mediation process where the applicant was very ably represented.”[39]

F. The impact of delay[40]

His Honour was of the position that the respondent’s ability to defend the claimant would be significantly prejudiced if the settlement were to be set aside.[41]  This prejudice would be caused by the fact that a large amount of evidence had been lost or destroyed and a number of potential key witnesses were now deceased.[42]

G. The costs thrown away in the earlier proceedings[43]

His Honour considered this factor as only influencing the exercise of discretion to a limited extent.[44]

H. Loss of Insurance[45]

His Honour considered that there must be an unquantifiable risk that the respondent will be without effective insurance cover in relation to any new proceedings.[46]  However, as there was a lack of evidence to this effect, his Honour placed no weight on this factor.[47]

I. The changes in the law since the earlier proceedings[48]

His Honour was of the view that the legislative amendments were not for the purpose of setting aside deeds so as to facilitate claims based on more favourable views of vicarious liability.[49]

J. The offer of ongoing counselling[50]

His Honour noted that such an offer was made by the school to the applicant.[51]  However, as this counselling was never actually provided, this factor was ultimately ignored by his Honour.[52]

K. Exercise of discretion

In considering all of these above factors, His Honour was of the view that it would not be just and reasonable to set aside the deed.[53]

VI. Comparing the decision in QLD vs WA

The Western Australia deed set-aside provisions have recently been tested in the District Court of Western Australia.[54]  Unlike the case of TRG, the Court in Western Australia found that it was just and reasonable to set aside the deed of release.  The factors considered by the Court in this Western Australian case differed significantly from the factors considered by Davis J in TRG.

The Court in JAS appeared to focus primarily on the fact that the claimant had been severely curtailed as a result of his claim being statute barred.[55]  This led to him being forced to accept whatever amount that was offered to him in 2015.  Furthermore, the Court in this case interpreted the WA legislation as having the broad intention of removing legal barriers to claimants commencing an action and having their claims decided on their merits.[56]

This difference in analysis is indicative of the significant difficulties that Courts face in grappling with the issue of what constitutes ‘just and reasonable.’  These differences are also indicative of the differences that State legislatures have over such provisions.

VII. Implications For Future Deed Set Aside Applications

The decision in TRG is likely to play a critical role in the years to come as more and more States are likely to implement deed set-aside provisions.  The Victorian and Tasmanian Governments have recently announced that it will introduce similar set-aside provisions into State law,[57] and it is likely that New South Wales will follow suit in the near future.  Until such provisions come through, it is likely that any attempts by potential applicants to set aside their previous settlements must rely on the traditional contract rules and equity concerning the voiding of contracts as discussed above.

While any subsequent applications will need to be considered on their merits, the factors considered by Davis J in his judgment will be similarly considered by other Courts across Australia.  Given that this is a decision of the Supreme Court, it is likely to be of greater persuasive value than the decision of JAS which was a decision of the District Court.

VIII. Further Applications

This decision provides institutions and organisations extra guidance as to how they should approach informal requests to set-aside deeds of releases whereby the following need to be considered:

• Whether there was any indication that the previous settlement offer was affected by the limitation issue;
• Was there a more significant issue that would have impaired the success of the claim at the time of the original claim;
• The fact that the law has changed does not have any bearing on whether the deed ought to be set aside;
• Whether the applicant was represented by able solicitors and counsel at the time of the previous settlement;
• Whether the applicant had sufficient time to put forward their point of view at the time of the earlier settlement;
• Whether an experienced mediator was engaged in instances where a mediation process was used;
• Whether the previous claim would have had good prospects but for the limitation defence; and
• Whether the respondent will suffer from significant prejudice if they are required to defend any new proceedings as a result of a loss of evidence and witnesses.