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15 Oct 2020

No smoother path for setting aside settlement agreements in New South Wales… yet

By Dr Ashley Tsacalos, Julia Cantarella and Carolyn Scott

NSW's removal of the limitation period for child abuse claims alone does not permit earlier settlements of statute-barred claims to be revived through the courts.

That is the result of a recent decision by the NSW Court of Appeal which has reinforced that the amendments effected by the Limitation Amendment (Child Abuse) Act 2016 (NSW) to remove the limitation period relating to child abuse claims does not, of itself, permit earlier settlements of statute-barred claims to be brought back to life through the courts. The decision also affirmed the key elements and high threshold for establishing that a contract is unjust under the Contracts Review Act 1980 (NSW) or unconscionable in equity (Magann v The Trustees of the Roman Catholic Church for the Diocese of Parramatta [2020] NSWCA 167).

To understand the context of the Magann decision, it is important to understand the relevant background to the civil liability reforms in NSW relating to child sexual abuse.

Law reform proposal to set aside settlement agreements

The NSW Government released a Discussion Paper in early 2020 seeking submissions on potential reforms that would allow NSW courts to set aside a settlement agreement between a survivor of past child sexual abuse and a responsible institution in specific circumstances (NSW Proposal).

Under the NSW Proposal, courts would be entitled to exercise their discretion to set aside settlement agreements where they consider the agreement to be unjust or unfair on the basis that it was:

  1. entered into prior to the respective 2016 and 2018 civil liability reforms in NSW, which effected:
    • the retrospective removal of limitation periods for claims relating to child abuse (2016 Amendments); or
    • a statutory requirement for a proper defendant to be appointed for cases against unincorporated associations along with new statutory liabilities for child abuse (2018 Amendments); and
  2. influenced by legal barriers or "legal technicalities" that are no longer in existence as a result of the reforms, in particular, where the claim was statute barred or where there was no proper defendant to sue.

In these circumstances, according to the NSW Proposal, courts may allow survivors to bring a new claim for compensation against the responsible institution. Similar legislation has already been enacted in Western Australia, Queensland, the Northern Territory, Victoria and Tasmania, in response to recommendations of the Royal Commission into Institutional Responses to Child Sexual Abuse.

While the NSW Proposal is still in the consultation phase, a decision in a case where the original settlement was impacted by the limitation period in force at the time has proceeded to judgment in the NSW Court of Appeal. However, in the absence of a specific statutory right to apply for a settlement agreement in relation to child sexual abuse to be set aside, the case was brought under the Contracts Review Act 1980 (NSW) and under the equitable doctrine of unconscionability.

Background to the Magann proceedings

Mr Magann commenced proceedings in the District Court against the Catholic Church of the Diocese of Parramatta and two priests in 2003. He alleged that he was a victim of sexual abuse perpetrated by the two Priests when he was a child between 1981 and 1991. As a result of the provisions of the Limitation Act 1969 (NSW) in force at the time, Mr Magann's claim was statute-barred. In the District Court proceedings, the Church sought to rely on a limitation defence and, while Mr Magann succeeded in his application to extend the limitation period in the District Court, the Church successfully appealed the grant of leave which resulted in a dismissal of the District Court proceedings. Despite the dismissal of the District Court proceedings, on 16 October 2007, Mr Magann entered into a Deed of Release with the Church in relation to the alleged historical sexual abuse following a settlement meeting.

After the 2016 Amendments, Mr Magann sought to re-agitate his claim in the Supreme Court (Magann v Trustees of the Roman Catholic Church of the Diocese of Parramatta [2019] NSWSC 1453) seeking to challenge the validity of the Deed under the Contracts Review Act 1980 (NSW).

The Supreme Court determined, as a separate preliminary question, that the Church was entitled to rely on the Deed as a complete defence to the proceedings brought by Mr Magann and dismissed the proceedings. N Adams J found that the Deed was valid in circumstances where there was an "express intention" that the Deed apply to "all conceivable future disputes" and, although the Church had superior bargaining power at the time that Mr Magann's claim was statute barred, there was no evidence to suggest that Mr Magann suffered from a special disadvantage such that he would be entitled to equitable relief under the principles of unconscionability.

Further, section 9(4) of the Contracts Review Act 1980 (NSW) prevented the Court from having regard to any injustice arising from circumstances not reasonably foreseeable at the time of the Deed, such as the removal of the relevant limitation period as a result of the 2016 Amendments.

Mr Magann appealed the decision. The Court of Appeal upheld the decision of N Adams J and dismissed the appeal (Magann v The Trustees of the Roman Catholic Church for the Diocese of Parramatta [2020] NSWCA 167). The Court of Appeal determined that there was no substantive or procedural unfairness or injustice which vitiated the Deed and that there was no basis to impugn the Deed by reference to the doctrine of unconscionable conduct. The factual findings indicated that Mr Magann:

  • ·obtained legal advice both before the settlement meeting, including from a barrister, and after this meeting but before he executed the Deed, from a solicitor;
  • had a support person with him throughout the settlement meeting;
  • was not under any time pressure during the settlement meeting and was provided with refreshments;
  • signed the Deed with his lawyer present after the settlement meeting; and
  • appeared to be content with the settlement meeting process and outcomes as evidenced by correspondence returning the signed Deed.

It found that the Contracts Review Act 1980 (NSW) precludes the Court from having regard to injustice arising from circumstances not reasonably foreseeable at the time of the Deed, namely, being the subsequent removal of the limitation period.  

Contrary to the Court of Appeal's findings, under the NSW Proposal, survivors of child sexual abuse would be able to rely on the retrospective removal of limitation periods as a relevant consideration in determining whether the court ought to exercise its discretion in relation to an application to set aside a settlement agreement.

Implications for settlement agreements with survivors in NSW

The Court of Appeal highlighted the binding "once and for all" nature of a Deed and the limitations around the existing mechanisms for settlement agreements to be revisited in NSW. In particular, the Court of Appeal restated the high bar in relation to establishing vitiating factors such as misrepresentation, mistake, duress, undue influence and/or unconscionable conduct.

However, the Court of Appeal observed that, if enacted, the NSW Proposal may result in courts being entitled to exercise their discretion to set aside settlement agreements if a survivor can establish that the settlement agreement was unjust or unfair on the basis that it was entered into prior to the 2016 Amendments and 2018 Amendments.

If an application to have a settlement agreement set aside were to be successful, survivors of child sexual abuse would then be entitled to bring a new claim for compensation against responsible institutions.

Where there is scope to argue that an institution engaged in unconscionable conduct, the current legal position in NSW requires the courts to assess the facts of each case, including the circumstances under which both the negotiations occurred and the claim was resolved.

Organisations that have been involved in settlements involving sexual abuse claims should consider undertaking an audit of settlement agreements that may be open to challenge, particularly those where the settlement sum is significantly low or the claimant was not legally represented, if the NSW Proposal becomes law. In particular, organisations should ensure that they exclude any documents, records and files relating to such settlements from any ordinary document destruction cycle to ensure that, should a challenge arise, documentation is available to investigate the circumstances of the settlement and to respond to any challenge to the settlement.

The Court of Appeal's decision provides a reminder to defendants of the elements necessary to vitiate a deed of settlement. In particular, the decision reinforces the importance of adopting principles of procedural fairness when defending sexual abuse claims including by ensuring that settlement meetings are not rushed, allowing survivors the opportunity to be heard and encouraging survivors to obtain legal advice.

In particular, NSW Government departments and agencies are aware of the requirement to act with complete propriety, fairly and in accordance with the highest professional standards in responding to claims arising from child sexual abuse as required by the Model Litigant Policy for Civil Litigation and the Guiding Principles for Civil Claims for Child Abuse. The Guiding Principles apply to current and future claims as well as provide guidance in relation to maintaining proper standards in child abuse claims and litigation. In the event that there had been adherence to the Model Litigant Policy and the Guiding Principles in previous claims or litigation (even before the Guiding Principles were in place), this may reduce the prospect of settlements being successfully challenged under the Contracts Review Act 1980 (NSW) and/or equitable principles. This will also greatly assist in dealing with challenges to settlements in the event that the NSW Proposal comes into effect through legislation.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.