Setting aside prior deeds of settlement in Victoria

In the past year, Victorian courts have set aside several prior deeds of settlement in the interests of justice. We take a closer look at what the courts in this jurisdiction have determined are "just and reasonable" circumstances to set aside past settlements in abuse matters.

Legislative Framework

On 1 July 2015, section 4 of the Limitation of Actions Amendment (Child Abuse) Act 2015 came into effect, introducing Division 5 into Part IIA of the Limitation of Actions Act 1958 (the Act). Broadly speaking, this division applies to causes of action arising from personal injury resulting from physical or sexual abuse committed against a person when they were a child. Notably, Division 5 includes section 27P, which abolished the limitation period for causes of action to which Division 5 applies, regardless of whether the alleged act or omission occurred before or after the commencement of Division 5.

On 18 September 2019, section 32 of the Children Legislation Amendment Act 2019 (‘the Children Legislation Act’) came into force, inserting ss 27QA to 27QF into Division 5 of Part IIA of the Act. Relevantly, section 27QA(2) permits actions on previously barred causes of action or previously settled causes of action to be brought on application and section 27QD permits an application to be made to a court to set aside a settlement agreement that has resolved a previously settled cause of action.

Section 27QE(1) then sets out the court’s powers in relation to the setting aside of settlement agreements, as follows:

• On an application under Section 27QD or otherwise in a proceeding on an action referred to in Section 27QA(2), the court, if satisfied that it is just and reasonable to do so—
  • may make an order setting aside the settlement agreement and any judgment or order giving effect to the settlement of the previously settled cause of action, whether wholly or in part; and
  • may make any other order that it considers appropriate in the circumstances.

Similar provisions (enacted following the Royal Commission into Institutional Responses to Child Sexual Abuse) exist in other Australian States and Territories but only in Victoria is there a textually explicit power to set aside a settlement in part.

Overview of Pertinent Matters

Trustees of the Christian Brothers v DZY (a pseudonym) [2024] VSCA 73 

Facts

Between 1964 and 1968, DZY attended St Alipius Boys School in Ballarat which was run by the Trustees of the Christian Brothers (the Trustees). Whilst in attendance, DZY was sexually abused by two members of the Congregation, Brother Robert Best and Brother Gerald Fitzgerald.

In around January 2011, DZY (via his solicitors) notified the Trustees of his claim and by May 2012, they had agreed to progress DZY’s claim informally. Thereafter, on:

• 14 December 2012, DZY signed a Deed of Settlement in the amount of $80,000 (2012 Deed); and
• 9 December 2015, DZY signed a Deed of Settlement in the amount of $20,000 in respect of the Trustees’ failure to make full disclosure during the 2012 settlement process (2015 Deed). 

Both the 2012 and 2015 Deeds acknowledged that DZY did not claim to have suffered economic loss and had not made any demand for such loss as part of those settlements.

Importantly, the limitation period for child abuse claims was removed on 1 July 2015 and no longer applied at the time of the 2015 Deed being entered. However, any application against an unincorporated association such as the Congregation would likely have failed due to the absence of a legal entity capable of bearing liability for the claimed loss: the ‘Ellis defence’[1] which was abolished in Victoria from 1 July 2018.

Supreme Court Decision

In July 2021, DZY commenced proceedings against the Trustees in relation to the abovementioned abuse and sought damages for general damages, medical expenses and economic loss. He also applied to set aside the 2012 and 2015 Deeds.

The Trustees agreed to set aside both Deeds in part on the basis that the existence of the limitation period and the Ellis defence may have disadvantaged DZY’s negotiating position and unfairly impacted the amounts DZY accepted to settle his claims. However, they sought to maintain the effect of the deeds insofar as they barred any claim for economic loss.

At first instance, the Associate Judge ordered that the 2012 and 2015 Deeds be set aside in their entirety without distinction as to their operation in respect of particular heads of loss and damage.

Court of Appeal Decision

The Trustees appealed to the Victorian Court of Appeal on six grounds which the Court addressed in a single question: in finding that it was just and reasonable to set aside the deeds, did the associate judge act on a wrong principle or draw an inference that was not open (ground 1)[15]?

In answering this question, the Court held that its power to set aside a prior settlement or judgment in accordance with section 27QE of the Act is not a discretionary one.

The Court held that factors to consider on the question of just and reasonable include:

"We do not deny that, other than the actual influence of those legal obstacles, there could be additional factors that might legitimately be taken into account. Potentially those factors might include, for example, prospects of success (that is, that the claimant could do better than he or she had previously done by the settlement); the respondent’s conduct in the settlement process; unequal bargaining power; any feelings of guilt or shame (compounded or not by the burden of giving evidence and being subject to cross-examination); and (as noted) prejudice to the respondent [112]."

In their assessment of all facts, the Court considered that DZY’s reason for abandoning his claim for economic loss was his apprehension that the DSS would claw back his carer’s pension and at no point did DZY submit that he decided not to pursue an economic loss claim because of limitations and Ellis defence issues. It was also a relevant consideration that DZY had the benefit of legal advice at the time of negotiations and entering both deeds.

On this basis, the Court considered that it was not just and reasonable to set aside both deeds in full but rather, unanimously allowed the appeal and set aside the deeds in part to permit DZY to bring his claim for damages as framed at the time of the respective deeds (i.e., no economic loss).

High Court Appeal

DZY has subsequently been granted special leave to appeal the Court of Appeal Decision to the High Court of Australia on the following grounds:

1. The Court of Appeal majority (Beach and Macauley JJA) erred in finding that the power provided in s27QE(1) of the Act is not enlivened unless a claimant establishes that the limitation defence and/or the Ellis defence had a “material impact” on, or was a ‘leading” factor in, the claimant’s decision to settle; and
2. The Court of Appeal, in finding the judgment was in error, (i) misapplied the House standard; and (ii) misapplied the correctness standard.

Jens v The Society of Jesus in Australia [2024] VSC 329 

Facts

Jens was a student boarder at Xavier College in Melbourne between 1682 to 1972, during which she was sexually abused by a Jesuit priest. The Society of Jesus in Australia (the Society) was on notice of the claim in 2008 and in the course of the claim, the priest admitted that the abuse had occurred.

In August 2011, Jens signed a settlement deed (variation signed in December 2016) (the Deeds) which resolved his claim against the Society in the amount $150,000 plus the boarding costs of Jens’ sons at Xavier College.

Jens applied to have the Deed set aside in whole on the basis that it was just and reasonable to do so. 

The Society contended that the Deeds were not eligible to be set aside, and in the alternative, the Deeds were not eligible to be set aside insofar as they relate to claims of economic loss.

Supreme Court Decision 

The Court referred to and adopted the principles set out in the matter of DZY (partially extracted above). 

The Court found that at the time of negotiating the Deeds, Jens:

• received legal advice before negotiating the Deeds but did not receive legal advice when negotiating the Deeds or regarding the quantum of settlement;
• was subject to the limitation period and the legal identity barrier (Ellis defence);
• had no legal rights by virtue of the earlier deed at the time of negotiating the variation deed despite the limitation and legal identity barriers having been removed by that stage; and
• engaged in glorified begging as a result of the Society’s failure to take the barriers off the table during negotiations (despite knowing that they needed to do so for a proper settlement to be negotiated) and ultimately settled his claim for plainly less than it was worth. 

Additionally, the Court held that the effluxion of time caused prejudice to the Society, but they had not identified any material prejudice such that it was not just and reasonable to set aside the Deeds.

For the above reasons, the Court set aside the Deeds.

Barclay v Trustees of the Marist Brothers (Ruling) [2024] VCC 1859

Facts

Barclay sought personal injury damages from the Trustees of the Marist Brothers (the Marist Brothers) and entered a Deed on 12 November 2015 in the amount of $165,000 (the Deed). Notably, the Deed negotiations occurred following the removal of the limitation period but not the legal identity barrier.

In May 2024, Barclay applied to set aside the Deed so that he could bring action afresh in relation to the previously settled claim.

The Society contended that the Deed ought to be upheld and also submitted that the matter be determined after the High Court resolved the questions posed by DZY in his appeal.

County Court Decision

The Court determined Barclay’s application before the High Court’s ruling in the interests of justice and found that: 

• the Ellis defence had a material influence on Barclay’s decision to settle his claim;
• Barclay’s decision making was founded upon legal advice about the options open to him at the time (i.e., that he could not sue the Marist brothers and win);
• it is irrelevant for the Marist Brothers to contend merely that Barclay could have commenced proceedings against them when assessing whether it is just and reasonable to set aside the Deed;
• economic loss was not relevant because it was not possible to bring a legal claim let alone a claim for economic loss; and
• Barclay settled his claim at undervalue and if the Deed is set aside Barclay would obtain an award or settlement vastly in excess of the settlement sum. 

The Court acknowledged there were other matters (such as the risk of an adverse costs order, obtaining an apology, and relieving mortgage stress) which Barclay took into account when deciding to settle his claim, but these matters must be seen in the context of the legal obstacles underpinning his decision-making.

Further, the Court held that there was no forensic prejudice to the Marist Brothers by way of missing witnesses or documents if the Deed were to be set aside.

Accordingly, the Court was satisfied that it was just and reasonable to set aside the Deed and ordered that the Deed be set aside in its entirety. 

What’s Next?

The High Court’s determination on DZY’s appeal will be of significant interest due to its potential impact on how Australian courts handle applications to set aside deeds and the extent of the ‘just and reasonable’ test.

The outcome could influence future applications and could lead to broader implications for how survivors can challenge prior deeds of settlement, particularly when those agreements/deeds may have been entered into, prior to the abolishment of the statutory limitation period and Ellis defence.

Thus, this decision will be a key moment in the evolving discussion on institutional accountability, legal protections for survivors, and the role of past settlements in the context of abuse cases.

We will continue to monitor the appeal in DZY’s case and provide a further update, and consequential analysis, upon the delivery of the High Court’s Judgment.

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[1] Trustees of the Roman Catholic Church v Ellis (2007) 70 NSWLR 565; [2007] NSWCA 117.