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Run aground — essential terms in mediation-agreed settlement deeds

Collins v State of Queensland [2021] QCA 36

The decision of the Queensland Court of Appeal in Collins v State of Queensland [2021] QCA 36 provides a reminder about the pragmatic approach adopted by courts when considering the requirements of mediation and the interpretation of deeds of settlement.

Background

In 2019, Collins and the State of Queensland (the State) participated in a mediation in an attempt to resolve proceedings commenced by Collins in which Collins sought damages from the State for the alleged negligent destruction of his ship. The mediation was conducted in accordance with a mediation agreement, the mediator was provided with a brief of documents relevant to the proceedings, and both parties were represented by lawyers during the mediation. Ultimately, the parties settled the dispute and entered into a deed of settlement (Deed).

Relevantly, the Deed contained a term which required Collins to immediately sign a notice of discontinuance. The signed notice of discontinuance was then to be provided to the State, who would pay the settlement sum and then sign and file the notice of discontinuance. However, the State signed and filed the notice of discontinuance before the settlement sum was paid. Shortly after that occurred, Collins filed an application to set aside the Deed – to effectively enable him to continue to pursue the proceedings – on the grounds that:

1. the conduct of the mediation denied Collins procedural fairness; and
2. the State breached an essential term of the Deed by filing the notice of discontinuance prior to paying the settlement sum.

First instance

At first instance, Holmes CJ found no basis to conclude that Collins was denied procedural fairness, or that the mediator or the parties' lawyers had acted in a way contrary to their obligations in the mediation process. In particular, the Court held that the fact that legal representatives made reference to the obvious legal and financial difficulties a party may face in proceedings if the matter in question was not settled or was not enough to sustain an argument of procedural unfairness.

Further, Holmes CJ found that it was not an essential term of the Deed that the settlement sum was paid before the notice of discontinuance was signed and filed by the State. The Court's finding was that the term was not an essential term, as Collins' obligation to sign the notice of discontinuance was not dependent on the State paying the settlement sum or filing the notice of discontinuance. Moreover, nothing was lost by the alteration of the sequence. The Court held that the settlement Deed ought to be upheld. Collins was not entitled to terminate the Deed.

Collins then appealed to the Court of Appeal.

Court of Appeal

The focus of the Court of Appeal, being Boddice J (with Sofronoff P and Mullins JA agreeing), was very much on the issue of the central relief which Collins was seeking on appeal; namely the enforceability of the Deed.

The Court of Appeal considered that Collins' complaints were framed by his expectations of the mediation process. Those expectations, and resulting complaints, failed to recognise that although mediations follow a process and apply rules agreed between the parties and mediator, a mediation does not have the rules and processes of a court hearing. Nor should it. There is no basis for relief for a party that forms a view that a mediation process does not meet its needs or expectations; that does not evidence undue influence, duress or unconscionable conduct.

With regards to the Deed, the Court of Appeal agreed with Holmes CJ that the sequence in which the mandated events occurred – i.e. Collins executing the notice of discontinuance first, followed by the State executing that notice and filing it prior to paying to Collins the settlement sum – did not breach any essential term of the Deed. That is; the Court of Appeal held that the term governing that sequence was not an essential term of the Deed. The result being, Collins had no right to terminate the Deed.

Lessons to be learnt

The decision in Collins v State of Queensland [2021] QCA 36 provides a helpful reminder of the realities of mediation. The Judge at first instance, followed by the Court of Appeal, once again thought about the following matters:

  • A purpose of mediation is for parties to attempt to resolve a dispute in a manner which gives due consideration to the relevant commercial, as well as legal, issues being faced by all involved parties.
  • Mediation may allow the involved parties the opportunity to ventilate their position, however mediation does not transform a weak position into a strong position, nor does it create an expectation that a party should expect such an outcome to occur. Moreover, a party to a mediation is entitled to maintain their position and advance reasons as to why their opponent's claim may fail at trial.
  • It is unlikely that a court will set aside a deed of settlement in circumstances where a party entered into that agreement with full knowledge of its consequences; particularly under legal advice.

Our additional observation is that, if the sequence of events in a settlement deed is important to your client(s), it may be appropriate to include a clause (whether an interpretation clause or termination clause) to that effect.[1]


[1] [Note: The above material provides a summary only of the subject matter covered, without an assumption of a duty of care by Resolution Institute or Clayton Utz. The material is not intended to be nor should it be relied upon as a substitute for legal or other professional advice. Copyright in the material is owned by Clayton Utz.]