Releases clause – special rules about interpretation

20 January 2016

In a recent Supreme Court case (IBM Australia Pty Ltd v State of Queensland [2015] QSC 342), the State sued IBM for alleged claims arising from the Queensland Health payroll software fiasco. The State sued the IBM alleging misleading and deceptive conduct and negligent misstatement.

The issue was whether the claims made by the State in these proceedings had in fact been released by an earlier agreement.

While the facts are peculiar and unique to this case, the decision does provide some helpful pointers for commercial parties.

Despite the fact that releases are generally an ordinary term of a contract, a transaction in which one party agrees in general terms to release another from any claims upon it does have special features. These features include:

1.   in construing a release, the court ascribes the meaning that the release would convey to a reasonable person having all the background and contextual knowledge of the parties at the time that they signed the    document;

2.   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 (usually set out in the recitals):

3.   that said, 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;

4.   in the absence of clear language courts are reluctant to hold that a party intended to release claims of which it was unaware and could not have been aware;

5.   where it is clear that the parties intend to release unknown claims, courts may 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 to prevent advantage being taken of the known ignorance of the conceding party.

Ultimately, like all commercial contracts, it is essential to understand the contract’s context in order to understand the reach of the rights and obligations that arise under it. Context includes the language used by the parties, the circumstances addressed by the contract, and the objects which it is intended to secure.