On 9 April 2025, the High Court ruled on the proper interpretation of section 27QE of the Limitation of Actions Act 1958 (Vic), which allows courts to set aside settlement agreements for child abuse claims if it is "just and reasonable". While rejecting the Court of Appeal's restrictive interpretation of the provision, the High Court dismissed the appeal, finding insufficient evidence that the appellant's decision to renounce economic loss claims was influenced by historical legal barriers.
The decision involved a 4-1 majority (Gageler CJ, Gordon, Edelman and Gleeson JJ, with Steward J partly dissenting). The High Court has clarified that while legal barriers like the Ellis defence and limitation periods are relevant factors in considering whether to set aside settlement agreements in claims involving historical child abuse, they are not prerequisites for exercising the power under s 27QE.
Key takeaways from the decision
The High Court's decision has significant implications for historical abuse settlements and the insurance sector:
- Courts have broad discretion when determining if it is "just and reasonable" to set aside settlement agreements, with no single factor being determinative.
- While legal barriers like the Ellis defence and limitation periods are relevant, they need not be the material factors behind a settlement agreement for it to be set aside.
- Claimants must provide direct evidence of what specifically influenced their settlement decisions - speculation or possibilities are insufficient.
- While creating some uncertainty for insurers, the ruling's strict evidentiary requirements provide meaningful protection against unsubstantiated claims.
The claim - in a nutshell
Between 1964 and 1968, the appellant (DZY) was allegedly sexually abused while a student at a school operated by the Congregation of Christian Brothers. In December 2012, DZY entered into a settlement deed with the Trustees of the Christian Brothers (Trustees), followed by a further deed in 2015. Both deeds recorded that DZY did not allege that he suffered any economic loss.
At the time of these settlements, abuse claims faced two significant legal obstacles: time limitation defences and the Ellis defence (the difficulty in suing unincorporated religious associations). Legislative reforms in Victoria subsequently removed both barriers - limitation periods for abuse claims were abolished from July 2015, and the Ellis defence from July 2018.
In 2021, DZY commenced proceedings seeking to have both settlement deeds set aside under s 27QE to pursue both general damages and economic loss claims. The Trustees conceded the deeds could be set aside regarding general damages but contested the economic loss component. The primary judge set aside both deeds entirely, but the Court of Appeal allowed the Trustees' appeal, holding that the deeds should be set aside only in relation to non-economic loss.
The High Court appeal
The High Court considered two questions:
- the proper construction of s 27QE, specifically whether it requires the limitation or Ellis defence to have materially influenced DZY's decision to settle for it to be "just and reasonable"; and
- whether the Court of Appeal misapplied the correctness standard in overturning the primary judge's decision.
Proper construction of s 27QE
The majority rejected the Court of Appeal's approach that the actual influence of limitation periods or the Ellis defence was central to determining whether setting aside a deed was "just and reasonable." The majority held that:
"there is nothing in the text of s 27QE which limits the exercise of the court's power to circumstances where the claimant's decision to enter the settlement agreement had been materially impacted by either the limitation defence or the Ellis defence".
The majority emphasised that the terms "just and reasonable" are broad and there is no reason to limit their meaning based on the purpose or context of section 27QE1.
Drawing on extrinsic materials, including the Explanatory Memorandum and Second Reading Speech, the majority noted that section 27QE allows a court to set aside settlements in response to various injustices and that it is not necessary for the limitation period to be the predominant reason for entering into the agreement.
Justice Steward, while agreeing with the outcome, disagreed with the characterisation of the Court of Appeal's reasoning. Justice Steward considered that Beach and Macaulay JJA were not establishing prerequisites but rather provided proper guidance on what a trial judge should expect to look for when exercising such an exceptionally unconfined power.
Application to DZY's case
Despite finding an error in the Court of Appeal's interpretation of section 27QE, the majority dismissed the appeal, concluding that the evidence would not have allowed the Court to be satisfied that it was "just and reasonable" to set aside either deed as it released the Trustees from an economic loss claim.
The majority noted there was no direct evidence from DZY that, at the time he signed each of the deeds, he decided to renounce his economic loss claim due to the limitation defence or the Ellis defence. Instead, the evidence suggested his decision was motivated by concerns about Centrelink benefit clawbacks.
The Court distinguished between the primary judge's finding that "it is not possible to find that the limitations and the Ellis defence issues had no material influence" and a positive finding that these factors were material to DZY's decision. This distinction highlights the importance of providing direct evidence of what influenced settlement decisions rather than relying on speculation.
How will this case impact the claim landscape moving forward?
The High Court has made it clear that when considering whether to set aside a prior deed of settlement in relation to historical child abuse matters, each case will turn on its own circumstances. What is “just and reasonable” is intended to be broad and Courts have the discretion to take into account any relevant factors in making this determination. Whilst claimants may not be able to meet the high standard of evidentiary proof required to have a Court set aside a prior deed, organisations may still see an increase in claimants attempting to have their settled claims reconsidered.
It will therefore be important for:
- insurers to be aware that prior settlements may be set aside even where a limitation defence or the Ellis defence was not expressly raised. Insurers may want to consider this possibility when setting reserves and closing their files; and
- insureds to notify their insurers of any possible matters that may be susceptible to being set aside as the scope remains broad (for example, if insureds are aware of a matter where legal obstacles to the claim were specifically raised at the time of settlement).
Please reach out at any time to discuss how this decision could impact your organisation.
