• Perry Thomas Lawyers

Terms of Settlement signed - is the matter really over?

When settling a construction dispute, the scope of the release is generally one of the key components of any agreement reached. Where the scope of the release relates to domestic building work, the same is limited by the operation of s. 10 of the Domestic Building Contracts Act 1995 (Vic) (DBC Act).

In this article, we will discuss the operation of s. 10 of the DBC Act which was applied by VCAT in the recent case of Dai v Butterworth (Building and Property) [2020] VCAT 1148 .


Background: Terms of Settlement


In this case, the Owner commenced a proceeding against the Landscaper in VCAT seeking damages for alleged defective work carried out by the Landscaper.

At mediation, the Owner and the Landscaper agreed to settle the matter and signed terms of settlement.


Amongst other clauses, the terms of settlement relevantly included the following:

In consideration of the parties entering into these terms of settlement and subject to their performance, the parties mutually release and discharge each other from all further claims, demands, suits and costs of whatsoever nature, however arising out of or connected with the subject matter of the dispute and the proceedings. Where the owner is a party, this release does not apply to a breach other than a breach that was known, or ought to reasonably have been known, to exist at the time these terms of settlement were executed.’ (emphasis added).


The effect of the signed terms of settlement is to bar the Owner from bringing another claim for any issues that are connected with the subject matter of her dispute with the Landscaper and the proceeding itself. This release, however, is subject to the limitation set out in the signed terms of settlement (underlined above) and s. 10 of the DBC Act.


Section 10 of the DBC Act reads as follows:

A provision of an agreement or instrument that purports to restrict or remove the right of a person to take proceedings for a breach of any of the warranties listed in section 8 is void to the extent that it applies to a breach other than a breach that was known, or ought reasonably to have been known, to the person to exist at the time the agreement or instrument was executed.’ (emphasis added).


In other words, despite the release being signed, the terms of settlement and s. 10 of the DBC Act give the Owner a right to bring a new claim against the Landscaper for a breach of the warranties listed in s. 8 of the DBC Act, unless that breach was known, or ought reasonably to have been known, to the Owner at the time the terms of settlement were executed.

For the purposes of brevity - we will not discuss the warranties listed in s. 8 of the DBC Act.


Application to Reinstate the Proceeding


Subsequent to signing the terms of settlement, the Owner raised what she considered to be new allegations of defects (i.e. breaches of s. 8 of the DBC Act) in the work carried out by the Landscaper.


In order to pursue these allegations, the Owner brought an application before VCAT to seek reinstatement of the original VCAT proceeding.

The Owner argued that the terms of settlement permitted her to seek reinstatement of the proceeding in circumstances where the ‘new’ items of defective work were not known, or ought to reasonably not have been known, to exist at the time the terms of settlement were executed. Put simply, the Owner was relying on the limitation of the release as set out in the terms of settlement and s. 10 of the DBC Act.


The Tribunal was therefore tasked with determining whether each of the new allegations of defective work were either:

  • known; or

  • ought to have reasonably been known;

at the time the terms of settlement were executed.


Known or ought reasonably to have known


In making its decision, the Tribunal noted that the terms of settlement and s. 10 of the DBC Act impose a subjective test and an objective test to determine whether the defects were known or ought to have reasonably been known to the Owner at the time the terms of settlement were executed.

The subjective test relates to what was actually known to the Owner at the time the terms of settlement were executed.

The objective test relates to what issues the Owner ought reasonably have known at the time of entering into the terms of settlement. In relation to this objective test, the Tribunal said:

What a party ought reasonably to have known must be considered in the context of what information is available or could be available at the time a dispute is settled.

The purposes of these two tests is to minimise the ability of parties relying on ‘wilful blindness as an excuse to reinstate the proceeding and go behind a release’.

The success of the Owner’s application would turn on whether the Owner subjectively actually knew of the alleged defects at the time the terms of settlement were executed or whether the Owner objectively ought reasonably to have known at that same time.

If each of the new allegations fell into either category, the Owner’s application would fail. Conversely, to the extent that any or some of the new allegations did not fall into either category, the Owner’s application would likely be successful.


The Decision

After applying both the subjective test and the objective test to each of the new allegations, the Tribunal found that all of the same were either known, or ought to reasonably have been known, to the Owner at the time the terms of settlement were executed. The Owner’s application to reinstate the proceeding was accordingly dismissed.


If you wish to discuss a release clause or the operation of s. 10 of the DBCA, please do not hesitate to contact Perry Thomas Lawyers on 03 8375 9638.


A copy of the case can be accessed via the following link:

http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/vic/VCAT/2020/1148.html?context=1;query=%22%20dbca1995275%22;mask_path=

Find Us

Located at:

Emirates House

Level 3, 257 Collins Street 
Melbourne VIC 3000

Contact Us

Tel:    (03) 8375 9638

Fax:   (03) 8375 9699

Office Hours

Monday to Friday 

8.30am - 5.30pm

  • LinkedIn Social Icon
  • Facebook
  • Yelp Social Icon

© 2019 by Perry Thomas Lawyers