When Angas executed a deed of release with its insurer, by which it was to receive $597,627 in respect of a claim for insurance cover regarding a default by a mortgagee, it probably never really turned its mind to how Cl 4(e) would operate to bite it later on.
Angas was a lender who advanced money secured by a mortgage. When the mortgagee defaulted Angus claimed cover and received money from its insurer under a Deed of Release. That Deed of Release contained the following clause: -
“[The lender] agree[s] that repayment of the indemnity sum to [the underwriter] takes priority from any funds received from any claim against a Third Party for recovery of damages arising out of the default by the borrower (save for payment of recovery costs).”
Later on, when Angas sued the property valuer alleging a negligent valuation it recovered $649,198.07 which it hoped to keep. Unfortunately, for Angas Cl 4 (e) of the Deed of Release came back to bite it. The insurer argued that it had the benefit of priority, and as such the money should be paid to it.
The Principles of Constructing A Deed
The Court of Appeal held that the rights of parties are determined objectively by reference to the text of the contract and its commercial purpose in accordance with Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd  HCA 37. The upshot was that the insurer was entitled to be repaid the money from the money that was recovered from the valuer.
The Take Away
When it comes to signing a Deed of Release care needs to be taken in understanding the terms so that it is clear to you what you are receiving and what you are giving away. This is an exercise best done on the basis of legal advice. For more information on negotiating a Deed of Release, in the context of litigation, contact us on + 61 9199 4530 to discuss your options. Let us help you focus on the fix and not just getting a Deed of Release signed.
We are sydney litigation lawyers. We help with: making or responding to a letter of demand (or a without prejudice offer), documenting a Deed of Settlement, getting or opposing an injunction or taking a matter to trial. We handle different cases such as breach of contract, remove a caveat, property disputes and others. Call us on T: +61 2 9199 4530 to discuss your options.