Discharge forms in direct settlement cases

In employees’ compensation or personal injuries claims, it is not uncommon for the employer or its insurers to directly settle a claim with the injured person before any legal proceedings are commenced. The recent case of Chan Kwok Man v New World First Bus Services Limited DCEC No.186 of 2013 highlights the importance of ensuring that the wording used in discharge forms is clear, unambiguous and consistent and that the discharge form is properly executed.

Background

In the Chan Kwok Man case, the claim arose out of personal injuries suffered by the Applicant in a road traffic accident which occurred in the course of his employment with the Respondent. The Applicant had been driving a public bus for the Respondent when it collided with a taxi (“the Accident”).

On 5 July 2012, the Applicant signed the Respondent’s standard Chinese Discharge Form, under which he was paid HK$29,471.20 by the Respondent and/or its insurers in full and final settlement of all his claims arising out of the Accident.  In the Discharge Form, the Applicant agreed to abandon all his rights to bring any further legal proceedings against the Respondent and/or its insurers arising out of the Accident.

The Applicant subsequently commenced an employees’ compensation action against the Respondent. The Respondent sought to strike out the action on the basis that it had already fully settled all causes of action that the Applicant may have against it and/or its insurers by virtue of the Discharge Form.

The Respondent argued that even though the main body of the Discharge Form stated that the settlement was for ”full and final settlement of all losses and personal injuries suffered” by the Applicant arising from the Accident, this could only mean to include the Applicant’s employees’ compensation claim against the Respondent and/or it’s insurers because it was clearly stated under the document heading that the payment was for employees’ compensation only.

The Applicant argued that on a true construction of the wording of the Discharge Form, he was not debarred from bringing the employees’ compensation action. He also argued that the Discharge Form should be set aside because he was mistaken about its nature and legal consequences. He argued that he had been rushed through the signing of it by the Respondent who had not explained the legal consequences of it or reminded him of his right to seek independent legal advice. The Applicant said that he had been under the mistaken belief that he was merely acknowledging receipt of a cheque and not signing legally binding documents.

The Court’s Ruling

The Court refused to strike out the Applicant’s employees’ compensation action, holding as follows:-

1. Whether a settlement agreement is valid depends ultimately on the particular terms and wording used and the circumstances surrounding its signing. Therefore each case depends on the evidence produced and wording of the settlement agreement itself.
2. The wording of the Discharge Form was inconsistent because under the heading it said “Employees’ Compensation”, but the body of the form referred to the HK$29,471.20 being compensation in full and final settlement of all losses and personal injuries in relation to the Accident.
3. The wording contained in the main body of the Discharge Form clearly intended to cover all claims arising out of the Accident and not the employees’ compensation claim only.  If it had been the Respondent’s intention that the Discharge Form cover settlement of the employees’ compensation claim only, there was no explanation as to why it had been drafted as it had.
4. The Discharge Form stated that by signing it, the Applicant was prepared to abandon all claims against the Respondent or its insurers or related persons arising out of the Accident.  This clearly could not be the case as the title of the document stated that it was for employees’ compensation only.  To give up all claims,  would have included any common law claim, which was not what the Applicant had been told by the officer of the Respondent’s claims department when he signed the Discharge Form.
5. It was clear that it was not the Applicant’s intention to enter into a full and final settlement of all losses and personal injury resulting from the Accident when signing the Discharge Form.  He was told to sign in order to obtain the employees’ compensation only.  In view of the relatively small amount of the settlement sum, it was unlikely that this would include the common law claim for damages also.
6. The Respondent had not called any evidence to contradict the Applicant’s assertion that he had been rushed through the signing process without being given the chance to read the Discharge Form carefully and had not been given any explanation about the legal consequences of him signing it. Accordingly, the Court could only accept the Applicant’s evidence on this.

Lessons to be learnt

To avoid a discharge form being ruled invalid, it is important to adhere to the following.

1. The wording of the discharge form must be clear, unambiguous and consistent and must clearly reflect the parties’ intentions and the agreement reached between them. In particular, it should clearly state whether it is meant to settle the employees’ compensation claim only, or both the employees’ compensation and related common law claim.
2. The nature and legal consequences of the discharge form should be sufficiently explained to the injured person, who should also be reminded of his right to obtain independent legal advice from his own solicitors before signing the discharge form.
3. The injured person should be allowed sufficient time to review the discharge form before signing it.
4. Officers of the employer or insurance company who witness the signing of the discharge form should make a full and detailed record of the signing and circumstances surrounding it (on the same day as the signing) in case the injured person seeks to challenge the validity of the Discharge Form in future.

What should employers and insurers do?

It is advisable for employers and insurers to do the following:-

1. Review the wording of their standard discharge forms (including any headings used) to ensure that the wording it clear, unambiguous and consistent.
2. Consider using differently worded discharge forms for different situations, rather than having a “one fits all” standard form in which words are just added depending on the circumstances, as was done in the Chan Kwok Man case.
3. Ensure that discharge forms are written in the injured person’s native language to avoid any disputes later about whether the injured person understood what he was signing.
4. Have in place a process for officers to follow when they explain the contents of discharge forms to the injured person, witness its signing and make a record of the signing and circumstances surrounding it.