Court of Appeal Confirms section 149 Settlement Agreements Cannot be Set Aside for Medical Incapacity Unless other Contracting Party Has Knowledge


The Court of Appeal has upheld the Employment Court’s decision in TUV v Chief of New Zealand Defence Force to not set aside a s 149 record of settlement on the basis of medical capacity. The Employment Court held that although a section 149 settlement agreement could be challenged and set aside on the grounds the employee lacked capacity to enter into it, and in that case the employee was in fact suffering from incapacity when she entered into the agreement, the agreement could not be set aside as the employer did not know, or ought to have known (no reason to suspect), of the incapacity.

The case highlights the importance of ensuring you obtain legal advice before entering into s 149 agreements as they are very difficult to set aside later. Similarly if you are a lawyer it is important that a cautious approach is taken, particularly if there is any conduct, event or prior medical history that may give rise to a concern of a client’s capacity.