|Please note: This article is intended to be brief information only and should not be relied or acted upon as legal advice. You should always seek legal advice tailored to your own individual circumstances. Please also note that this article is current as at the date of publication and the law may have subsequently changed since.|
A settlement deed (also known as a Deed of Settlement and Release or Deed of Release) is an essential and invaluable tool to be used when resolving a dispute.
The purpose of a settlement deed is to encapsulate and document the terms of settlement, in order to fully and finally resolve the dispute and to clearly set out the rights and obligations of each party to the dispute. As such, it is important to get it right.
Often informal settlement terms drawn up without a lawyer can be ambiguous and may not reflect the intent of a particular party to the dispute. Ambiguity, errors or oversight may defeat a party’s rights or otherwise impede the enforcement of rights under the terms of settlement.
What is a deed?
A deed is a type of formal legal document which is required to be executed in accordance with particular statutory requirements.
Whilst some settlement agreements (including oral agreements supported by consideration) may be enforceable even if they are not in the form of a deed, it is generally prudent to use a deed where possible.
It is not necessary for there to be any legal proceedings on foot for parties to enter into a settlement deed.
What is usually included in such a deed?
A settlement deed can be tailored to address a variety of issues and careful thought and consideration is required about what should be included in the deed. Each case will generally have its own issues and considerations, such that parties should avoid relying on precedent or template deeds which have not been crafted to address the pertinent issues in a particular case.
Whilst the exact terms of any particular deed will vary based on the particular circumstances, settlement deeds will usually address or otherwise set out terms dealing with:
- The parties and background to the dispute (usually by way of “recitals”)
- Payment terms in respect of any settlement sum
- Consequences of a default by a party in respect of failing to adhere to the terms of the deed
- Release and discharge of defined claims
- The conclusion of any existing legal proceedings
- Appropriate indemnities and warranties
- Ancillary obligations which the parties may agree (which often includes mutual non-disparagement obligations)
- Liability for costs and expenses (including taxes such as GST)
- Whether there is any admission as to liability by any party (noting that where most disputes are settled, they are settled on the basis that no party makes any admission of liability)
- Governing law and jurisdiction for any disputes arising in connection with the deed
As to common issues with settlement documentation, we often see issues with:
- Recitals which do not accurately represent the background facts (noting that the recitals to a deed can give rise to an estoppel between the parties, such that a party many be bound by the agreed recitals and not be able to contend the correct facts in any future proceedings or dispute between the parties)
- Releases which do not reflect the intention of one of the parties (i.e. they are either too broad or too narrow)
- Indemnities and default clauses which provide for a significant imbalance of rights
- Releases being given by entities which are not themselves included as parties which execute the deed (i.e. they may not be enforceable)
- Failing to contemplate what should happen in the event of a default by a party in respect of their obligations under the deed
- Failing to consider the incidence of taxation and who is responsible for the same
- Failing to ensure the deed is properly executed (noting there are particularly statutory requirements to be met for a document to be valid as a deed, which is particularly important where there are multiple parties and a particular entity may not be receiving any consideration for a release).
When should I consult with a lawyer?
You should always seek legal advice when looking to resolve a legal dispute or reach a settlement agreement. It is important that the agreed terms of settlement are carefully drafted and clearly articulated with precision. The botched resolution of a dispute through a defective or informal settlement agreement can cause expensive headaches and cause fresh disputes to arise.
It is important to note that, in some circumstances, informal settlement discussions or communications (including a verbal agreement or understanding) may be found to give rise to a binding agreement between the parties even though a formal settlement deed or agreement has not been drafted or signed.
As such, you should consult a lawyer at an early stage before any negotiations are concluded.
In the event that a settlement deed has been drafted or proposed by another party’s lawyer, you should always get your own legal advice about the proposed settlement deed and its terms. Often the other party will propose terms which are very one-sided in their favour and it may not be in your interests to agree to such terms.
If you require advice or assistance, please do not hesitate to contact us.