If you are involved in a commercial dispute, it is important to explore every option to resolve it before going to court. Negotiating a settlement agreement will save you time, stress and avoid the often excessive legal costs involved in going to court. Whether you negotiate with the other party yourself, use a lawyer or arrange settlement during mediation, reaching a commercial settlement is the quickest and most effective way to resolve a dispute. It is important to keep an open mind and be prepared to compromise to obtain a result that will allow you to put the dispute aside and get back to running your business. This article will outline the key steps involved in settlement negotiations.

What is a Commercial Settlement?

A commercial settlement is an agreement that parties reach which puts an end to a commercial dispute. It may involve one party paying the other an agreed sum of money, or doing certain things to resolve the dispute. You can reach a settlement after negotiations that may take place:

  • in person; 
  • over the phone; or 
  • through written correspondence.

Once reaching an agreement, you should formalise the terms of that agreement in a deed of settlement. This deed is binding on both parties. This deed usually includes an agreement that the parties will take no further legal action in relation to the matter.

While it is best to start settlement negotiations before court proceedings, they can take place at any time, including:

  • after filing court documents; or
  • any time before the start of a trial.

What Are the Benefits of a Settlement?

The main benefit of negotiating a commercial settlement is that it resolves the dispute without having to go to court. Court proceedings are expensive and time-consuming, taking up to a year or more to reach a final trial. 

If you are not successful at the hearing, the court may order you to pay the other side’s legal costs. A settlement will bring a quick and final end to the legal dispute and allow you to get back to your business. While you may have to compromise on a result, such as accepting less money than you believe you are owed, you will save thousands of dollars on legal costs and the stress and uncertainty of legal proceedings.

What Does ‘Without Prejudice’ Mean?

Lawyers and parties involved in negotiating a dispute will often add ‘Without Prejudice’ to the top of a letter or email. Similarly, a mediator running a mediation, or lawyers having discussions with the other party, may advise that all discussions relating to the dispute are on a ‘without prejudice’ basis. But what does that really mean?

Communications or discussions marked ‘without prejudice’ are for the purposes of settlement only. Neither party can use them in later legal proceedings if the matter ends up in court. This allows parties to speak freely and explore a wide range of settlement options, without fear that a settlement offer will be used against them in court.

For example, you might make a settlement offer to accept half the amount of a debt you claim is owed. If the offer is marked ‘without prejudice’, the other side can not later use this as evidence in court that you were prepared to accept the lesser amount.

Tips to Settle Your Dispute

Know Your Legal Position

You should have a clear idea on your legal position in the dispute before starting settlement negotiations. Seek legal advice if you need further understanding of your legal rights. This will affect your ability to negotiate effectively and know when to use any leverage you have over the other side, such as where the other party clearly owes you money.

Remove Emotion

A commercial settlement is not about winning or losing. Rather, it is about compromising and reaching an agreement. This is easier to do when you remove the emotion and personal feelings you may have towards the other party. Focus on the best commercial outcome for your business.

Use an Expert

It can help to use a third party in settlement negotiations. A lawyer can advise on your legal position and use negotiating strategies that help obtain a resolution faster. Using a lawyer to communicate with the other side can help separate you from the emotion or any personal issues with the other party.

An independent mediator can also help parties focus on the real issues in dispute. Mediators will have the skills and experience to explore a range of solutions you may not have considered.

Be Aware of the Bottom Line

Keep an eye on the commercial value of settling a dispute quickly and saving the high costs of lengthy court proceedings. What you may lose in a less-than-perfect settlement should be balanced against the:

  • stress;
  • uncertainty; and
  • high costs of litigation.

What is a Deed of Settlement?

If you reach an agreement that both parties are happy with, it is important to formally document the terms of that agreement. This is called a deed of settlement or deed of settlement and release.

The deed will set out the obligations each party has to perform in the agreement, such as: 

  • payment of money; or
  • return of goods.

The deed is also binding on the parties, which means that if they ‘default’ or fail to perform their obligations, the other party can take legal action against them. A deed will also usually include ‘releases’ that mean each party agrees they will not take any legal action against the other party in relation to the dispute. A deed of settlement, therefore, provides you with the security that you have resolved the matter. It also provides further security that you can rely on the deed if the other party does not meet its obligations.

Key Terms in a Deed of Settlement

A deed of settlement should include the following essential terms:

  • date – you must clearly date the deed when all parties have signed it;
  • parties – the correct legal entities should be included, whether individuals, companies or other associations. You can also add extra parties if appropriate, such as individual guarantors;
  • key obligations – the deed should clearly spell out what each party has to do to comply with the deed, such as paying a sum of money by a certain date;
  • default terms – this will set out what happens if one party defaults on their obligations. For example, the deed can include that if a party fails to pay a required sum of money to the other party, then the original debt claimed is payable and the deed can be relied on in further legal proceedings; and
  • mutual releases – here, both parties release each other from any other legal claims relating to the dispute.

Key Takeaways

If you are involved in a commercial dispute, undertaking settlement negotiations may be the most efficient way to resolve the dispute. When undertaking these negotiations, make sure to have a clear understanding of your legal position, and use third-party experts when necessary. Further, once you come to an agreement with the other party, make sure to sign a properly drafted deed of settlement. If you have any questions about dealing with your commercial dispute, contact LegalVision’s dispute resolution lawyers on 1300 544 755 or fill out the form on this page. 

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