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Reaching an agreement to settle legal proceedings outside of court is no small feat. Once you have finalised a lengthy negotiation, it can be tempting to sit back and take a breather. However, if you have reached an agreement in principle, you are only halfway there. The next step is to document the terms of the settlement in a deed of settlement and release. This article sets out the key features and terms contained in this type of deed.

Deed vs. Contract

A deed, like a contract, is a document containing enforceable promises. However, unlike a contract, a deed does not require consideration (the price paid in return for the promise).

In a basic court settlement, both parties usually offer some form of consideration. For example, Party A promises to carry out some action (e.g. pay money), and Party B promises to withdraw the proceedings.

So why record a settlement in a deed, rather than contract? Deeds avoid future complications that may arise if the existence of consideration is unclear.

Basic Structure of a Settlement Deed

A deed of settlement and release generally follows the format below.

Deed Section Explanation
Party Details Identifies who the parties are and their contact details
Recitals Provides a brief background of the dispute and sets out a chronological summary. This section will generally state that the deed is entered into on a “no admissions of liability” basis.
Operative Part Includes the definitions and key terms of agreement and forms the body of the deed
Execution Page Specifies that the deed is executed under the Corporations Act (if a company), or is “signed, sealed and delivered” (if an individual).

 

Definitions and Interpretation

The way that key terms are described can have substantial consequences if the deed is ever disputed. Therefore, parties should clearly define commonly-used terms in the deed or terms which the parties intend to have a specific meaning.

Similarly, a deed should contain certain rules or explanations so that the meaning of its clauses is abundantly clear. For example, when parties refer to sums of money, identify the currency of payment. Clear definitions and mechanisms for interpretation allow both parties to better understand what they are agreeing to and reduces the likelihood of future disputes.

 

Tip: Always keep a copy of the deed signed by the other party. This will be your point of reference if a dispute arises later regarding a breach of the deed. In New South Wales, a party can commence proceedings for a cause of action founded on a deed within 12 years of the breach occurring.

 

Key Terms

A deed of settlement is usually tailored to suit each settlement. However, there are a number of common key terms.

 

Term Description
Settlement Terms

These can be payment terms or other specific obligations.

The terms should address:

  • the time the obligation must be fulfilled by; and
  • other information necessary for the parties to know how to fulfill their obligations.
Disposal of Court Proceedings If the deed resolves court action, it should state that proceedings must be dismissed or discontinued within a specific time frame.
Warranties and Representations

Warranties are assurances provided by Party A, which Party B relies upon when entering the deed.

They are additional protections. A common warranty is that each party has obtained independent legal advice.

Release Party A releases Party B from claims arising out of the matters in dispute. This generally stops Party A from bringing further proceedings (a “bar to proceedings”).
Confidentiality The parties generally cannot disclose terms of the deed, unless:

  • the law requires it; or
  • they are obtaining legal or financial advice.
Default

This clause explains the consequences if a party does not comply with specified obligations (e.g. the other party can reinstate court proceedings).

It should clearly describe what kind of default activates this clause (e.g. failure to pay a settlement sum).

Boilerplate Clauses

These are standard clauses which define the parties’ relationship and assist the deed’s operation.

They include:

  • what jurisdiction and governing law applies;
  • who pays general costs and expenses incurred in respect of the deed;
  • confirmation that the deed represents the entire agreement between the parties; and
  • how the parties may vary the agreement or waive rights.

 

Tip: Getting legal and financial advice before executing a deed ensures:

  • it accurately represents the agreement;
  • it addresses other matters you may not have considered; and
  • you fully understand the deed.

 

Key Takeaways

Parties to a dispute use a deed of settlement and release to finalise their settlement agreement. This deed is legally binding once executed and can have serious consequences. Therefore, it is best to get a lawyer to draft, review, or negotiate the deed on your behalf.

If you need assistance drafting and negotiating a deed of settlement, or have any further questions, LegalVision’s litigation lawyers can help. Call us on 1300 544 755 or fill out the form on this page.

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