Summary
- A deed of settlement is a legally binding document that records the terms agreed between parties to resolve a dispute.
- It typically includes obligations such as payment, actions to be taken, and a release preventing future claims on the same issue.
- Once signed and executed, it is generally final and enforceable, giving both parties certainty and closure.
- This guide explains deeds of settlement for business owners in Australia, outlining how they resolve disputes and their legal effect, prepared by LegalVision, a commercial law firm that specialises in advising clients on disputes and contracts.
- It provides a practical explanation of key terms, enforceability and risks when entering into a settlement deed.
Tips for Businesses
Use a deed of settlement to formally resolve disputes and prevent future claims. Ensure terms are clear, complete and accurately reflect the agreement. Include payment details, deadlines and release clauses. Once signed, it is usually final, so review carefully and obtain legal advice before committing.
A deed of settlement is a legally binding document that records how parties agree to resolve a dispute and finalise their obligations. For your business, it provides certainty, avoids costly litigation and prevents future claims, but getting the terms wrong can expose you to ongoing liability or enforcement action. Once signed, the deed can be enforced in court if either party fails to comply, making careful drafting critical. This article explains what a deed of settlement is, when you should use one and the key terms you need to include.
Why Do I Need a Deed of Settlement?
A well-drafted deed of settlement will make sure that you and the other party carry out the agreement. This may include:
- delivering a product;
- discontinuing a court proceeding; or
- making a payment.
If one party doesn’t carry out their obligations under the deed, the other party can rely on the deed to enforce these obligations, such as taking the other party to court to demand payment. A deed of settlement will also ensure the dispute doesn’t emerge again at a later date. Normally, the deed will include a release, where parties agree to release the other from all future claims, demands and actions.
Essential Terms of a Deed of Settlement
Even a simple deed of settlement should include some essential terms to ensure it is valid and enforceable.
| Essential Term | Explanation |
| Date | The deed should include the date the deed was entered and should be added after all parties have executed the deed. |
| Parties | Make sure the correct parties are included in the deed. This seems obvious, but getting the parties wrong is a common mistake and can make the whole deed invalid. Is it a company or an individual? Is there a partnership? Should you include guarantors of an agreement or other directors of a company? |
| Definitions | These are the important words or phrases used throughout the deed to ensure consistency and understanding. |
| Recitals | These set out a simple background and an outline of the dispute. |
| Key Obligations | Also called the terms of settlement, these include who will pay or do what, and what will happen after the payment is made or the actions completed. They should include details like a payment deadline. |
| Release | Parties agree to release each other from all future claims, demands and actions. |
| Default | A clause that sets out what will happen if one party doesn’t do what they’re required to under the deed. |
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What If the Matter is Already in Court?
If you reach the settlement agreement when legal proceedings are underway, the deed of settlement should include terms to finalise those proceedings. The terms should also ensure that the other party cannot take any future legal action against you. Usually, a form of notice of discontinuance or consent orders agreed to by the parties will be attached to the deed. Parties sign this document in addition to executing the deed. This will bring an end to the court proceedings. The deed of settlement can also include a term that the court proceedings will resume if one party fails to follow through with an obligation. For example, if a party fails to make a payment, this term may allow the innocent party to go to court and get an automatic or default judgment against the other party.
How Do I Sign a Deed of Settlement?
It is essential that a deed is correctly signed, or executed, by the parties to ensure the deed is valid. To ensure it is valid:
- an individual’s signature should be witnessed by a person who is not part of the deed;
- a company should execute the deed in accordance with the Corporations Act 2001, involving the company director or directors and potentially the company secretary;
- you should make sure there are enough copies for each of the parties involved to sign;
- one party usually signs all copies of the deed, then passes that signed copy to the other party to sign. The deed may allow the deed to be signed by ‘counterpart’. This means parties can sign separate but identical copies of the same deed, which together form a single, binding document. More recently, it is common for scanned copies of the deed to be forwarded to parties by email, and counterparts exchanged electronically with original signed copies sent later by post; and
- always keep printed copies of the deed in a safe place.
Key Takeaways
Don’t rely on a handshake to seal the deal when you reach an agreement to settle a commercial dispute. All terms of that agreement should be formalised in a legal document so that they are enforceable if parties don’t follow through and things go wrong down the track.
If you have any questions about deeds of settlement or need assistance drafting or reviewing one, LegalVision provides ongoing legal support for businesses through our fixed-fee legal membership. Our experienced business lawyers help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 1300 544 755 or visit our membership page.
Frequently Asked Questions
It is highly recommended that you have a deed of settlement as it formalises the terms of your agreement and will make sure that you and the other party carry out the agreement.
Some of the essential terms that you should include are: the date, parties, definitions of key terms, recitals, key obligations, release and what happens in case of default.
A deed of settlement should include settlement terms, payment obligations, a release of claims, and what happens if a party defaults. Clear drafting reduces the risk of future disputes.
Yes, it typically includes a release clause where parties agree not to pursue further claims arising from the dispute. This provides finality and certainty for both parties.
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