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If you are involved in a commercial dispute and you reach an agreement with the other side to resolve it, what’s the next step? A deed of settlement, also called a deed of settlement and release, is a document that formalises the terms of that agreement. It sets out what each party has to do to settle the matters between them. This article explains the essential terms of a deed of settlement and when you need to use one. 

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:

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.

What If the Matter is Already in Court?

If you reach the settlement agreement when court 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;
  • 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, you can contact LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.


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