When is a Deed of Release binding?
Generally, if a release is in the form of a deed, it will be binding on the parties, provided it is articulated in clear terms. An intention to release is a less formal form of a release, which, if drafted correctly, will also bind the parties. Usually, however, some valuable consideration from the party being released will be required.
While a Deed of Release in theory finalises the matter, sometimes the parties will negotiate a pause in conflicts, as opposed to a resolution or release of the matter.
For a Deed of Release to become effective, a company might require the officeholders to deliver business documents, records, money or property at a later meeting, as well as another registrable form of release. If only several parties sign a Deed of Release and other do not, the signatories may still be released but you should check this with your contract lawyer. Typically, this will depend on the terms of the Deed of Release.
What happens after a Deed of Release is effective?
The parties will usually discontinue any litigation or dispute resolution once the Deed of Release becomes effective. If you are concerned about the legal costs paid up to this point, or the preliminary orders that the Court has imposed on the parties already, speak with your contract lawyer. It may be that the parties will need to either insert terms into the Deed of Release that resolve these matters, or begin negotiations. The party being released will normally request an indemnity from the releasing party in the event that another future claim arises. The releasing party may also wish to reserve certain rights against the party being released, as well as any third parties.
It is common practice for the parties to a Deed of Release to keep the matters of the release private and confidential for a period of time. This might not be possible, if, say for example, one party is a publicly listed company obligated to disclose details of the release to the relevant regulatory body or market. If a party is a government body, it will normally have to report to the Parliament or relevant Ministerial officer.
Denial of Liability
This is an important clause that should always be carefully considered (and worded) by your contract lawyer. It basically stops a third party from using the Deed of Release against the alleged wrongdoer by treating it as an admission of guilt that would otherwise make them liable for a separate claim. This is a very important clause.
This is also a useful clause to insert in any Deed of Release, as it allows both parties to make use of the release if either party entered into proceedings relating to the matter. Either party could rely on the terms of the Deed of Release to prove or disprove an allegation.
A number of taxation questions may need to be answered in your Deed of Release. These might include:
- How are residents outside Australia to be paid? Will the party paying the injured party be liable to deduct any withholding tax?
- How are parties without an ABN to be paid? Will the paying party have tax obligations to the ATO?
- What impact will “commercial debt forgiveness” rules have, if any, on the terms of the Deed of Release?
- What are the CGT implications? Is a release considered a disposal of a capital asset?
- What are the GST implications? Typically the party releasing (receiving payment) will pay GST on this.
- What are the stamp duty implications? This depends on the circumstances of the release and should be discussed with your tax accountant and contract lawyer.
There are many important legal and tax considerations when entering into a Deed of Release or drafting a Deed of Release for your client. At LegalVision we pride ourselves on our extensive experience across a variety of commercial sectors in reviewing, drafting and advising of Deeds of Release, and how they operate in a commercial setting. For more information, and to discuss your matter with a contract lawyer, contact LegalVision on 1300 544 755. If you missed part one, you can find it here!