Settlement negotiations are where parties discuss an agreement to resolve a dispute outside of court. If successful, settlement negotiations can result in the parties entering into a legally binding contract with the terms of their settlement. The parties agree not to continue with the court proceedings and, instead, the settlement agreement binds them. Settlement negotiations can take place face to face, over the phone or via correspondence. In this article, we set out key considerations when engaging in settlement negotiations.

When to Use Settlement Negotiations

Settlement negotiations can occur at any point in a dispute. There is no hard and fast rule as to how to start them or when. Parties can settle disputes:

  • before filing court proceedings;
  • before the hearing; or
  • in rare circumstances, after judgment, if a party has filed an appeal.

Settlement negotiations are flexible and you can engage in negotiations in any type of dispute. A large number of civil matters, such as contractual claims or debt recovery matters, are resolved prior to hearing through negotiations.

If faced with a dispute, you should attempt settlement negotiations before going to court. If you are able to reach an agreement, this will save you time, money and stress. It will also give you greater control over the outcome of the dispute and facilitate a more mutually beneficial result.

To incentivise parties to explore resolution of their dispute outside of court, legislation prevents parties from using information disclosed in settlement negotiations in court later.

Preparing for Settlement Negotiations

In any negotiation, knowledge is power. Therefore, to put your best foot forward in settlement negotiations, preparation is vital.

Gather Evidence

Gather all the evidence relevant to the issue at hand. This will back up the claims you are making and consequently help you build a more persuasive argument. The evidence may include invoices, emails, photographs and letters.

Understand the Other Side

Understanding the other party’s interests will facilitate a mutually beneficial outcome. To be persuasive, it is a good idea to frame any proposal you make in terms of how it will benefit the other party, rather than yourself. Being particularly aware of their financial position will also help you create a realistic and fair offer.

Consider Your Interests

When creating an offer, you should also obviously consider your interests. Determine what your ‘bottom line’ outcome is. Often, disputes are emotional, but it is important to approach the process objectively.

Consider various possible outcomes of the negotiation and decide which results will further your overall position or the overall position of your business.

Understand Your Legal Position

Seeking legal advice will help you know how much bargaining power you have and what the likely outcome of a court case would be, should your negotiations not succeed.

For example, the Australian Consumer Law (ACL) has consumer guarantees that apply to all commercial contracts, even if they are not explicitly included in the contract. Understanding your rights and options will help you understand the points you can negotiate on.

Keep the Goal in Mind

Remember that the purpose of settlement negotiations is not to necessarily ‘win’ but to achieve an outcome you can live with. This will give you certainty and mean you do not spend further time or money on the issue.

Agreement

Once you have come to an agreement, you should record it in writing, for example in a deed of release. A deed of release is a legally binding document that contains the details of the parties’ agreement to settle.

Make sure that you include all the points of agreement in the written agreement. This includes:

  • how much interest is to be paid;
  • the deadline for any payments; and
  • if any items are to be returned or replaced.

It is a good idea to seek legal advice when drafting or signing a deed of release to ensure it covers all of the necessary elements. If the case has already started in court, you also need to let the court know about the settlement. This is achieved by writing and filing terms of settlement or consent orders.

Key Takeaways

Going to court is an expensive, time consuming and stressful process. It is, therefore, preferable to attempt to negotiate a settlement with the other party before starting litigation.

Settlement negotiations give you greater control over the outcome and parties can often reach a different, more practical solution than the one you may receive in court. If you need assistance with settlement negotiations, contact LegalVision’s dispute resolution lawyers on 1300 544 755 or fill out the form on this page.

Eugenia Munoz
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