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When Should I Use a Deed of Settlement and Release?

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A deed of settlement and release (or a deed of settlement) is essential in disputes. It is a binding document that can resolve disputes or end commercial agreements between parties. If you are currently in a commercial dispute with another party, consider whether it is appropriate to resolve the dispute with a deed. This article will describe particular instances where a deed would be best.

How Can I Finalise a Dispute?

Deeds are an essential tool in resolving disputes. Parties may have attempted to resolve their disputes and wish for the terms of their resolution to be formalised. This can occur at any stage of a dispute by which you can use a deed of settlement. Generally, the further along a dispute is, the more critical it is to have a deed of settlement. 

A deed of settlement is also essential as it stops parties from further pursuing the matter. A typical clause found in a deed of settlement is a ‘mutual release’ clause. This clause would usually say that both parties agree to release each other from any future claims arising from this matter. 

A release from future claims would typically not include the deed itself. This means that a party can claim against another party who breaches the terms of the deed. For example, the innocent party can recover damages for any loss that the breach caused.

Some deeds will also allow an innocent party to go to court and obtain an automatic or default judgment if a party fails to perform its obligations under the deed. 

Do I Need to Provide Consideration?

Typically, a contract will require ‘consideration’ for it to be binding. Consideration usually means a form of value that passes between the parties. This might be a monetary amount, such as a good or service payment. 

In a deed of settlement, there is no requirement for consideration. A deed will be binding once all parties have validly executed the document. This is useful in a ‘release’ context, where parties wish to end their relationship so there would ordinarily be no further engagement.

A deed of settlement can still have an agreement between parties that they perform certain obligations. Some clauses will include obligations known as ‘contingencies’. This means that a party will not be obliged to perform certain tasks until another party performs a specific action.

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How Do I Terminate a Contractual Relationship

Improper contract termination can have severe consequences for the party wishing to terminate. For example, if you improperly terminate a commercial lease, you may be liable for rental costs for the rest of the term. If you have issues in a contractual relationship, you should always ensure you follow the proper procedures and terminate the agreement correctly. Often, one of the final steps in the termination process will be the execution of a deed of settlement.

There are several contractual relationships where a deed is essential to ensuring you will not have further obligations toward the other party. For instance, this includes:

  • an employment contract – as part of a redundancy or other termination agreement or as part of a settlement of a dispute between them;
  • contracts with a personal guarantee – often, the only way to end a personal guarantee and escape the liability it imposes is with a deed of release;
  • a loan or credit agreement;
  • contracts of service where the service is provided over some time (for example, construction contracts or SaaS agreements); and
  • contracts involving the assignment of intellectual property.
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Key Takeaways

It would help always to consider commercial pragmatic outcomes when you dispute with another party. If you reach mutually agreeable outcomes, you should formalise those outcomes in a deed to ensure those outcomes are met. However, you should be aware that deeds can be complex documents that may require several rounds of negotiation. 

If you have any questions about deeds of settlement or need assistance drafting or reviewing one, our experienced dispute lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions

What situations are best for a deed of settlement?

You should always consider a deed of settlement when you are in dispute with another party, as it can formalise a resolution of your dispute. You should also consider a deed where you intend to terminate a contract with another party prematurely. However, you should strongly consider the terms of your contract and ensure you have carefully followed the steps to terminate your agreement correctly.

Does a deed require payment of money from one party to another?

No. Some deeds will restrict parties from engaging in particular conduct. However, the payment of money is a standard clause in deeds of settlement, mainly where a party owes another party a sum.

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