Author: Gavin S Stuart and Rebecca Renshaw
When parties settle a dispute, it is important to record any terms of the agreement in writing so that rights and obligations are clear and enforceable. Whether parties have reached a legally binding and enforceable agreement can sometimes be unclear depending on how the negotiations have ensued, and this could be the subject of a separate bulletin in itself. In this bulletin, we set out our top ten tips to consider before signing off on a settlement.
#1. Settlement Agreement v Deed
Depending on the nature of the dispute and the intention of the parties, you should consider the differences between a settlement agreement and a deed before deciding the form that the agreement should take.
#2. Identify the Parties
The document must clearly identify the parties to the agreement. It is good practice to provide current contact details (postal or email address) for the provision of notices if that becomes necessary.
#3. Background/Recitals
At the start of the document, it is common for parties to include a brief summary of the facts and key issues in dispute between the parties. The purpose of this section is to provide context to the document, give the parties an opportunity to briefly summarise the issues in dispute and record the parties’ intentions.
However, parties must ensure that any stated facts are accurate because they can be held to these factual admissions in the future.
#4. Operative Terms
This is the key section of the document which should set out all operative terms as agreed between the parties, and which is typically the payment of money and the provision of documents. You should include any consequences of non-payment and refer to any events which will occur once payment of the settlement amount is received. For example, if any active legal proceedings between the parties are to be discontinued or documents need to be completed.
#5. Releases and Indemnities
A release clause prevents each party from bringing or commencing future legal action against each other. This kind of clause can broadly release a party from all available claims or can be limited to only release specific matters. Care should be taken to ensure only intended matters are released if a release clause is to be used.
An indemnity clause requires one party to the agreement to compensate the other for loss incurred as a result of defined events. As with a release, an indemnity can be broad or narrow, and care should be taken to ensure that the indemnity is as narrow as possible if one is to be given at all. It is also important to ensure that any insurance arrangements are considered when agreeing to an indemnity, as insurance policies will not cover contractual liability that extends beyond loss that would have arisen but for the indemnity.
#6. Confidentiality
The terms of a settlement agreement are usually kept confidential. A confidentiality clause is typically broad and often requires the parties to keep the terms of the document, and any confidential information of another, confidential whilst allowing the parties to refer to the fact of the settlement itself.
There may be exceptions to the confidentiality requirement which should be set out in this clause. For example, if the information is already in the public domain, disclosure is required to a professional adviser or if the disclosure is required by law.
Sometimes, a regime is built into such clauses to allow for disclosure in certain terms after the counter-party has had an opportunity to approve the wording of the disclosure to be made.
#7. Non-disparagement
When parties to a dispute manage to settle their differences, they are often keen to prevent any negative comments from being made about the other.
A non-disparagement clause typically provides that the parties agree not to disparage, defame or make any statement which does or is likely to bring the other party into disrepute or ridicule or adversely affect their reputation.
This clause should be as specific as possible, for example, by stipulating that each party cannot disparage the other but also cannot disparage the other party’s business, representatives, or products and services to any third party.
If agreeing to a non-disparagement clause on behalf of a company, it should be understood that all employees, contractors and associated persons will need to comply with the obligation.
#8. General Clauses
General clauses are included towards the end of the document and cover general topics that are relevant to the practical operation and effect of the document. These clauses are sometimes referred to as ‘boilerplate’ clauses because they are often not specifically tailored to the agreement itself. Best practice is to tailor these clauses to the specific situation if at all possible because these clauses often become very important when issues of breach and enforcement are considered.
Some key general clauses often included in settlement agreements include Counterparts, Dispute resolution, Entire agreement, Applicable law and jurisdiction, Severability and Variation.
#9. Who should sign?
Once the settlement agreement has been drafted, you must ensure that the person executing the document is authorised to sign on behalf of the party, particularly if the party is an attorney or a corporation. Section 127 of the Corporations Act 2001 (Cth) should be utilised to ensure a company can be held to the agreement, and if necessary, documents should be sought and reviewed to ensure power to bind to the agreement (such as a Power of Attorney).
It is preferable that a party signs the agreement before a witness to avoid any future arguments about whether the agreement was properly and validly executed.
#10. Electronic Execution
As more and more people are working from home in the digital age, parties have greater flexibility in how they can execute their documents.
Parties should keep in mind that they have the ability to sign some documents electronically and before a witness over audio visual link.
