10 tips for effective settlement agreements
When parties to a dispute reach a compromise, it is important that the terms of the compromise are recorded in writing and that the settlement agreement is binding.
A settlement agreement recognises that the parties to a dispute have formulated a resolution and signals the end of the dispute. The agreement may be entered into at any time before a proceeding commences, and if proceedings have commenced, at any time before judgment is handed down.
Important Considerations
In drafting a settlement agreement, it is important to have regard to some key considerations:
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- The agreement should clearly state the terms of settlement;
- The agreement should clearly state and identify the parties to the agreement, to ensure the person executing the agreement has authority to execute. This is particularly so where a party is a company or a Trustee of a trust;
- Any conditions to the settlement that are required to be met prior to either payment of the settlement sum or the proceedings being discontinued;
- The timing of the payment of a settlement sum and also the consequences of non-payment;
- Where a settlement sum is being paid, tax implications may arise and need to be considered;
- Generally settlement agreements include a unilateral release of claims from both parties and it should state the extent of the releases given;
- If proceedings are on foot, the settlement agreement should include clear terms on the discontinuance of the proceedings including whether there will be any order as to costs;
- The agreement should be clear on which party is bearing the cost of preparing the agreement. Generally, each party bears their own costs;
- Commonly, settlement agreements include an obligation that the parties must keep the terms of the agreement confidential, except for limited disclosure purposes;
- The settlement agreement should contain a term with respect to the governing law of the agreement should a dispute/breach arise.
