Disputes may arise in all sorts of situations and often they are resolved by the parties without the need for intervention by lawyers. That’s all good, provided you document the terms of settlement so as to avert a dispute about the settlement.
The most common way to do this is by deed. Such a deed may be called by various names, for example; a Deed of Settlement, a Deed of Release, a Settlement Deed or a Deed of Settlement and Release. However, what all of these have in common is that they are formal documents that contain the terms agreed between the parties to settle the dispute. If you have reached a settlement and want to document it, or have been provided with a deed from the other party to the dispute, you should obtain legal advice about its terms.
Why a Deed?
The reason why settlements are documented by way of Deed requires a basic understanding of contract law. To have a binding contract the general requirements are:
Offer and acceptance;
The intention to create legal relations; and
The major reason why a deed is used, and not an agreement, is that there is no requirement for consideration in order for a deed to be binding.
Accordingly, depending upon the terms of the settlement, a deed could be critical to giving legal effect to the terms agreed. For example, it is quite common that the terms agreed essentially will be nothing more than a regurgitation of that as yet unperformed part of an earlier verbal agreement or may include a third party which wasn’t part of the original agreement. The consequence often is that the new agreed terms do not involve a passing of consideration e.g:
“A parent company agrees to pay a supplier on behalf of its subsidiary for goods previously supplied. In this scenario the supplier would be unable to enforce the promise as it hasn’t provided any further consideration. However, if the agreement was made as a deed, the supplier is entitled to enforce the promise to pay from the parent company.”
What is commonly included in the deed?
Generally, deeds start off by stating the date it is made and who the parties to the deed are.
This is followed by what is known as the recitals. This is the part of the deed which explains the nature of the dispute.
What comes next is the most important part and is known as the operative part of the deed. The operative part varies from deed to deed and common issues which are addressed include:
The payment details including; who is to make payment, the amount and when is the payment to be made;
Are there any other obligations to be imposed on a party, for example, an obligation to perform a certain task;
Is there to be a release given and, if so, who is giving the release and what is the extent of such release;
Is there an indemnity to be given and, if so, who is giving the indemnity and what is the extent of the indemnity;
Is there to be any obligation of confidentiality and/or non-disparagement and, if so, are such obligations to be mutual or only on a certain party;
Who is to pay any legal costs incurred; and
Which state or territory laws will govern the deed.
Does a deed need to be signed off in any particular way?
Unless it is executed correctly, a deed is not binding.
There are special rules about how a deed must be executed including the requirement for it to be “signed, sealed and delivered” in front of an eligible witness or, if a corporation is a party, executed in accordance with the requirements of Section 127 of the Corporations Act 2001.