Settlement Agreements – Not Just ‘A Thing’ For Employment Law

When most people think of a Settlement Agreement, they probably think of something connected to employment law – the old ‘compromise agreement’, but it does have other applications.

In context we are discussing here, settlement agreements are very much connected with commercial litigation and dispute resolution i.e. the best mechanism formally and legally having a binding agreement to disputes, contractual or otherwise. Tom Charteress, of our Commercial Litigation Team, gives useful insight into the application where commercial disputes are concerned.

When would I use a Settlement Deed over a Settlement Agreement?

When it comes to legal disputes, there are various options of reaching a legally binding resolution either after or before court actions. The settlement could involve the action of paying money, a promise to do something, or whatever actions have been agreed by both parties.

For this understanding to be contractual, it should be formulated into either a Settlement Deed or Settlement Agreement, but, what’s the difference?

Settlement Agreements

To put it simply, this is a legally binding document used by both parties to resolve the ongoing dispute. It covers agreed terms, compensation, possible references and may cover the structure or timeline for payments. You may have seen them in an employment context, under the old term ‘Compromise Agreement’, but these agreements can be used in a commercial context within commercial litigation too.

It is a useful conclusion to a dispute and can set clear obligations for all parties and, ideally, dissolve any future risk of disputes arising between the parties.

What is a Settlement Deed?

This is similar to the agreement, except that a settlement deed is used in limited circumstances, for example, where there is no consideration passing between parties, or if you are not sure what the *consideration is.

*What is consideration? To put it simply, consideration is a promise of something of value given by someone, in exchange for something of value from another. This could be money, goods, or an act (such as services).

Deeds also have different execution formalities, it’ll either need to be witnessed or signed by 2 directors (in the case of a company) whereas settlement agreements can be signed as normal.

Commons clauses featured in settlement deeds and agreements

• Payment Clause – this clause governs the way that payment is made, the dates on which it should be paid and how much. It may be worth exploring the option of making time of the essence here. If so, this can enable the receiving party to terminate the agreement or deed immediately if the payment has not been made by that date. Not all settlements involve a payment, instead, a party may promise to perform a service at a reduced rate, or even for free.
• Stay or Dismissal of action – if legal proceedings have commenced, you may use this clause as an opportunity to stay or dismiss the proceedings. If the proceedings have already been stayed in a consent order previously then the settlement terms can be enforced in the original proceedings, rather than bringing a fresh claim.
• Release – the purpose of this clause is that the claimant agrees not to issue proceedings for any known, unknow existing and future claims. It is usually drafted very widely so as to catch all possible claims.
• Agreement not to sue – for belt and braces, this can be included as well as the release, and just makes sure the claimant confirms they won’t sue the defendant.
• Confidentiality clause – a clause which ensures both parties keep the contents of the document confidential, as well as its existence.

The key differences

• As mentioned above, for the agreement to be valid, it requires some form of consideration, whereas a deed does not.
• Agreements are usually more flexible and can be developed from several documents, whereas a deed must be in writing, signed and witnesses (or signed by 2 directors) with some indication that it is intended to be a deed.
• The limitation date for breach of an agreement is 6 years, whereas for a deed it is 12.
• Deeds are only enforceable when they have been delivered to the other party, whereas an agreement need only be executed by both parties for it to be enforceable.

So what’s more appropriate, a Deed or Agreement?

For the vast majority of cases, an agreement will usually be effective, but a deed may be necessary if the settlement arrangements do not involve any consideration moving between parties. Consideration can be a tricky subject and if you are either unsure what the consideration is, or if there is none, a deed is more appropriate. It is also more desirable if a party requires a longer limitation period, for whatever reason that may be.

Unsure which is right for you? Seek legal advice or contact our Commercial Litigation Team if you have any queries, or are struggling to decide which is the better document to use. As always, Wilson Browne is here to help in whatever capacity we can… #AllTheHelpYouNeed !