Ensuring that a settlement agreement achieves its purpose is crucial. It must be carefully drafted and deal clearly and explicitly with every detail of the proposed deal, otherwise you may not achieve the resolution you were hoping for. Consider the following:
Who are the parties to the agreement? Who are you settling with? Are there other parties who you need to bind into the settlement? For example, a defendant should endeavour to ensure all claimants and potential claimants are tied in. Otherwise the benefit of reaching a settlement may be undone when a similar claim comes in from a related, but not explicitly named, party.
Third parties. Consider the treatment of any relevant third parties such as joint defendants. Are they to be released from future claims or are rights to bring claims against others being preserved?
What is the scope of the claim(s) being settled? Which claim is the settlement agreement to cover? Consider carefully the treatment of claims which are unknown but in existence and future claims.
Formalities. What formal requirements are necessary to ensure a binding settlement? Does the agreement need to be in writing or in a deed? Consider execution formalities and whether the execution clause will be effective to bind the parties.
Disposal of court proceedings. Deal with notification to the court (where appropriate) and consider what formalities are required to dispose of any court proceedings. Is the action being dismissed, discontinued or stayed on agreed terms (so that enforcement can take place within the existing court proceedings)? Is there a counterclaim?
Is settlement conditional or unconditional? For example, settlement may be conditional on payment, so that the settlement agreement only becomes binding and effective on the payment of the settlement sum.
Payment arrangements. What are the logistics and timing of payment? It may take time for the paying party to raise the settlement funds and/or have the payment approved, but the timing of the payment may be highly significant. Consider the possibility of payment by instalments and an acceleration clause if default takes place.
Interest on late payments. Should express provision for interest on late payments be made?
Tax implications of the settlement. Does the settlement payment attract VAT or have any further tax implications?
Legal costs. Does the settlement provide for the parties' legal costs including any existing costs orders in the proceedings?
Confidentiality. Is an express confidentiality provision in the settlement agreement along with any appropriate carve outs necessary?
Governing law and jurisdiction. As with any contract, issues of governing law of the contract and the jurisdiction and forum for any claims should be carefully considered.
Capacity and authority to settle. Ensure that the person(s) who will be signing the settlement agreement has authority to bind the company and to enter into the agreement. Include relevant provisions in the settlement agreement dealing with this.
