When living in China, if people run into minor disputes — such as a minor traffic collision — the two sides often choose to settle the matter privately once they reach an agreement. So after moving to Australia, does the concept of a “private settlement” exist here as well?

In fact, this kind of arrangement is quite common in Australia too. We often see news stories in which the parties to a dispute reach a settlement at the very last moment before a hearing, avoiding a lengthy courtroom process.

This article takes a closer look at — Deed of Settlement and Release, which in plain terms can be understood as the Australian way of settling a matter privately.

What is a Deed of Settlement and Release?

A deed of settlement and release is a valid legal document signed by both parties to resolve a dispute. In most cases, the parties enter into a deed of settlement to avoid any further legal costs or disputes, and the terms of the deed are legally binding.

For example, during the course of running a company, a debt dispute may arise with another business. To resolve the matter and avoid further trouble, both sides may agree that a certain sum will be paid to ensure the issue does not resurface.

Whatever the parties agree to “resolve” should be recorded in writing — and that is what a deed of settlement is.

The terms of the deed can require the contents to be kept confidential, so that neither party can damage the other’s reputation by spreading news of the dispute.

When might a deed of settlement be needed?

A well-drafted deed of settlement will ensure that both parties perform their obligations. This may include:

– Delivery of goods;

– Discontinuance of legal proceedings; or

– Payment

If one party fails to perform its obligations under the deed, the other party can rely on the deed to compel performance — for example, by taking the other party to court to enforce payment. A deed of settlement will also ensure that the dispute does not resurface in the future. Typically, the deed will include a release clause under which the parties agree to release each other from all future claims, demands and actions.

What is usually included in a deed of settlement?

Every deed will differ depending on the nature of the dispute, but generally speaking a deed will cover the following points:

1. Date —

The deed should include the date it was entered into, to be added once all parties have signed.

2. Parties —

Whether the parties are companies or individuals, whether there is any partnership relationship, and whether guarantors or other directors of the company should also be included in the deed.

3. Definitions —

This sets out the key words or phrases used throughout the deed to ensure consistency and clarity of understanding.

4. Recitals —

A brief explanation of the background to the dispute.

5. Key obligations —

Also known as the settlement terms, including which party is required to pay or perform which obligations, along with details such as payment deadlines.

6. Breach provisions —

Set out what consequences follow if a party fails to act as required by the deed.

Can a deed of settlement still be signed once proceedings have already commenced?

Yes. However, if the deed is signed while legal proceedings are on foot, the deed should state that the proceedings will be terminated. The terms should also ensure that the other side cannot take any further legal action against you in the future.

The deed can also include a clause providing that, if one party fails to perform its obligations, the other party may continue with court proceedings. For example, if one party fails to make payment, this clause may allow the other party to commence proceedings in court for breach of the deed.

So, can you refuse to sign a deed of settlement?

Yes. A deed of settlement is like any standard contract — you are not required to sign something you do not agree to.

If you receive a draft deed prepared by the other side, you can consult a lawyer, who will advise you on how the terms of the deed will affect you. This ensures that you are in a fair position before signing any document.

Final thoughts

When a dispute arises, all of the terms on which the parties agree to resolve it should be formally recorded in a legal document, so that the agreement can be enforced if one side fails to comply and problems arise. If you need assistance drafting or reviewing a deed of settlement, it is advisable to seek professional legal advice to make sure your interests are protected.