Top 5 deed of settlement tips: how you can protect your business when you are asked to sign a deed of settlement
Updated: 8 December 2019
The end of a business relationship can be stressful but you can navigate a settlement better if you are armed with some useful information.
What is a deed of settlement?
A deed of settlement sets out key terms for settling a dispute or the end of a business relationship.
Also, a deed can prevent others from taking legal action in certain situations, like when an agreement ends.
While you may have heard different terms such as terms of settlement, deed of release or settlement terms, they usually all refer to terms to resolve a certain business issue.
And in this article, we’ll be using the term ‘deed of settlement.’ and talking about deeds to protect your startup.
The parties may include your startup and another business.
If you have been presented with a deed of settlement that has not been prepared by yourself or your lawyer then there are some things you should look out for to protect your startup.
1. Fair terms
Your startup should have adequate protection when you sign a deed of settlement and not just the party who prepared the deed.
So, certain terms that protect the other party from certain actions should also protect your startup.
Below is what you should keep in mind before you negotiate and the clauses that you should be looking out for in a deed of settlement to protect your startup.
2. 'Without prejudice'
In simple terms, without prejudice means that words or conduct to settle a dispute are privileged and should not be used against a party in court.
How to use without prejudice: when you negotiate, you can use the words ‘without prejudice’ at the top of an email or letter.
So, if negotiations fall apart (hopefully they won't), then things you said during negotiations cannot be used against you.
Use without prejudice on your written correspondence when you are negotiating your terms of settlement or when you are discussing a settlement verbally.
3. Protect your business reputation
Terms to protect business reputation should be mutual.
You can protect your reputation with terms that cover confidentiality and non-disparagement.
Here’s what both clauses may look like:
The parties will keep the provisions of this Deed confidential, provided that the parties may disclose the provisions to their legal or financial advisors or any other person that by law must be informed of the provisions.
4. Release from future claims
A release clause is useful and is an important clause in a deed of settlement. It stops the other party to the deed from taking any legal action against your startup. If the wording only allows for the other party to be released from liability, its advisable to get this changed.
Here’s an example of a mutual release clause:
Subject to their compliance with the terms of this Deed, the parties must not bring any legal proceeding, make any demand or take any other action against each other in connection with any Claim arising out of the facts referred to in the Introduction to this Deed and in relation to any claim about or connected to the [insert agreement name].
5. Deal with the risk issues
If there are issues that are still outstanding and create a risk of future or ongoing litigation, you can include a clause that makes it clear that the parties are releasing each other from liability for the for those specific risk issues.
Here’s an example:
Subject to the parties’ compliance with clauses [insert clause numbers] of this Deed, a party may plead this Deed as a complete defence to any action, proceeding or suit, which may be taken or commenced by the other party arising out of the facts or matters referred to the Introduction to this Deed.
Alternatively if you want to stop other issues sprouting up, you can widen the clause by adding:
And in relation to any claim about or connected to the [insert agreement name].
So if you have had a deed given to you, this is what you should be looking for:
- Fair terms;
- Protect yourself during communications using ‘without prejudice’ on communications’;
- Mutual terms to protect reputation - confidentiality and non disparagement;
- Mutual release clause from future claims; and
- Narrow the issues the deed covers.
As always, If you are in doubt, get advice.
I wish you every success in your ventures!