The Significance of Settlement Agreements in Commercial Disputes

When a commercial dispute arises, both parties will be encouraged (by their lawyers and the Court) to reach a mutually-acceptable compromise of that dispute. Such a settlement is no less final and binding than if the parties had asked the Court to determine the dispute for them, unless the terms of the compromise are unrecorded, unclear or ambiguous.

Accordingly, when a dispute is being compromised on mutually-agreed terms, those terms should be clearly documented in a legally binding settlement agreement.

What is a settlement agreement?

Simply put, a settlement agreement is a contract between the parties to the dispute. The document lays out how the parties have agreed the dispute is to be resolved. Generally, the resolution of the dispute will be achieved by one party paying a sum of money to the other. There are also other important considerations which need to be addressed when compromising a claim and negotiating a settlement agreement. Eric Gordon recommends looking at a few of them below… and contacting an attorney for further advice on legal matters.

Effect of a compromise

When parties agree to a final settlement of their dispute, it puts an end to that dispute and it is agreed that any legal proceedings which have been started in relation to the dispute will no longer continue.

Key considerations

It is critical that the settlement agreement is drafted prudently to ensure that it reflects what was actually agreed. Some of the key considerations when negotiating and drafting settlement agreements are as follows:

  • Ensure that the party you are settling with is the party to the dispute.
  • The obligation for payment of any money should be clear and a time limit for payment should be documented.
  • The involvement of third-party payers in the compromise of disputes is a critical issue.
  • The parties to the dispute should ensure that they have embodied in the agreement a settlement of all of the issues that it was intended to settle.
  • Consideration should be given as to whether the terms of the settlement should be confidential.

When is a settlement binding?

Negotiations between the parties as to the wording of the settlement agreement can become extended and heated. Usually, the settlement is only considered to be finalized and binding when the settlement agreement is signed.