Settlement guide

Publication | November 2010

This note sets out key issues to consider when drafting a settlement agreement.

Authority to settle

Make sure that the individuals leading the negotiations have the authority to bind their respective entities into a settlement agreement. If a power of attorney or board authorisation is required, it is safer to obtain a copy.

Parties to the agreement

Where corporate bodies are involved, make sure that all relevant subsidiaries and associated companies are bound. Do the signatories have the right to bind all companies in the group and associates? Do you need written evidence of their authority?

Third parties

The claimant should be aware of the possibility of future claims against a third party, who could seek a contribution from the defendant -- which could then defeat the purpose of the settlement agreement for the defendant. If there are such parties you may need to consider an indemnity. Check, therefore, whether there are any other parties against whom a claim could be brought. Consider whether to bind them into the agreement (offering in exchange a waiver releasing them from future claims).

Note: the rule against “double indemnity” means that a claim cannot be made against a third party if the settlement between claimant and defendant represents the full measure of the claimant’s loss.


Written or oral communications aimed at settlement will be “without prejudice”, meaning that they cannot be produced in evidence in court -- with, now, one possible exception to this rule. Following the Supreme Court’s recent decision in Oceanbulk Shipping & Trading SA v TMT Asia Limited, without prejudice negotiations may be open to judicial scrutiny if there is a subsequent dispute about the interpretation of the settlement agreement.

It is, therefore, vital that the parties are precise about their positions during any discussions.

If you know that you will want to be able to rely on the parties’ conduct in unsuccessful settlement discussions when the court allocates liability for costs at the end of the case, then it is important that any communications are clearly stated to be “without prejudice save as to costs”.

Do not use the term “off the record”, as it has no clear legal meaning.


Consider exactly what is being settled. Is it a discrete issue; or does the proposed settlement cover all issues in the current proceedings; or does it relate to all issues around a particular matter where some are not the subject of ongoing proceedings? Or does it extend to a general release of all past and future claims, whether or not presently contemplated or sustainable at law?

Are the claims limited to money, or are there other aspects to the settlement? Will there be a continuation of business between the parties, perhaps with preferential rates? Are future non-competition provisions appropriate?

Form of settlement

The settlement will usually take the form of a written agreement, but there are times when a deed will be necessary (for example, where there is no consideration for the agreement -- although a compromise of a genuine dispute will generally constitute good consideration).

Check whether the agreement is conditional or unconditional. Will it only become binding on payment of an agreed sum?

Consider whether to withdraw any specific allegations or admit certain facts. Do apologies need to be made, publicly or privately? Do these need to be stated in the written agreement?


Ensure the currency of the settlement is appropriate. Set it out in words and figures. Ensure any payment made is received clear of all banking and transfer charges. Check the payment structure and decide whether instalments are appropriate. It is clearer to express payment in terms of calendar dates than “within a month”.


For tax reasons, it is better to include interest in the overall agreed figure rather than make separate provision for it. Interest for late payment should be dealt with separately.

Legal costs

Do the parties wish to be responsible for their own fees, or for one party to be responsible for them all? If the latter, care must be taken to gather in all the fee notes prior to settlement.

Check whether there are existing court or tribunal orders to consider.

Check the position on fees (paid and outstanding) for mediators, arbitrators or joint experts (if applicable).

Bank guarantees and other security

Where these have been provided, arrangements need to be made for their release.


Check whether there are any tax issues raised by the proposed settlement. Seek specialist advice if in doubt.


Decide whether to include a confidentiality provision with appropriate carve-outs (for example, disclosure required by law).


If the settlement is going to attract press interest, should there be an agreed press release?

Governing law and jurisdiction

Specify governing law and jurisdiction in the agreement -- in case of future disputes.

Are there any jurisdictional issues in relation to payment?

Issues specific to court proceedings

Check the position on money paid into the court already (and any interest that has accrued).

Check the status of existing court orders -- any freezing or search orders that need to be discharged; or varied; and related cross-undertakings.

Whichever method is used to terminate proceedings, if payment is to be deferred make sure that appropriate remedies are available in the event of non-compliance.

At its simplest, the order should provide that the defendant pays the settlement sum by a certain date, during which period the judgment will not be drawn up. The defendant can then avoid having a formal judgment entered against it if it pays on time, but the claimant is able to enter judgment automatically if the defendant does not pay. If payment is to be made in instalments, reserve the right to enter judgment should any instalment not be paid.

Inform the court. Until an order is filed, the proceedings are live and the courts have the power to make orders in relation to the case.

Issues specific to arbitration proceedings

Agree who will be liable for the costs (paid and unpaid) of the arbitration (including the arbitrators’ fees) and who will receive any refundable booking fees or other sums paid in advance.

Notify the tribunal (or supervising body).

Issues specific to mediation proceedings

Consider liability for the mediators’ costs.

Always come to a mediation with an outline settlement agreement ready drafted.