Drafting an Enforceable Settlement Agreement in Singapore
A settlement agreement is a contract between two parties or more that wish to resolve their potential or ongoing dispute. It is usually in writing and records the terms of parties’ agreement.
A settlement agreement can be entered into between parties:
- Before or after legal proceedings are commenced; or
- During the course of a trial but before judgment has been delivered.
Parties are encouraged to record their agreement in a settlement agreement to ensure that there is no dispute on the terms, and that the underlying dispute can be resolved once and for all.
This article will explain:
Drafting a Settlement Agreement: What Should a Settlement Agreement Contain?
A summary or a “Recital”
A settlement agreement should provide a brief summary of the ongoing dispute. This summary is usually contained in the beginning of the agreement, sometimes referred to as the “Recital”.
The obligations of parties as part of the settlement
If the settlement agreement involves one party doing something, then the description of that obligation (e.g. removing an offensive Facebook post) should be stated clearly. The deadline for doing it should also be contained in the settlement agreement.
For example, if the settlement agreement involves payment of money by one party to the other, then the amount, date and method of payment should also be included as part of the terms. If payment is made through instalments, the date of the instalment and the interval of such payments (e.g. monthly instalments) should also be recorded.
A “default clause”
Parties may also wish to include a “default clause” to state what is to happen if one party fails to comply with their obligations in the settlement agreement.
For example, if a settlement agreement requires one party to make payment to the other through instalments, then the default clause could state that in the event there is any default in instalment payment, the balance sum will become payable immediately.
Alternatively, if there is an ongoing legal suit, then parties may wish to consider including in the default clause a right for the other party to enter judgment against the defaulting party.
Requirement to file a Notice of Discontinuance / Withdrawal
In the case of an ongoing legal suit, the filing of a Notice of Discontinuance / Withdrawal should be included as one of the terms of the settlement agreement e.g. “the Claimant shall file a Notice of Discontinuance / Withdrawal within 7 days from receipt of payment”.
The filing of a Notice of Discontinuance / Withdrawal has the effect of bringing the legal proceedings to a close.
No admission of liability
In some cases where parties do not wish the settlement to be viewed as an admission of liability, a term stating that the payment or the doing of something should not be construed as an admission of liability can be included in the settlement agreement. This means that the party does not admit guilt to any actions alleged by the other party just because he/she has agreed to make payment to resolve the dispute.
A confidentiality clause is usually included in the settlement agreement. This ensures that the terms of the settlement agreement are not disclosed to any third-party without the prior written consent of the other party.
Agreement of full and final settlement
To avoid any future related claims, it is encouraged that parties state in the settlement agreement that the agreement is in full and final settlement of all their claims related to either the legal proceedings or the ongoing dispute (which should be spelt out clearly at the beginning).
There are certain terms that may protect parties from claims that one party did not know what they were signing or did not have legal advice when entering into the settlement agreement. Standard terms that can and should be incorporated into the settlement agreement are that parties:
- Have been given time to read and reflect on the above terms;
- Understand the terms;
- Understand they are bound by the terms;
- Have obtained or been given the opportunity to obtain independent legal advice (if one or both parties are unrepresented); and
- Have signed the settlement agreement voluntarily.
Executing the Settlement Agreement
Who should sign the settlement agreement?
A settlement agreement must be signed by both parties and/or their lawyers to be binding. In some cases, an unsigned settlement agreement can still be enforceable if the parties’ conduct suggested acceptance of the terms e.g. payment of the settlement sum. However, it is best that parties sign the settlement agreement to avoid any disputes.
If one or both parties to the settlement agreement is a business, then a representative with authority, such as a company director, or who has been given authority, should sign the settlement agreement on behalf of the business.
Must the settlement agreement be filed in court to be enforceable?
If a settlement agreement is entered into to resolve an ongoing legal action, then the settlement agreement should be filed with the court.
That said, the settlement agreement is still enforceable even when it is not filed. However, in the event of a default, the other party will first need to sue on the settlement agreement and obtain a court order before being able to enforce the settlement agreement. On the other hand, if the settlement agreement had already been filed with the court, then enforcement of the settlement agreement can take place immediately.
In the case of a divorce, a “consent order” has the same effect as a settlement agreement. In the consent order, the parties have agreed “by consent” to the orders (or a variation of orders) relating to the divorce, children’s issues or division of assets and maintenance. This consent order will need to be filed in court.
What Happens After Executing a Settlement Agreement?
Can you still resort to court proceedings?
Once parties have executed the settlement agreement, they can no longer proceed to have their matter heard by the court. This is because there is no longer any “live” issue for the court to resolve. The courts’ role is to determine disputes, not comment on hypothetical scenarios.
Proceeding with the court action when the matter has already been resolved through a settlement agreement could result in consequences, such as having to pay costs for wasting the court’s time and resources.
Can a settlement agreement be set aside or varied?
A settlement agreement can be set aside in limited circumstances e.g. where one party claims he/she did not sign the settlement agreement voluntarily.
On the other hand, if parties agree, the terms of a settlement agreement can be varied (or changed). Any variation should be in writing and state clearly which terms are to be varied.
What can you do if the settlement agreement has been breached?
If a settlement agreement is breached, then legal action can be taken to enforce the settlement agreement. If the settlement agreement had already been filed in court, then enforcement action can be taken against the defaulting party without having to first sue on the settlement agreement (as mentioned above).
If the defaulting party failed to pay a certain sum of money stipulated in the settlement agreement, then the other party can commence enforcement proceedings for attachment of a debt (previously known as “garnishee proceedings”) or bankruptcy proceedings (if the defaulting party is an individual) to enforce payment of the sum. Other enforcement methods are also available if the defaulting party had been a business.
If in doubt, it is best to approach a lawyer for the drafting of the terms of your settlement agreement. The lawyer would be able to advise on the terms of the settlement agreement as well as the consequences of any breach of the terms. You will also be able to avoid any further disputes arising from an ambiguous or poorly drafted settlement agreement.
If you need a lawyer for the drafting of your settlement agreement, you may get in touch with experienced civil litigation lawyers here.
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