A settlement agreement is a legally binding contract meant to resolve a dispute between parties. The purpose of a settlement agreement is to ensure that the other party does not approach the court. This blog seeks to explain how to draft a settlement agreement in conciliation proceedings. One should be very careful while drafting a settlement agreement in conciliation. A great amount of precision and care is required in the drafting process. In order to draft a settlement agreement, one needs to understand the law, contemplate the contract, write the contract and finally execute it.
A settlement agreement must contain the following:
- Governing law
- Dispute resolution methods
Thus, the rights, claims, obligations, and interests need to be covered under it.
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Steps to follow while drafting a settlement agreement
For clarity, the researcher has provided the steps below while drafting the settlement agreement in conciliation.
1. Identify Relevant Parties
Firstly, the parties need to be identified in the settlement agreement. The parties to the settlement agreement should be properly named. Parties may include:
- All parties to the lawsuit
- Parent or holding companies
- Exclusive licensees and non-exclusive licensees
Secondly, the recitals need to be mentioned. Recitals appear at the beginning of the settlement agreement in conciliation. In other words, it provides the background of the dispute and settlement. It may include:
- The settlement’s date of execution
- The parties to the settlement
- A description of the plaintiff’s claims that are subject to the settlement
- A statement that the parties have voluntarily entered into the settlement to fully resolve the dispute
3. No Admission of Liability
Thirdly, no party admits to liability under a settlement agreement. Every settlement agreement includes a paragraph in which the parties clearly state that they agree to resolve the dispute without the other party’s admitting liability.
- Voluntary agreement
- The purpose of the agreement is to avoid future litigation
- No party admits liability
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One of the advantages of the out-of-court settlement is that the details don’t form part of public records. For instance, a confidentiality clause is provided in the settlement agreement. Moreover, this clause strictly prohibits the parties from disclosing specific details of the case. While drafting a confidentiality clause one needs to keep in mind:
- Decide what terms need to be confidential
- Draft a realisitic confidentiality clause keeping in mind the practical consideration
- The scope of confidentiality clause
- Provide penalty for confidentiality breach
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5. Contemplate Potential Breach
The settlement agreement should provide for the consequences of breach of any provision.
- Include a provision that any violation of the agreement will cause the non-breaching party irreparable harm and that the parties have the right to obtain injunctive relief to enforce the settlement
- Provide a notice and cure provision to avoid liability for an inadvertent breach
- Consider including an alternative dispute resolution clause to resolve future disputes about the settlement agreement
- Consider a term awarding attorney’s fees and costs to the prevailing party if there is a dispute regarding performance or enforcement of the settlement agreement