Six Key Questions when Settling and Releasing Legal Claims
Most disputes settle, so it is important for legal teams to be aware of the key issues involved in drafting a settlement agreement. This is particularly true now, as companies around the world grapple with the COVID-19 pandemic and the resulting strain on supply chains and business relationships. There are other, equally important considerations that need to be addressed
Do you want a broad or narrow release of claims?
Parties should carefully consider which claims they want to release as part of a settlement agreement and whether the language in the settlement agreement captures those precise claims. Releases may cover different categories of claims, including:
- Claims asserted in pending litigation or arbitration;
- Claims arising out of or related to a particular agreement;
- Claims arising out of or related to a particular subject matter or event; or
- Claims arising out of or related to the relationship between the parties.
It is also important to clarify in the settlement agreement whether the release of claims is mutual.
Do you want to release unknown claims?
Put differently, do you intend to release claims that are not yet known to exist but may later be discovered? If so, then the settlement agreement should explicitly release all known and unknown claims.
Who should be covered by the settlement agreement?
Normally, the parties to a settlement agreement would be the parties to the contracts at issue or the parties to the pending litigation or arbitration. But should the agreement cover anyone else? Consider whether you would benefit from adding a provision stating that entities with a legal relationship to the parties also agree to release claims.
If you are the defendant, then you will want to ensure that all of the opposing party’s related entities are covered by the release of claims to broaden the reach of the agreement.
Who should bear the fees and costs?
Parties to a settlement agreement often agree to bear their own legal fees, but are there any particular costs the parties should share?
How and when will the settlement payment occur?
The settlement agreement should be clear as to the date of any settlement payment, any conditions precedent to payment, and the means of transferring such payment.
Who is allowed to known about the settlement agreement?
The settlement agreement will include a provision explaining confidentiality obligations, and parties typically agree that the terms of the settlement agreement must remain confidential.