Posted By IrwinLegal
Settling a legal dispute – 5 points to note in a deed of settlement

Deeds of settlement are often prepared when the settlement of a civil action has been reached. The description of the process can vary.  Sometimes the deed is referred to as a compromise and sometimes as a discharge.  As long as the effective terms are included in the deed, it doesn't really matter what expression is used.

Your major aim should be to ensure that the deed contains all aspects of the settlement reached between you and your opponent. If you (or your legal adviser) accidentally leave something out of the document, it will be exceedingly difficult to later try to amend or rectify the terms of settlement.  In addition, you will incur even greater cost, uncertainty and delay. (So, just don’t do it!).

Below are 5 points I have set out for you to consider when entering into this type of deed. They are based on my own legal experience. Of course, there are plenty of other matters worthy of inclusion. But these points would be near the 'top of the list' of most civil and commercial lawyers.

1. Have you reached agreement?

There are plenty of traps for the unwary on this one (e.g. see the High Court case of Masters v Cameron for some 'light reading'!). The difficulty is trying to determine whether an agreement to settle the dispute was truly made, and if so, at what point? For instance, you might both sign a written agreement containing terms of settlement. However, if the document is noted as being ‘subject to contract’, that suggests the agreement has not yet been concluded.

Your legal adviser should be able to navigate this minefield for you. If you don't have a lawyer, it might be worth getting one to write up the final deed. If so, make sure you state (in writing) that your provisional agreement is "subject to" a document being prepared by a lawyer (or lawyers) to the mutual satisfaction of the parties.

2. Why a deed?

Although a deed is not essential to record the terms of a settlement, it is certainly recommended.  The main advantage is that a deed does not require the usual elements needed to establish a valid contract. Once a deed has been signed by each of the parties and their witnesses, it is binding and enforceable.

3. Spell it out!

Quite often, a commercial dispute involves a 'little more' than just the dollars and cents claimed by either (or both) of the parties to the dispute. If it does, you need to make sure there is a clearly worded term in the deed about it. And it needs to adequately cover the agreed means of resolving that particular dispute.

For example, you may want to ensure that no other ground of dispute later arises between the parties to the conflict. If so, you need to draw up an adequately worded 'release' clause which protects you from any further legal action. Or you may want the terms of settlement to be confidential. If so, the term needs to be carefully worded to ensure that it can be practically enforced (e.g. by an injunction).

4. Don't forget the GST!

It’s quite surprising how often GST and other taxes or duties are ignored in a deed of settlement.  If nothing is said about these matters, there is likely to be a disagreement at a later stage about who is liable to pay them.  Yet, the aim of the deed is to reach agreement on all such matters, isn't it?

So don't leave it to chance! Ensure there are clear terms in the deed about who will be  legally liable to pay (or indemnify you) for any payable income tax, CGT, GST, reimbursements to the Department of Social security,  export or import duties, etc.

5. Stamp duty

You've gone to the trouble and expense of preparing your deed. So why not ensure that your solicitor or other adviser has the document assessed for stamp duty?

More often than not, the amount of stamp duty will be nominal for a deed of settlement.  Yet, that small token of assessing and paying the stamp duty adds 'value' to the document.

Once the deed has been stamped, it can be relied upon in any future Court proceedings.  On the other hand, if it has not been stamped, your lawyer will experience difficulties in being able to use the document in evidence at a later time. A prime example is when you attempt to enforce the deed because of its breach.  It can even be difficult for your legal representative to refer to the deed in pleadings and other Court documents if it has not been stamped.

Of course, there is nothing to stop you from belatedly paying the stamp duty.  But that step might not take place for several years. If so, you will incur penalties for late assessment and payment!


The following case-summaries also provide further information about the process of settlement by deed.

 Shire of Toodyay v Merrick


Merrick (M) was employed by the Shire (S), and entered into deed of settlement when M and S parted company. Subsequent to M’s departure, it was discovered that M had received payments and benefits that he was not entitled to under his contract of employment. S commenced an action against M to seek damages for the substantial overpayments. M argued that the settlement deed operated as a complete release and bar to all claims of overpayment.


Do the claims made against M fall within the terms of the settlement deed?


The Court concluded in favour of S. M had breached several implied terms of the settlement deed by knowingly receiving overpayments.  

 Perpetual Trustees v Scaffidi


The mortgagor (PT) had not received any mortgage payments from the mortgagee (S). S claimed that her son had forged her signature on the relevant documents. A deed of settlement was drawn up between the three parties, requiring the third party (S’s son) to pay the mortgagor within 7 days. However, the third party failed to do this. The deed of settlement was ‘silent’ on what would occur if the third party did not pay the settlement sum. There was also no provision in the settlement deed which allowed for its termination. That is to say, there was no clause which allowed a party to serve a notice of default on another party when there was a failure to perform from its terms.


The mortgagor purported to terminate the settlement deed by reason of the non-payment of the settlement sum. On the other hand, the third party claimed that the deed remained on foot until he paid the settlement sum (which he was yet to do).


The WA Supreme Court ruled that the mortgagor was successful in its claims, as the third party’s interpretation of the deed was ‘unworkable’. Despite the deed’s failure to address obvious situations, it did clearly contemplate payment by the third party within 7 days as a precondition to the discharge of the mortgage.

Banning v Ortin


Previously, the plaintiff (B) in this case had acted as a real estate agent to the defendant (O). In 1999, O brought an action against B (and other defendants) for compensation (“the 1999 action”). The 1999 action related to breaches of duty arising from B’s appointment as a real estate agent to sell O’s property.

Shortly before the trial was due to commence, the parties entered into a deed of settlement, by which they settled the action between them. Following the settlement, O sought to pursue another claim against the Real estate agents’ fidelity fund. B argued that O was precluded from doing this by the express or implied terms of their settlement deed. However, O argued that the deed’s terms only prevented her from pursuing the claims which were brought against the parties to the deed. It did not prevent her from pursuing her claim against the fund (which was not a party to the deed).


Did the terms of the deed of settlement discharge O’s right to pursue a separate claim against the fidelity fund? (Although there were other issues in the case, the summary is limited to this particular issue).


The WA Supreme Court supported O’s construction of the terms. It rejected the argument that there was an express or an implied term in the deed relinquishing any existing claim by O against B. This conclusion was reached, even though the deed had originally been drafted with B’s intention to prevent O from continuing her action.

B also raised other claims to set aside the deed of settlement on such grounds as rectification of the deed and unilateral mistake. However, none of those claims were successful.

This case illustrates the importance of clear, purposeful language being used when drafting the terms and scope of a settlement deed.

Morgan Stanley Wealth Management Australia Pty Ltd v Detata (No 3)


The plaintiff (MS) appointed the defendant (D) as its agent, and an employment contract existed between the two parties. The contract outlined retention payments and incentive payments to be repaid by D upon termination of the contract. A settlement deed was entered into when D’s employment was terminated. The terms obliged him to pay a substantial sum in the event of his default in instalment payments. D subsequently failed to make any of the instalment payments. MS contended that D has breached the terms of the deed. D claimed that the terms were penalties, which amounted to either economic duress or unconscionable conduct.


Was the repayment requirement in the deed a penalty? Was the settlement deed voidable for economic duress and unconscionable conduct?


The Court found in favour of MS. The terms were laid out clearly and plainly to D in both the employment contract and the settlement deed. Evidence showed that D understood from both these agreements that he was obliged to comply with their terms.

The Court concluded there were express obligations in the settlement deed that:

  • (a) D must follow MS’ lawful and reasonable instructions regarding the instalment repayments; and
  • (b) D was responsible for the stated consequences that would follow if the terms were breached.

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