So, you’ve dispensed with the expensive lawyer and drawn up the final settlement yourself. Here’s how to make sure the agreement means what it says

DIY claims handling is only for the stout of heart. Nevertheless, many claimants and defendants alike will wing it alone without legal assistance, regardless of the undeniable risks. Reaching an agreement without legal guidance is one thing. Drawing up a settlement agreement – one that does what you think it does – is quite another.

Looking at this principally from the payer’s perspective, I have set out below some of the many pitfalls just lying in wait, should you venture into the hazardous world of settlement agreements without a trusty legal hand to grasp.

  • First of all, check that person with whom you are dealing has the authority to negotiate and sign the settlement agreement, so that it will be binding on their organisation.
  • Hopefully the main players will come to mind when drafting your settlement agreement, but there may be other parties, including associated companies, who should be named as part of the deal, even if they are not making any, or any significant, contribution in monetary terms. Otherwise, they might come knocking on your door the next day in respect of the very matter you thought you had just dispensed with. And, of course, even if named, there may still be issues as to whether the deal is legally binding on third parties.
  • On a related point, you may, as the payer, require an indemnity from the payee in respect of any claims third parties might bring against you.
  • If you ask somebody who has just come out of a settlement meeting if they know exactly what figure they have settled at, you might expect an indignant retort. But inquire whether their figure has addressed the questions of legal and expert costs, VAT, interest and the like, and they may start looking a little sheepish. The settlement agreement should clarify whether these matters have been included. If not, it should specify how they are to be dealt with.
  • Insurers simply do not take kindly to surprises. If you are relying on them to cough up the readies, you need to be sure they are going along with the deal. And bear in mind you will still be on the hook for any excess. Can you produce it by the agreed date?
  • You need to specify the date of payment in the agreement or you can be certain that the claimant will be snapping their fingers for their money before the ink on your settlement agreement is dry. Again, if you need to pay by instalments, that must be stated in the agreement.
  • Is foreign currency involved? Bear in mind the extra time and costs involved in the transfer. You may also wish to agree a set exchange rate so that a major fluctuation in the rate between settlement and payment does not catch you out.
  • I covered the question of full and final settlement in a previous article (20 September 2002, page 57). Depending which side of the fence you are on, you may wish the settlement to be full and final, or you may prefer to leave the door open for future claims. Obviously it is in the payer’s interests that the settlement agreement should stem all future claims, even if unrelated to the matter in hand, but that is rarely the intention of the claimant. However, somewhat less rarely, this draconian interpretation is the unintentional effect of sloppy settlement wording.
  • Is confidentiality an issue? If so, say so. It might also be worth agreeing with the other side how to field any queries arising from third parties.
  • If a claim is made against you as a consultant or contractor, you may intend that your fees for the job be wrapped up in the settlement figure. Either way, you need to clarify.
  • As far as admitting liability is concerned – don’t! The payee has your money, so he does not need your grovelling admission at this stage, and it could have all kinds of adverse repercussions – not least the triggering of independent claims.

If you still manage to make a dog’s dinner of your settlement agreement, at least be sure it clarifies which law and jurisdiction apply. You will need to know this when you spend the next two unhappy years tied up in litigation over its interpretation.

As far as admitting liability is concerned – don't! The payee has your money, he doesn't need your grovelling admission

Melinda Parisotti is an in-house barrister at Wren Managers, which manages a professional indemnity mutual for architects