A deed of release is a type of agreement used to resolve a legal dispute or forego a right. Deeds of release are between two or more parties and can be used to give certainty that there will be no legal claim made in the future. This type of agreement is sometimes called a “deed of release and settlement” or a “deed of settlement”.
In this article, we discuss when a release is used, the terms you can expect to see and what happens if a deed is breached.
When can a deed of release be used?
A deed of release can be used:
- to forego or give up a right
- to prevent any further issues arising from the dispute from being raised in the future
- to give comfort that if an amount is paid, no further amounts can be requested at a later date
- to ensure the details of the dispute are kept confidential
- to record how the parties will convey the dispute to the outside world
- to put an end to a disagreement without having to admit liability or wrongdoing
- to avoid the cost of lawyers’ fees and litigation costs
Signing a deed of release will cause the disagreement to come to an end according to the terms of the deed.
In what context is a deed of release used?
Deeds of release are used to resolve disputes, including potential disputes. But they can also be used to forego rights. The following are some examples of the types of disputes that can be resolved by using a deed of release:
When engaged in a commercial dispute, both parties can resolve the issue by signing a deed. The parties can agree on the terms of the deed in a way that suits both parties.
By signing the deed of release, the dispute effectively comes to an end and the parties are free to pursue their commercial interests (subject to the terms of the deed).
Deeds of release are often used in the context of an employment dispute. For example, when an employee’s employment agreement is terminated, they may be asked to sign a settlement deed.
The deed will ensure that the employee will not be able to make any employment claims against the employer and is usually provided in exchange for some payment or benefit (in addition to their statutory entitlements).
Loan or credit agreement disputes
A deed of release can be used in terminating a loan or credit agreement, such as a personal guarantee or any other finance agreement.
Deeds of release can also be used in any satiation where both parties want to be mutually released from liability under a contract or any kind of agreement.
By signing the deed of release they will be released from obligations, claims, or any other actions that may arise from their legal contract.
The terms of a deed of release
The specific terms of a deed depend on the nature of the dispute and the outcome each party wants to achieve.
The most common terms which are included in deeds of release are set out below.
A description of the parties
An effective deed must contain the names of the parties.
The name of the parties must be accurate, otherwise, the deed may be unenforceable and ineffective.
For companies, the deed of release should include the full corporate name and ACN. If an individual is signing a deed of release, their full legal name (first name and surname) must be included and spelt correctly.
Recitals described the background to the problem that the deed of release is trying to solve.
The recitals can be short, and descriptive and should contain key facts which are not disputed by the parties.
Generally, recitals in a deed create an estoppel against arguing that the facts of the matter are otherwise. The recitals must be factually correct.
The release clause
A release clause is the fundamental term of a settlement deed.
A release clause ensures that at least one party (but perhaps both) releases the other party from claims. But what exactly is meant by a claim?
The definition of a “claim” depends on how that term is defined under the deed. It can mean whatever the arising out of the subject matter of the dispute.
In most cases, the release clause should be specific, rather than providing a release in relation to issues that are unrelated to the dispute. For example, a dispute might relate to a particular employment-related matter regarding bullying, but it doesn’t apply to claims related to any other grievances the employee may have.
The circumstances where a deed of release may not contain a specific release clause may be where a building contractor requires a deed of release before paying a subcontractor’s final payment claim.
The deed of release may or may not be in exchange for the final payment (for instance, the deed may be required before or within a certain amount of time from receiving the payment). In any event, these kinds of deeds of release are likely to contain a broad release clause.
The settlement clause in a deed of release
For at least one of the parties, the payment (or “settlement”) clause is the most important clause in a settlement deed.
Often, one of the parties is going to pay the other (either in the form of money or some other benefit) in exchange for the releases set out in the deed.
A settlement clause in a deed should address:
- the amount that is going to be paid
- what the amount is comprised of
- how the amount will be paid (for example, by electronic funds transfer)
- when payment will be made (usually a certain period of time from when the deed is signed by both parties)
- that the payment is made in exchange for the releases
- that the payment is in full and final satisfaction of all claims relating to the dispute
A confidentiality clause is a common term for a deed. In most cases, it will be important that the terms of the settlement deed itself are kept confidential and it is reasonable to expect this.
There may also be other information that either or both parties do not want to disclose to anyone else.
A confidentiality clause should contain clauses that exclude certain circumstances, for instance:
- information that is required to be disclosed due to a legal requirement or for accounting or audit purposes
- information that is public knowledge or becomes public knowledge (other than as a result of breaching the deed of release)
Return of property
For employment-related disputes, a deed of release may contain a clause requiring the employee to return company property. This may be required prior to and as a condition precedent to payment being made by the employer.
Execution clause in a deed of release
An execution clause is the part of the deed where the part(ies) sign.
For companies, a deed of release should be signed in accordance with s 127(1) of the Corporations Act 2001 (Cth).
For individuals, a deed should be signed by the person who is a party to the deed and it should be signed by someone who witnesses the party apply their signature to the deed.
A non-disparagement clause obliges the parties to the deed of release to refrain from making any negative or derogatory comments about the other party.
A non-disparagement clause is an important clause in a deed of release, but it can be difficult to police.
A condition precedent is a condition that must be met before something must be done or not done. As an example, it is likely to be a condition of a party’s obligation to pay that the other party has signed the deed.
If the condition is not met, the obligation may not be triggered and the deed may be terminated.
The risks of signing a deed of release
Even though signing a deed puts an end to a dispute or disagreement, it can also limit your legal rights. As a result, when signing a deed of release both parties need to understand the terms of the contract and understand what rights they are giving up on and what liability they are accepting.
Because of this, it’s critical to get some help reviewing the deed from an experienced contracts lawyer.
Breaching a deed of release
If a party breaches any of the agreement terms, for example when an employee shares confidential information about the company, the other party has legal rights.
The party, in that case, may have the right to begin legal proceedings to recover damages for any damage due to the breach of the deed. The exact remedies that a party will have will depend on the terms of the deed.
Further, the time limit for bringing proceedings for breach of a deed is 12 years.
How Can Prosper Law Help?
Contributors: Farrah Motley (Director of Prosper Law), Nada Saleh (Legal Intern), Hadba Alzammam (Legal Intern) and Ziad Baraja (Legal Intern)
You can purchase an Employment Deed of Release here.
Want to read more? Check out our article What Does Limitation of Liability Mean?
Farrah Motley | Director
M: 1300 003 077
A: Suite No. 99, Level 18, 324 Queen Street, Brisbane, Queensland Australia 4000