May 23, 2022
Deeds of settlement and release record the terms of settlement between parties and set out releases and indemnities provided by each party (if any).
Releases are the mechanism which settles or prevents disputes by discharging one party (or both) from pursuing any further legal proceedings regarding specific claims. This article will discuss a few of the crucial questions to ask when considering a release to ensure the form of the release reflects your intentions.
What is being released?
Expressly setting out the scope of the release in a deed is crucial to ensure it operates as intended. There are a few things to consider:
- When dealing with unknown claims, be sure to specify whether the release will apply to claims that are known, unknown, or both at the time of the release (or a specific date / upon performance of a task).
- If the intention is to have the release apply widely, set out that the release covers any present and future claims of any nature, arising out of or in any way related to the subject matter mentioned in the deed.
- Specify the nature of claims that the release applies to. This means, determining if the release covers any claims arising out of contract or tort, in equity or statute, or at common law, or whether the release will be limited to claims of a particular type (e.g., only contract). Further, it is important to check statutory obligations as some statutes provide rights that cannot be extinguished (even if included in a deed).
- Consider whether the release will operate as a bar to any legal proceedings. In other words, specify whether the deed may be used as a complete defence to legal proceedings (and capable of being tendered in evidence and relied upon) in relation to the claims covered by the release (not including enforcement proceedings).
- Finally, it is important to also consider how the term ‘claim’ is defined within the deed. For example, if claim is defined to mean “any claim arising out of contract, equity, statute, or common law in relation to the matters covered”, the operation of the release will not cover tortious claims (i.e., negligence).
Is the release mutual or unilateral?
Determine whether the release operates to release one party from liability (unilateral release), or if all parties to the deed release each other from liability (mutual release) to ensure the release accurately reflects the intention of the parties. To achieve this, it is important to understand the differences between unilateral and mutual releases.
Mutual release clauses involve all parties agreeing to release each other from liability for all present and future claims (as defined within the deed), demands, debts, or any other legal proceedings in relation to the subject matter of the deed.
On the other hand, a unilateral release involves only one party releasing the other party (or parties) from certain obligations or liabilities. This means the party not released from liability may still face legal proceedings in respect of the subject matter of the deed.
Is there an indemnity to be given?
Within the construction industry, indemnity is typically defined as an obligation to compensate another party for losses and damages incurred in the event of third party claims. If there is an indemnity to be given, identify who is giving the indemnity and what the scope of that indemnity is.
For example, party A and B may agree to mutually release each other from all future claims (known and unknown at the time of executing the deed) and party B also agrees to indemnify party A for any third party claims arising in relation to the subject matter of the deed.
Are there any specific carve outs?
A ‘carve out’ allows parties to exclude certain liabilities from an agreement. If you wish to exclude or preserve specific claims and / or rights against the release party (or third party), it is crucial these are expressly set out. Within the construction industry, some common carve outs include:
- consequential loss to ensure the consequential loss clause under a contract remains in force, meaning neither party will be liable for indirect losses (as defined within the contract or deed);
- rights in relation to defective work by specifying the release does not apply to or limit the warranties provided under the contract; and
- identifying statutory rights which prevent certain claims from being released.
It is important to carefully review and give consideration to how the release may impact your specific circumstances and contractual obligations / rights, to ensure you are not exposing yourself to future claims or extinguishing contractual rights.
Main Takeaways
Remember:
- what type of dispute is being settled;
- the intended scope of the release and whether this is accurately reflected;
- whether the release is mutual or unilateral;
- if any rights are preserved and if so, whether these are specified;
- if the term ‘claim’ is defined to include any claims (including those arising from contract, tort, statute, common law, equity and any other claims);
- whether an indemnity is being given and if so, by who and to what extent; and
- if the circumstances require, whether any carve outs are clearly specified.
Lamont Project & Construction Lawyers
Lamont Project & Construction Lawyers’ team has extensive experience with the operation of deeds and industry knowledge about the intricate formalities required for deeds and the associated risks for major projects. If you have any questions about any matters raised in the above article as it relates to your specific circumstances, please contact Lamont Project & Construction Lawyers.
The content of this article is for information purposes only; it does not discuss every important topic or matter of law, and it is not to be relied upon as legal advice. Specialist advice should be sought regarding your specific circumstances.
Contact: Peter Lamont or Quinn Hironaka
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