A deed of settlement arrives in your inbox with a note saying that if you sign it, the dispute is finished. Or you are the one sending the draft, and the redlines have come back with half the clauses struck out. Either way, this is the document that is supposed to turn a messy, expensive argument into a clean outcome. A deed of settlement records the terms on which the parties have agreed to resolve a dispute, binds them to those terms, and usually releases them from further claims about the same subject matter. Once properly executed it can be enforced in court, which is why the other side will insist on it and why you should read every clause before you sign.
The deed form matters because of what it adds over an ordinary agreement. An ordinary contract is only enforceable if each side provides something of value, what lawyers call consideration. A deed is a promise under seal that binds even without consideration, which is why a settlement is usually documented as a deed: one party often gives up rights or accepts obligations without receiving a direct benefit in return. What makes a document a deed is how it is executed, and those formalities are strict. The practical question for a business owner is not whether to use a deed of settlement, but what should be in it and where the traps sit. This guide walks through the clauses you will see in any properly drafted settlement deed, in the order you should read them.
The clauses that make the deed work
Who the parties are
The parties clause looks like a formality, but it is where deeds most often fail. The release only binds the parties named in it. If the dispute is with a company, the deed must name the company by its exact registered name and ACN. If it is with an individual, use their full legal name. Then check who else could bring a claim: a related company, a partnership (each partner is a separate party), a guarantor, or a director who signed the contract personally.
- The variant to watch: the other side names only the company, so the individual behind it can sue you personally later, or names only the individual, so the company escapes.
- The trap: settling with one of two joint wrongdoers without naming the other, leaving you exposed to the second claim.
- The drafting minimum: name every person and entity that has a claim arising from the dispute, and state whether related entities, officers and insurers are included in the release or carved out.
What the dispute was about
Recitals set out the background: who the parties are, the contract or relationship that gave rise to the dispute, what the disagreement was, and whether proceedings have been issued. They are more than context. Courts use recitals to work out what the parties had in contemplation when they signed, and that matters because a release is construed against the background of the recitals. The High Court has held that the general words of a release are limited to the things specially in the contemplation of the parties at the time the release was given: Grant v John Grant and Sons Pty Ltd (1954) 91 CLR 112. If the recitals describe a dispute about unpaid invoices, a release may not cover a claim about defective work that was never mentioned. If the intention is to settle the whole relationship, the recitals should say so, and the release should expressly cover claims that have not yet been made.
What each side pays or does
The operative terms are the heart of the deed: who pays what, by when, and what else each side must do. If the settlement involves money, the clause should state the amount, the date it is due, the method of payment, whether interest runs on late payment, and whether the amount is inclusive or exclusive of GST. Non-monetary obligations need the same precision: return of property, delivery of goods, transfer of intellectual property, deletion of data, or discontinuance of proceedings.
- The drafting minimum: a payment deadline with a defined date, not "within a reasonable time".
- The trap: failing to say whether one party must perform its part before payment is due, so the payment obligation is triggered by an event that never clearly happens.
- The variant to watch: a staged payment schedule tied to events, which needs a clear trigger and a default mechanism if a stage is missed.
What happens if a party does not perform
A deed is only as good as what happens when someone ignores it. The default clause sets out the consequences of non-performance. Common designs include: the innocent party can sue on the deed for the unpaid amount; interest accrues; or, where proceedings were on foot, the proceedings resume or judgment is entered for the agreed amount without a fresh trial. The point of the deed is that the innocent party should not have to re-litigate the whole dispute to enforce it. If the deed is silent, you may be left proving the underlying claim all over again, which defeats the purpose of settling.
The release
The release is the clause that actually ends the dispute. Each party releases the other from claims, demands and actions arising out of the dispute. Without it, the deed is just an agreement to pay, and the dispute can resurface. The scope of the release is the drafting choice that matters most. A release limited to the claims described in the recitals gives certainty but leaves unmentioned claims alive. A release of all claims, known or unknown, gives maximum finality, but a court will still read general words down to the matters the parties had in contemplation, following Grant v John Grant and Sons Pty Ltd (1954) 91 CLR 112.
- The trap on your side: signing a broad release that extinguishes rights you did not mean to give up, such as rights under an ongoing contract, accrued entitlements, or claims against third parties like insurers.
- The trap on the other side: a release that is too narrow to stop a second claim, because it refers only to the specific court proceeding rather than the underlying dispute.
- What cannot be released: some rights survive regardless of what the deed says. A term that purports to exclude the consumer guarantees under the Australian Consumer Law is void (s 64, Schedule 2 of the Competition and Consumer Act 2010 (Cth)). A release also only binds the parties to it: it cannot stop a party from reporting suspected misconduct to a regulator, and it does not bind people or entities that are not named.
What happens to the court case
If proceedings are already on foot, the deed should deal with them. Usually the parties file a notice of discontinuance, or ask the court to make consent orders that dismiss the proceeding or record the settlement. The deed commonly attaches the agreed form of discontinuance or orders and makes it an obligation to file them within a set time. It may also provide that if a party defaults, the other can apply to have the proceeding reinstated or to enter judgment for the agreed amount. If this is left out, the proceeding can stay on foot, and the other side can keep using it.
Costs
Settlement usually has to deal with legal costs. The deed should state whether the settlement amount covers costs, or whether an additional amount is paid for costs, and whether that amount is inclusive of GST. A common drafting point is a release that also covers any costs orders already made in the proceeding, so that neither side can later enforce an earlier costs order. Costs terms are a frequent source of dispute after the fact, so the more specific they are, the better.
How the deed is signed
Execution is where a deed fails for want of form. For an individual, s 38 of the Conveyancing Act 1919 (NSW) requires a deed to be signed and attested by at least one witness who is not a party to the deed. A document expressed to be a deed that is signed and attested in this way is deemed to be sealed (s 38(3)). Equivalent provisions apply in the other states, so the witness requirement is standard across Australia.
For a company, execution is governed by s 127 of the Corporations Act 2001 (Cth). A company executes a document without a common seal if it is signed by two directors, or a director and the company secretary, or, for a proprietary company with a sole director, that director where the company has no separate secretary. A company may execute a document as a deed if it is expressed to be executed as a deed and is executed in that way (s 127(3)). Two practical consequences follow. First, a company deed does not need a witness or delivery: s 127(3A) removes the witnessing requirement, and s 127(3B) removes any requirement of delivery. Second, the signatures may be electronic: the Corporations Act allows technology-neutral signing, and in NSW a deed may be created, signed and attested electronically (s 38A of the Conveyancing Act 1919).
Optional clauses worth considering
Beyond the core clauses, most settlement deeds carry a set of optional provisions that protect particular interests. Consider whether each of the following is worth including in your deed:
- Confidentiality: include when the settlement amount, or the fact of the dispute, is commercially sensitive and either side could damage you by disclosing it.
- No admissions: standard in settlements; it records that the deed is a commercial compromise rather than an admission of liability, and it protects the paying party if the dispute comes up again in another context.
- Non-disparagement: worth including when the parties will keep trading, or when the losing side might complain about you to customers or suppliers.
- Mutual release of related parties: include directors, officers, guarantors, insurers and related entities if you want finality against everyone who could realistically sue, and check who is covered before you sign.
- Tax and GST allocation: state how the payment is characterised for tax purposes and who bears GST, and consider an indemnity if one party's tax position is affected by the settlement structure. Whether a settlement amount is assessable income or a capital receipt depends on what the payment compensates, as the ATO's guidance on compensation receipts (TD 93/58 and TR 95/35) shows, and both parties should confirm the treatment with their advisers before signing.
How an Artificer Legal lawyer reviews your deed of settlement
An Artificer Legal practitioner would read a settlement deed in a particular order. First, the parties: confirm that every entity that could claim is named, and that no extra party has been added who should not be there. Second, the release: check its scope against the recitals, make sure the carve-outs protect your ongoing business rights, and identify anything that cannot be released by law. Third, the payment and default machinery: confirm the dates, the GST treatment and what the innocent party can do on default. Fourth, the execution block: confirm the deed will be executed under s 127 for a company, or with a proper witness for an individual, and that counterpart and electronic execution are permitted. We would push back on a one-sided release, a confidentiality clause that outlasts its purpose, or a default clause that hands the other side a judgment without a genuine default. We would also check whether the deed needs to be accompanied by consent orders or a notice of discontinuance so the proceeding is actually finished.
The clause that decides whether your dispute is really over
The release clause is where a settlement deed succeeds or fails. Everything else in the deed, the payment terms, the deadlines, the default machinery, is about performance. The release is about finality. If it is drawn too narrowly, the dispute you thought was over comes back as a second claim, often years later. If it is drawn too broadly, it may be read down to what the parties actually contemplated, it may sweep up rights you needed to keep, and parts of it can be void where statute forbids contracting out. Drafting a release that is wide enough to end the dispute, precise enough to survive a court's scrutiny, and careful enough to preserve what you must keep, is the difference between a deed that works and a deed that starts the next fight.
In short: name the right parties, describe the whole dispute in the recitals, pin down the payment and default terms, deal with any court proceeding, and execute the deed strictly. Then read the release clause last, and read it twice, because it is the clause that decides whether the dispute is over.