Pre-thinking the Settlement Agreement

As every litigation lawyer knows, drafting a settlement agreement or consent order at the end of a successful mediation can be exhausting. Energy levels are low and it can be a struggle to concentrate. But this is the most important part of the process because nothing is binding until the document is signed, and it has to be 100% right. In complex cases it’s a daunting task; it can take hours to complete the document to everyone’s satisfaction, and it’s only natural that mistakes creep in. Nobody wants satellite litigation over the settlement terms.

The parties’ lawyers should focus on the shape of the settlement agreement as part of their pre-mediation preparation. They should consider bringing to the mediation a draft agreement or consent order which includes all of the terms that they consider will be necessary or desirable in the concluded settlement. This has many benefits:

Settlement Agreement Advice

Firstly, it encourages the participants to focus on the deal. This may sound obvious, but far too many mediations run into difficulty because the parties’ mindset is adversarial from the start. Mediation is a collaborative process, not an adversarial one. The best mindset is one of collaboration to resolve the common problem: the dispute. By thinking through the shape of a written agreement you are starting to make that vital psychological shift from blame and entrenchment to a positive, problem solving approach to the negotiations.

Secondly, pre-thinking the written agreement enables you to identify obstacles to a binding settlement before the mediation starts. It’s no good realising at 9.00pm on the mediation day that a settlement cannot be concluded because a crucial term is contingent on factors outside the control of the parties present. If a settlement potentially involves a transfer of land, or the creation or release of a charge on land, is the consent of an existing mortgagee needed? If it potentially involves transfer of shares in a private company, what about pre-emption rights? If it involves agreeing a new boundary between land, how will it be plotted in a way that removes all room for argument? There are myriad problems that can arise, and by pre-thinking the essential ingredients of a settlement you should be able to avoid unsatisfactory solutions such as conditions precedent, best or reasonable endeavours or unenforceable agreements to agree.

Thirdly, having just endured a day of hard negotiation to reach the deal, the last thing everybody needs is for it to collapse overnight because the lawyers could not conclude a binding written agreement (either due to exhaustion or the absence of a crucial ingredient) and somebody has had a change of heart.

Non-binding heads of agreement are sometimes necessary, but it is almost always preferable to get a binding agreement on the day. By taking the time to focus on the shape of the written agreement as part of your pre-mediation preparation, you give yourselves the best chance of achieving this. It has the additional benefit of opening an early line of communication with your opposite number for collaboration on practical rather than adversarial matters.

Alistair Pye