Australia: Sealing the settlement: don't forget to invite the third parties

Last Updated: 22 December 2012
Article by Peter Sise

Key Points:

When settling a dispute, it is important to consider whether the release from liability should extend to third parties associated with the release, and there are several options open to do so.

We often talk of sealing the deal, but sealing the settlement of a dispute is also an important occasion. Closing a deal may open up new business opportunities, but finalising the settlement of a dispute can resign a distracting and draining feud to history so that a business can focus on what matters most, its business.

Often, the final step in sealing a settlement is entering into a settlement agreement. There are many issues which may arise when preparing a deed of settlement; for example, the insurance implications of releasing a person from liability, the tax treatment of the settlement sum, whether any indemnities are necessary, and much more. Not all of these issues will arise in every case, but one issue which almost certainly will is the scope of the release from liability.

For the party being released from liability (releasee), it is important to consider whether the release should extend to its related entities, employees, officers, contractors and agents (together, the third parties and separately, a third party).

Consider the following example. Person A claims that Company B misled them through misleading statements made by employees of Company B. If Company B settles with Person A, it should consider a release from liability that extends to the employees of Company B who allegedly made the misleading statements. Otherwise, a risk will remain that a claim will be brought against an employee who may in turn make a claim for indemnity or contribution against their employer (Company B).

Key points in settling a claim

There are two questions that a releasee should consider:

  • which third parties should be released from liability; and
  • what mechanism should be used for releasing the third parties?

Third parties may be protected through the use of a deed poll, creation of a trust, legislation (if available) or simply a contractual release. Which option is used largely depends on whether the releasee wishes for the third parties to have a right independent of the releasee to enforce the release and the circumstances of the particular case.

Which third parties should be released from liability?

Which third parties will be released from liability will largely be determined by two factors:

  • whether the releasee believes there is a need to protect third parties; and
  • the outcome which the releasee is able to negotiate with the releaser.

The releasee may wish to seek a broad release, such as a release for its related entities, directors, officers, employees, contractors and agents, both present and past.

What mechanism should be used for releasing the third parties from liability?

When determining what mechanism to use to release the third parties from liability, the releasee must consider whether it wishes the third parties to have a right to enforce the release from liability independently of the releasee. If the answer is yes, the releasee has several options.

First, it could make the third parties signatories to a deed of settlement. If the third parties are signatories to the deed of settlement, they are parties to the deed and may enforce it. If a deed is used to record the terms of settlement, the requirement that consideration move from the third parties is dispensed with.

However, making the third parties signatories to the deed of settlement may be impractical depending on the number of third parties and their whereabouts. Further, the releasee and the releaser may not wish to disclose the contents of the settlement deed to the third parties, which would be difficult to avoid if they were signatories.

Secondly, the releasee could arrange for the releaser to execute a deed poll which releases the third parties from liability. A person for whose benefit a covenant in a deed poll is expressed may sue upon that covenant, if that person is sufficiently named in the deed poll. This option overcomes the shortcomings of having the third parties execute the deed of settlement.

Finally, the releasee and third parties may avail themselves of legislation that exists in certain jurisdictions which modifies the law of privity to allow third party beneficiaries to enforce an obligation: see section 11 of the Property Law Act 1969 (WA), section 55 of the Property Law Act 1974 (Qld) and section 56 of the Law of Property Act 2000 (NT).

Whether this legislation applies will to an extent depend on the choice of law clause used in the deed of settlement. For the legislation in Queensland and the Northern Territory, a third party beneficiary is required to communicate their "acceptance" to the promisor of the promisor's obligation. This must be done within the time specified by the promise or, if no time is specified, within a reasonable time of the third party beneficiary becoming aware of the promise. It is worth noting that the legislation in Queensland, Western Australia and the Northern Territory can restrict the ability of a promisor and promisee to vary their agreement without the consent of any third party beneficiaries.

Two further options to protect the interests of third parties

If the options referred to above are unavailable or unacceptable to the parties, the releasee has two further options to protect the interests of third parties. These two further options do not allow the third parties to enforce the release from liability independently of the releasee.

First, the releasee could include in the deed of settlement a provision stating that the third parties are released from liability. The releasee could further add that the releaser will enter into a deed of settlement with a particular third party when requested to by the releasee. If this option is taken, the third parties have no right to enforce the release and are dependent upon the releasee to protect their interests.

Secondly, a provision could be included in the deed of settlement that the releasee has sought and obtained the release as agent of the third parties and holds the release on trust for their benefit. This option is probably the most common of those mentioned in this article. For this option, the releasee is a trustee of a chose in action and the third parties are beneficiaries. The third parties must initially rely on the releasee to enforce the release on their behalf, but if the releasee is unwilling to do so, the third parties may bring proceedings to enforce it themselves where the releasee is joined as a co-defendant along with the releasor. In this way, the third parties are able to protect their own interests if the releasee is unwilling to do so.

It is worth noting that if the releasee holds the release from liability on trust, it is assuming obligations as trustee of the release. The releasee may be called upon to enforce the release several years after the deed of settlement is entered into, depending on how long the limitation period is for the releaser's cause of action. There may also be restrictions upon the ability of the releasee to vary the terms of the release, if the third parties have changed their position to their detriment on the assumption that the release will continue.

Conclusion and summary

When settling a dispute, it is important to consider whether the release from liability should extend to third parties associated with the releasee. There are several options open to a releasee to protect the interests of third parties. The appropriate option will ultimately depend on the wishes of the releasee, the outcome of the negotiated settlement, and the particular situation.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Peter Sise
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
Accounting and Audit
Anti-trust/Competition Law
Consumer Protection
Corporate/Commercial Law
Criminal Law
Employment and HR
Energy and Natural Resources
Environment
Family and Matrimonial
Finance and Banking
Food, Drugs, Healthcare, Life Sciences
Government, Public Sector
Immigration
Insolvency/Bankruptcy, Re-structuring
Insurance
Intellectual Property
International Law
Law Practice Management
Litigation, Mediation & Arbitration
Media, Telecoms, IT, Entertainment
Privacy
Real Estate and Construction
Strategy
Tax
Transport
Wealth Management
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.