A settlement agreement is a legally enforceable contract recording terms agreed upon by disputing parties in an effort to settle the dispute. The settlement agreement will typically deal with agreed-upon concessions and terms and obligations of the parties, including the finality of the dispute, should the parties perform in terms of the settlement agreement.
Although it is not a requirement for settlement agreements to be reduced to writing, it is highly advisable to do so to ensure that the terms of the settlement are fully understood and don’t in turn lead to further disputes.
If litigation has already commenced regarding the dispute at hand, the settlement agreement can be made an order of the court and is enforceable like any other order in that if breached the aggrieved party can apply to the court for a contempt of court order or a right of execution depending on the circumstances.
A court however can only make an order regarding matters placed before it and does not have the power to grant an order regarding a dispute which was not placed before it. What this means is that if settlements were agreed to before the litigation process commenced, such settlements cannot be made an order of the court, as it is not permissible for parties to “freely clothe their agreement” with the severe consequences attached to a court order.
This does not mean that parties cannot conclude a settlement agreement before litigation. It only means that a breach of such an agreement will need to be dealt with as a normal breach of contract.
A court may also decline an application to have an agreement made in an order of court if it finds that the terms contained therein are against public policy. An example of this could be an agreement to not report a crime.
The settlement agreement remains a widely used tool in the dispute resolution space, but care should be taken by parties to not proceed to make concessions and settlements without their attorney who will ensure that the terms of the settlement are correctly reflected in the final settlement agreement, and if appropriate, also made an order of the court.
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