Seal the Deal – How to Get Terms of Settlement Right to Resolve Your Building Dispute!
By Peter Micevski, Solicitor, Lovegrove Solicitors
December 2013
Sometimes projects don’t go according to plan. Ordinarily, when we are engaged to act for a party aggrieved by a building dispute, the party has no longer been able to resolve the building dispute by itself, and they engage lawyers to help enforce disputed rights through litigation.
However, building litigation is not for the “faint hearted”, nor is it for the “poor man”. In our experience, we have come to know that building actions cost a great deal of money, by and large take a large amount of time to resolve and are both financially and emotionally debilitating. Given the global economic climate, we are beginning to see a trend in parties’ attitudes towards their building dispute shift from fiercely contested litigation to early voluntary settlement.
What does it mean to settle the dispute?
In a building dispute, settlement is an alternative to pursuing litigation through trial. Typically, it occurs when one party agrees to some or all of the other party’s claims and decides not to fight the matter in court. Usually, a settlement requires that one party pay the other party a monetary amount, and in return the other party typically agrees to forgo any future litigation against the first mentioned party.
In most cases, the parties’ hand is encouraged by a qualified mediator, who is trained in the art of facilitation and the brokering of compromise. Settlement is a popular option for several reasons, but a large number of disputes are settled simply because the parties want to avoid the high cost of litigation.
If a matter does settle, the mediator will ensure that a “terms of settlement” document is drawn up and executed. This becomes a binding agreement, and the parties must adhere to the terms of settlement. These terms will be enforceable if they are breached.
How to get your terms of settlement right?
The Victorian Civil and Administrative Tribunal (“VCAT”), which is the primary forum for the resolution of domestic building disputes in Victoria, has created a precedent “terms of settlement” that parties may use to resolve and settle a dispute. The VCAT precedent terms of settlement is a good start to base a terms of settlement agreement on.
To ensure that your terms of settlement are comprehensive and can ‘seal the deal’, the terms of settlement should:
- State the name of the parties to the building dispute
- Be dated, e.g. the date by which the parties have signed
- State when the building contract was entered into and the property at which the works were performed
- State that a dispute arose between the parties and provide the reason why the dispute arose
- State that the parties have agreed to a settlement of the dispute and provide the terms in which the dispute is settled for e.g:
- The respondent/applicant pay the applicant/respondent a certain sum of money (referred to as the “settlement sum”)
- The settlement sum be paid by a certain date
- The settlement sum be paid to a certain party
- State the process or rights of the parties should the settlement sum not be paid by the due date for e.g:
- that the whole of the settlement sum, less any payments previously made, will immediately become due and payable;
- that the respondent/applicant will be at liberty to apply to have the proceeding reinstated and to obtain a determination for the sum then outstanding plus all reasonable costs incurred in so doing;
- that these terms of settlement be produced as conclusive evidence of all necessary consents on the part of the Respondent and the Applicant;
- that the party seeking a default determination may either file and serve an affidavit setting out details of the alleged default including details of any payments made and the orders sought (including calculation of the outstanding balance and any interest and costs) or may write to the Tribunal and the other party giving notice of their intention to seek a default determination setting out the above details and be prepared to give sworn evidence in any hearing of their application.
Ordinarily, if a party reneges on an obligation under the settlement agreement, the reneging party will be in a poor position.
- If a proceeding has been initiated in VCAT, the orders to be made by the Tribunal will probably be:
- The proceeding is struck out with a right to apply for reinstatement; and
- No order as to costs.
- State that in consideration of the parties entering into these terms of settlement and subject to their performance, the parties mutually release and discharge each other from all further claims, demands, suits and costs of whatsoever nature, however arising out of or connected with the subject matter of the dispute and the proceedings. Where the Owner is a party, this release does not apply to a breach other than a breach that was known, or ought reasonably to have been known, to the Owner to exist at the time these Terms of Settlement were executed.
Importantly, the terms of settlement in a building dispute should ONLY release and discharge a party from further claims arising out of or connected with the subject matter of the dispute and the proceedings for breaches that were known, or ought reasonably to have been known to exist at the time the Terms of Settlement were executed, and NOT for breaches that were not known to the party at the time of settlement. This ensures that a party is able to make further claims and demands against the other party for a breach that is discovered after the Terms of Settlement are executed. For example latent and unknown building defects. The builder “Contract out” of his/its duty to give a 10 year warranty for defects that may be unknown or undiscovered at the time the terms of settlement are signed.
- State that the parties agree to settle the dispute on confidential terms.
In complex matters, including some building disputes, terms of settlement may require complex legal drafting. Accordingly, we strongly suggest that you engage a suitable construction lawyer to help you resolve your dispute.
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© Lovegrove Solicitors 2013
