Settlement negotiations can be a turning point in litigation, a chance to achieve resolution without protracted costs or risk. Yet, an unclear offer or poorly drafted agreement can undo all progress. This new Practice Note on Settlement Offers and Documents to Record Settlement Agreements provides comprehensive, practical guidance on making and formalising settlements with clarity and precision.
The Practice Note outlines the various instruments that may record settlement terms:
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A formal settlement agreement between the parties;
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Consent judgments or orders, including Tomlin Orders;
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Discontinuance or stay orders, depending on whether proceedings are ongoing.
Each carries implications for enforcement, jurisdiction, and future litigation rights. Practitioners are also reminded to consider whether third parties — such as guarantors or parent companies — should be included, especially in light of the Contracts (Rights of Third Parties) Ordinance (Cap 623).
Key drafting considerations include:
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Defining damages and interest clearly;
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Specifying cost arrangements;
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Addressing indemnities and potential non-party claims;
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Ensuring releases are unambiguous and comprehensive.
A single drafting oversight can render a settlement unenforceable or expose clients to renewed litigation. The Practice Note offers practical tips for avoiding such risks, including how to draft terms that prevent assignments of third-party claims or redundant proceedings.
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