The settlement agreement

Result of a court procedure

The result of a (court) procedure cannot be estimated in advance. This may have different causes. First of all it is not clear how a counterparty wil respond. Therefore it is not clear what evidence may be neccessary and who carries the burden of proof. Above all it is quite often difficult to predict the court judgement of certain propositions made by a party in a proper way. When the lawsuit relates to an event in the past, also the chronological order or timeframe is a complex matter.

The importance of written agreements

When parties make a settlement, they in general (apart from some proverbial exceptions) intend to settle the dispute in a definate way. Most often they want to prevent that the counterparty will reconsider the settlement agreement.

The settlement agreement

In order to minimize the changes of any reconsideration of the settlement agreement, the agreements shall be agreed upon in written. The settlement agreement is a specific appointed agreement by law.

To end or prevent any uncertainties or dispute

The legislator specificly created the settlement agreement in order to prevent any uncertainties or disputes. This implies that both parties cannot reach a settlement agreement in case they both do not want to end any uncertainty or dispute nor want to prevent this.

Regarding the content apply ‘de jure’

The uncertaincy regarding the dispute parties intend to end or avoid, must apply ‘de jure’. This is more extensive that the current legal relationschip between parties. In a settlement agreement parties may also agree that there is no legal relationship at all.

The consequences of the settlement agreement

New reality

As a matter of fact with the settlement agreement parties will create a new excisting reality.

New reality is obligatory

Parties are also bound to this new reality even when the earlier legal relationship was more favourable.

They cannot reconsider the settlement agreement even when they have agreed upon a less favourable new reality.

Limited possibility to invoke the aberration

When a party deceived the other party before entering into the agreement, under circumstances the deceived party can invoke aberration and may annul the agreement (article 6:228 DCC).

In general a judge will restrain to decide that the request for aberration was justified. Definitely when aberration has been caused by particular circumstances of the dispute on which the uncertaincy was all about.

It is possible not to apply to mandatory law

In the settlement agreement parties may agree upon illegitimate matters which do not apply to mandatory law.

Most typical about the settlement agreement is that parties may agree upon illegitimate matters. The reason for this is that the settlement agreement must create certainty. This certainty would not excist if there could be a dicussion about that the fact that the agreement does not apply to mandatory law.

Two exceptions

The possibility to refrain from mandatory law is not an absolute fact.

First of all this possibility is limited to those agreements and decisions regarding property rights.This is also the case when the agreement/decision (meaning: the outcome/solution) is of a property right nature, even when the facts about the uncertainties raised where not.

Above all a settlement agreement may not be in violation of ethical and moral standards.

Final discharge

Usually parties will agree upon final discharge after all issues they agreed upon have been settled. Such a final discharge is abolute and final. The description is very important. Common law indicates that parties do not have final discharge in case they did not agree on issues they did not discuss or were not part of the dispute. Also a lot of escapes might be possible despite impossibilities at first sight.

To annul a settlement agreement

There are some legal possibilities to annul a settlement agreement, despite several efforts of the legislator to avoid this. You can think of for example the possibility to invoke annulment for deceit, abarration or abuse of the circumstances. Also annulment of the agreement is possible in case one of the parties does not fulfil the obligations of the settlement agreement.

It is legally admitted to agree a settlement agreement in which parties exclude the right of annulment of the agreement. It is important to restrain from this as much as possible. You have to be very definite about the case if you propose this or accept such a proposal.