Drafting Bulletproof Settlement Agreements: Common Pitfalls to Avoid

The mediation is not over until a binding settlement agreement is signed. A poorly drafted agreement can lead to future disputes, undoing all your hard work. Mediators must be vigilant in guiding parties and their lawyers to avoid these common pitfalls.

1. Vague or Ambiguous Language. Terms like "reasonable," "in a timely manner," or "in good faith" are invitations for future conflict. Encourage parties to be specific. Instead of "payment will be made in a timely manner," specify "payment of HKD 50,000 shall be made by bank transfer to the following account by no later than 5:00 PM on 30 September 2025."

2. Forgetting the "What Ifs". A robust agreement anticipates potential problems. What happens if a payment is late? Include a clause specifying interest on late payments. What happens if a party fails to perform a non-monetary obligation? Consider including a dispute resolution clause (e.g., return to mediation) specifically for issues arising from the settlement agreement itself.

3. Incomplete Release Clauses. The "full and final settlement" clause is the heart of the agreement. Ensure it is sufficiently broad to cover all known and unknown claims arising from the dispute. Parties should be advised by their lawyers on the scope of the release to ensure they are not inadvertently leaving the door open for future litigation on a related matter. A forensic mindset is crucial here to ensure all angles are covered.