The Deed of Release is one of the most adaptable documents in any legal tool box.

It usually is a brief, but carefully targeted, document used to either bring a dispute to an end or to prevent one from ever arising.

Such a document could be used to evidence the settlement ‘deal’ between the parties. If you are presented with a Deed of Release, make sure you are getting a good deal and do not sign it without proper advice.

Typically under such a document, one party undertakes to pay a certain amount or to do a specific act and the other party agrees that it will be prevented from making any further claims related to that matter.

A common use is where an employee is being paid a redundancy amount. In those circumstances, the employer and employee execute a Deed or Release and it is agreed that the payment of the redundancy amount will bar any further employment-related claims.

Another common use is where ligation is under way between the parties. You’ve probably frequently heard news reports which state that something was “settled out of court” and the “terms of the settlement are confidential”. A Deed of Release would be the document behind that aspect of the news story.

The common provisions in a Deed of Release are:

• without any admission of liability the parties agree to settle the matter;
• a description of what Party A must do;
• a description of what Party B must do;
• the terms and scope of the unconditional release;
• a bar to any further legal proceedings;
• confidentiality undertakings;
• a warranty that:
  • each party has the capacity to enter into the Deed;
  • entered into the Deed without any duress;
  • had the opportunity to seek independent legal advice;
  • understood the consequences of entering in the Deed;
  • knows the other party is relying on the undertaking being given; and
  • neither party gave any other promises, representations or inducements.

Of course, a Deed of Release usually includes some boilerplate clauses and some interpretation boilerplate.

It is also standard practice to execute the document as a deed rather than an agreement as this overcomes any concerns about the possible absence of consideration.

Describing the anatomy of legal documents is an inherently difficult task that is fraught with complexity and exceptions. What is true for some documents may be incorrect or inapplicable for others. The law that applies in various jurisdictions will also be a factor influencing diversity.

My comments are general observations. They must be tempered with common sense and applied with care.

Document names and terminology often vary simply due to personal preference.

Just as human anatomy is dependent on gender and age, legal anatomy is dependent on the nature and value of the transaction and, of course, on the level of potential liability.

Knowing the law is useful, but knowing how to wisely use it should be our goal. This primer should be backed up by advice from a clear, concise and commercially-astute lawyer.

Anyway enough of my caveat emptor (“buyer beware”) rant. I hope the following skeletal overviews amount to a basic User’s Manual that makes the law a more useful tool in your hand:

• Deed of Confidentiality
• Heads of Agreement
• Shareholders Agreement
• Deed of Release
• Boilerplate
• Interpretation Boilerplate

Boilerplate sections of a document are often highly underrated. They are the ‘lawyer’s stuff’ at the front of the document that often gets scant attention.

That is unfortunate as when a problem arises, the answer is often found within these sections. Was the deal GST inclusive or exclusive? What about prior discussion and agreements, were they specifically excluded form the contract and replaced by the ‘entire agreement’ provision.

The documents written response to such fundamental questions could save your bacon one day.

It is standard practice to include a number of these general ‘interpretation’ provisions in any legal document.

They are often placed at the front of the document and boilerplate provisions that address standard legal terms are usually included at the back of the contract.

The core commercial terms are set out in the body of the contract.

These provisions are general in nature and determine how the document should be interpreted.

Some of these common boilerplate provisions are:

• a reference to a statute or other law includes its regulations and all amendments to these laws;
• a reference to this document includes any variation or replacement of it;
• a reference to a clause includes a reference to a sub-clause;
• any reference to confidential information includes any parts of the confidential information;
• the word “person” includes a firm, corporation or other entity;
• a reference to a person or a party includes a reference to the person or party’s executors, administrators or representatives;
• a reference to a group of persons is a reference to any two of them jointly and to each of them individually;
• a reference to a party includes a reference to its directors, employees and agents;
• singular words include the plural;
• a reference to dollars or $ is a reference to a specified currency;
• a reference to any monetary amount means an amount exclusive of GST or VAT. (N.B. Only if you are the seller. Make it inclusive if you are the buyer);
• all headings in the document have been inserted for ease of reference only and are not intended to affect meaning or interpretation.
• a provision must not be construed against a party only because the party prepared it.
• the word “including” is not a word of limitation.

A Shareholders Agreement (“SHA”) is akin to a pre-nuptial agreement.

The focus is usually on what each shareholder will bring to the relationship and the way the new entity will be managed and report its results. 

Other core issues relate to the issue of new shares and right and obligations that must be complied with in any sale of shares. A vlauation clause is often included. For obvious reasons, knowing how to set the exit price if a shareholders chooses to exit is a very important commercial issue for all concerned.

It’s wise to also pay close attention to the ‘divorce’ provisions.

Specify what will happen if things turn sour and how a crisis will be managed or how the relationship will be fairly severed if that becomes necessary.

Set out below is a very top-level overview of provisions commonly included in a such an agreement.

Of course, when well drafted a SHA will include other issues and all provisions should be fleshed out in detail sufficient to address a wide range of circumstances.

• The SHA takes precedence if there is any conflict with the Constitution.
• Is entry into the SHA conditional on any other event occurring?

Shares

• The classes of shares and their rights attached to each class
• Detailed obligations of the respective shareholders and the varied shareholder classes.
• Restrictions on the sale of share to any third party unless they sign a document (often termed a “Deed of Accession”) agreeing to be bound by the terms of the SHA.
• The Board’s right to refuse to register a transfer of shares unless the other shareholders have waived their pre-emptive rights and a Deed of Accession has been signed.
• The pre-emptive right can vary in many ways but usually written notice must be provided to the other shareholders that a sale of shares is intended. If they do not accept the offer to buy the shares within a set timeframe, the shares can be sold to a third party. If pre-emptive rights are exercised the shares may be sold pro-rata – divided according to each buyer’s current proportionate shareholding – to the other shareholders or they can be sold in a single block if only one shareholder wishes to purchase.
• Often an independent valuer is appointed to determine a valid sale price
• The process for selling shares to third parties is detailed with timeframes for certain actions stipulated.
• Directors appointed by selling shareholder are required to resign when the sale is completed.
• It is common for a shareholder to be required to sell its shares if the majority of the ownership of that entity changes as this prevents other shareholders from being bound to a changed relationship.
• The actions that will result if a shareholder dies or becomes bankrupt (or liquidated) are set out and the defaulting party is usually required to sell its shares to the other shareholders at a price determined by an independent valuer.

Board

• The number of directors (including independent directors is set down.
• Shareholders are prevented from directly or indirectly competing with the company.
• The size, timing and conditions attached to shareholder loans or advances are set down.
• Whether shareholders will be guarantors if the company borrows funds.
• The shareholders are obliged to keep confidential the company’s information.

Dispute Resolution

• How a matter will be escalated to the respective CEOs to resolve disputes.
• Unresolved matters are then to be referred to mediation and, if still unresolved after a specified period, either to arbitration or to an independent expert.

It is standard practice to include a number of general provisions in any legal document.

Given their common use and function they are often referred to as boilerplate clauses.

It is common practice to place these more fundamental legal clauses at the back of the document while ‘interpretation’ boilerplate is usually included at the front.

The boilerplate clauses are more general in nature than other clauses in the body of the contract and they normally relate to legalities of the contract rather than the particular transaction.

There can be a temptation for a client’s eyes to glaze over once they see such provisions. It is fair to say that sorting through such  complications  is the reason a lawyer was hired, but the importance of these clauses should not be underestimated.

Clients often demand short, succinct documents and they may see such provisions as ‘unnecessary”. Judicious use is required and the elemination of all such content would not be wise. Deleting any boilerplate clauses should be throughly carefully considered with the risks and benefits being carefully weighed.

Some common boilerplate clauses are:

• This is the entire agreement between the parties in relation to its subject matter and it supersedes all previous written or oral negotiations, promises and understandings.
• No modification of the recorded terms will be binding unless it is in writing and signed by each party.
• If a court considers any provision unlawful, invalid or unenforceable that will not affect the validity and enforceability of the remaining provisions.
• If the document is signed in counterparts, each is deemed an original and together they constitute one instrument.
• Each party must do all things required to implement the provisions of the document and to give effect to the parties’ stated intentions.
• Each party is to pay its own legal costs related to preparing and signing the document.
• Nothing in the document constitutes a partnership among the parties or authorises any party to act as agent or to bind another or contract in another’s name.
• The assignment (changing ownership) of the rights and obligation are restricted unless written consent is given.
• Successors (such a future owners) will be bound by the relevant undertakings and obligations, but they’ll also enjoy the same rights.
• The other party must execute any documents required to give effect to the undertakings in the document.
• The rights, powers and remedies set out in the document are in addition to any existing rights.
• Failure to take action does not mean a party has consent to another party’s actions nor does it prevent a party from taking action later.
• Rights will only be waived if that waiver is in writing.
• A certain jurisdiction’s laws are selected to govern the document.

As stated in Terminology Made Simple, documents that protect confidentiality are referred to by a number of names, but they are essentially the same document: Deed of Confidentiality, Non-Disclosure Deed or Confidentiality Agreement.

It is prudent to execute the document as a deed rather than an agreement as that avoids any concerns over the possible lack of consideration if no money is exchanged.

It is always crucial to consider what you are trying to achieve and who you wish to contract with.

Who do you want on the hook for the obligations and who can you best take action against to assert your rights?

Choice of the right party (particularly if the other party belongs to a group of companies) is often based on financial, legal and logistic considerations.

Once you’ve paused to consider the purpose of the document and who the parties will be, some other standard provisions are:

Parties: Who will be the Recipient and give the confidentiality undertakings. Is it the main company or a subsidiary that you wish to bind? Or, would it be more appropriate to get individual undertakings from each of the Recipient’s employee who will have access to your confidential information?

“Confidential Information” definition: Includes any information (such as records, financial information, reports, product specifications, technical information and forecasts) that you provide to the Recipient, but it excludes any information already in the public domain or which the Recipient already knew.

“Purpose” definition: The nature and scope of the purpose is defined. The Recipient is restricted from use the information for any other purpose or disclosing it to any other person unless disclosure is required by law.

If it must be disclosed the Recipient must inform you, take all steps to resist or narrow the required disclosure (and assist you in that process too).

Disclosure to representatives: If the Recipient is permitted to disclose the information to any of its representatives, the Recipient must: limit the disclosure to what is strictly necessary; make the representative aware of the confidentiality obligations; have them agree to be bound by these undertakings; and make them aware that any failure to maintain confidentiality would be construed to be a breach of the Recipient’s undertakings.

Unauthorised access, use or disclosure: The Recipient must inform you of any unauthorised access, use or disclosure of Confidential Information and provide you with assistance to prevent that breach by complying with your directions.

Ownership of information: While the recipient is granted access, the information remains your property.

Return or destruction of information: Once the purpose is completed or upon your request, the Recipient must return or destroy the information.

Breach of obligations: Sets out what action you can take if the undertakings are breached.

Continuing obligations: The obligations will continue for a certain term or until the information enters the public domain.

Disclaimer: You disclaim (as much as the law permits) liability for any loss or damage related to the Recipient’s use of the information.

General: There are a number of boilerplate provisions which are a useful addition to most documents.