Drafting a settlement agreement

Drafting a Settlement Agreement

Under Belgian law, a settlement agreement is a contract by which parties end a dispute by making mutual concessions. It is binding, has res judicata effect between the parties, and prevents the settled issues from being re-litigated.

Since a settlement agreement limits the parties’ rights to bring judicial claims, Belgian courts interpret settlement agreements strictly. This makes careful drafting crucial.

A. Legal Framework in Belgium

Settlement agreements must comply with:

• the Belgian Civil Code (articles 2044 et seq.); rules on consent, corporate capacity, and representation;
•  the Companies and Associations Code (for internal corporate approvals and corporate interest); 
• public policy limits (e.g. rights that cannot be waived);
• B2B and B2C rules on unfair terms under the Code of Economic Law; and
• sector-specific rules (e.g. labour law, consumer law).

B. Key Elements

1. Mutual concessions and consideration: Belgian law requires that a settlement agreement is based on mutual concessions. These do not need to be perfectly symmetrical but must reflect that each party gives something up, such as accepting payment, renouncing claims, adjusting contractual terms, or agreeing not to initiate legal proceedings. Clearly documenting these concessions reduces the risk of later challenges.

2. Payment and performance mechanics: Where the settlement involves payments, the agreement should clarify timing, amounts, payment methods, and any conditions precedent. For non-monetary obligations, such as deliveries, returns of property, confidentiality undertakings, or non-compete obligations, the settlement should detail how these are to be performed, verified, and documented.

3. Release and waiver of claims: A central feature is the formulation of the release. This typically includes: (i) the claims that are expressly waived, (ii) the timeframe covered (past, present, and/or future claims arising from the dispute), and (iii) any exclusions that remain intact.

4. Confidentiality, non-disparagement, and communication rules: Settlement agreements often include confidentiality provisions covering the terms of the settlement, the underlying dispute, and communications between the parties. Rules on public statements, internal announcements, and regulatory disclosures help avoid reputational or commercial harm.

5.Dispute resolution and enforcement mechanisms: To manage disagreements about the settlement, parties may include an escalation procedure, expert determination, or arbitration clause. Because a settlement agreement has the force of res judicata under Belgian law, enforcement can be straightforward. Parties may also opt to have the settlement homologated by a court to facilitate enforceability.

6. Term, effectiveness, and post-settlement obligations: The agreement should state when it becomes effective, how long any continuing obligations remain in force (such as confidentiality or payment schedules), and what happens in case of breach. Termination is uncommon in settlements, but fallback rules (e.g., reinstatement of proceedings) can be included where appropriate.

At act legal Belgium, we help clients negotiate and document settlement agreements. A well-drafted settlement agreement avoids future disagreements about what was meant to be resolved. Poor drafting, on the other hand, risks reopening the conflict or creating new issues.