As litigants and mediators have long understood, by the time a case is resolved, the parties involved have sometimes worked for many hours on what can be a grueling process. Therefore, it is on occasion difficult at that point to start drafting a settlement agreement from scratch. It is helpful for a mediator to come to the mediation with a settlement term sheet prepared that can be used to help clarify the issues and assist the parties in creating a binding and enforceable settlement agreement.
The most challenging aspect of creating a settlement term sheet (with an expectation by the parties that they will work later on a fully drafted settlement agreement) is ensuring that the settlement reached at the mediation can be enforced, even if there is an intention to create a more complete document later. The way to accomplish this is to include clear language in the term sheet to avoid any ambiguity about the terms that are included.
Therefore, any term sheet that is to be executed by the party litigants (and their counsel) should include language that states that the parties agree to be bound by the provisions in the term sheet and that the document is “binding and enforceable”. Furthermore, even though the parties have agreed to prepare a more formal settlement agreement based on the term sheet, such a formal agreement is not a condition precedent to settlement. In other words, the term sheet should clarify that, although the parties will endeavor to create a more formal agreement based on the term sheet, such a later document is not a requirement for the enforceability of the settlement. Additionally, if a later agreement is to be drafted, the term sheet should identify a deadline for the document to be prepared and executed or be waived. This avoids the possibility of extended delays in finalizing the settlement that the parties worked so hard to reach during the mediation itself.
Since the discussions during mediation are confidential, it is additionally helpful to include in the signed terms sheet that, if a dispute arises during the drafting and execution of the later settlement agreement, the parties agree that the mediator will act as the arbitrator of any such dispute and the decision made concerning any such dispute will be final.
Of course, to avoid any potential ambiguities with a settlement, it is crucial that the mediator and the litigants seek to include all material terms of the settlement as part of the term sheet. Therefore, issues as to the amount of the settlement, deadline for payment and method of payment should all be included in the term sheet. All deadline dates should flow from the date of the mediation and the signed term sheet, not from the date of execution of some later document that may or may not be finalized. Moreover, the term sheet should clarify whether there are multiple claims and causes of action, and whether all such claims are resolved or, if intended, only a partial resolution has been reached (to avoid a later claim that the full matter was settled). Furthermore, the term sheet should cover typical issues that are discussed during settlement negotiations, such as confidentiality and the remedies for breach of confidentiality. No term sheet should indicate that issues are subject to further discussion or negotiation. Instead, the term sheet should state that the terms are final and binding, even if to be incorporated into a later, more formal agreement.
Finally, it should go without saying, that the term sheet itself should be signed by all parties and dated. The term sheet should include language that such signatures acknowledge the term sheet itself is binding and enforceable.