Compromise

What it is

A compromise (in Maltese, transazzjoni) is the Civil Code’s term for a settlement. Article 1718 of the Civil Code (Cap. 16) defines it as a contract by which the parties, by means of something given, promised or retained, put an end to a lawsuit that has begun or prevent one that is about to begin.

Most exit and settlement agreements contain a compromise: the employer pays or does something, and the employee gives up claims.

Its effect

• Like a final judgment. Between the parties, a compromise has the effect of res judicata, a matter finally decided (article 1729).
• Not undone for an error of law. It cannot be set aside on the ground that either side misunderstood the law (article 1729).
• Limited grounds to set it aside. It may be set aside for an error as to the person, or as to the matter in dispute, and in all cases for fraud or violence (article 1730).
• Capacity. A person may compromise only what they are capable of alienating (article 1720).

What it settles, and what it does not

A compromise does not extend beyond its subject-matter. A general renunciation of “all rights, actions and claims” applies only to what relates to the dispute that gave rise to the compromise, and it settles only the disputes the parties had in view (articles 1725 and 1726).

That is why the description of the dispute, often in the opening recitals, deserves as much attention as the release clause itself.

Practical points

• Read the agreement as if it cannot be undone.
• Check how the dispute is described, and what is carved out.
• An agreement between employer and employee cannot validly exclude the Protection of the Whistleblower Act or discourage a protected disclosure (Cap. 527, article 21).

See also full and final settlement.