When a Settlement Isn’t a Win: Spotting Coercion in Commercial Disputes

Not all settlements are smart. Some are strategic. But many are just survival-mode agreements disguised as mutual wins.

In our arbitration practice we’ve seen this pattern more than a few times:

-> A startup founder gets a legal notice.

-> They panic.

-> They call their “investor’s lawyer,” not their own.

-> And within days, they’re being nudged into a settlement that’s heavily one-sided: all to “just get it over with.”

These aren’t rare outliers.

They’re predictable outcomes in high-stakes commercial disputes where one party has greater institutional backing, deeper legal muscle, or just more emotional distance.

What Coercive Settlements Look Like:

1. Overwhelming Urgency: You’re told things like “Sign this by Friday or the offer is off the table.” Urgency is a known pressure tactic and not the mark of a fair deal.

2. Uneven Stakes: One side has revenue cushion, the other’s fighting survival. Deals made in this context often skew disproportionate — especially when reputation or licensing is on the line.

3. No Room to Negotiate: If the draft agreement arrives with “non-negotiable” highlighted, and you’ve not yet been heardm it’s a red flag.

4. Legalese as a Weapon: If you need a lawyer to translate basic clauses, chances are… it’s not meant for clarity. It’s meant for compliance under duress.

A Real Example:

In 2023, there was a founder who’d been served a notice alleging “material breach” in an advisory contract. The notice demanded Rs 50L in damages and included a 7-day window for “amicable settlement.”

The founder had almost signed the settlement before a mentor pushed them to seek second opinion.

The second opinion uncovered:

• The clause in question was mutually ambiguous, with no clear milestone for performance.

• The advisor had actually continued working for 2 months after the alleged breach.

• The settlement demanded complete IP assignment:  far beyond the claim.

By pushing back gently but firmly, the matter never escalated to arbitration.

The final agreement involved no damages, limited IP licensing, and, most importantly, no gag clauses.

Here’s a useful toolkit to counter coercion:

1. Create decision space: Acknowledge receipt of notice. Don’t react. Buy 48 hours.

Think. Breathe. Review.

2. Get a neutral second pair of legal eyes: Even if you already have a general counsel, arbitration demands a specialist lens.

3. Rewrite the conversation: You don’t have to refuse a settlement. But you can reframe it. Shift it from fear to clarity.

4. Document your process: coercion isn’t always in writing. Keep notes on how conversations unfold. Voice notes. Emails. Meeting recaps. These build your posture.

“But isn’t settling better than years in court?”

Yes, if it’s a real settlement, not a surrender.

Smart legal strategy isn’t about saying yes or no.

It’s about knowing why you’re saying either.