When negotiations between two parties terminate before
a formal, written agreement is signed, a common question is whether
or not a binding contract has nevertheless come into existence. An
interesting variant on this question was recently considered in Hartslief v. Terra Nova Royalty Corp.,
2013 BCCA 417. The added variable was the fact that the
negotiations took place exclusively between the parties'
solicitors, thereby raising additional uncertainty as to the
authority of the solicitors to bind their clients.
The case arose from the termination of the plaintiff's
employment with the defendant corporation. The solicitors for the
two parties had discussed a settlement of the plaintiff's
claim, and appeared to have reached a binding agreement. The
employer disputed this, however, and argued that (i) it was the
parties' joint intention that there would be no binding
contract without a formal settlement agreement, and (ii) there was
an outstanding issue between the parties (relating to a mandatory
"exit interview" with the plaintiff) which had not yet
The case raises at least three interesting points:
First, the trial judge (with the approval of the Court
of Appeal) spent a great deal of time assessing the record of the
parties' negotiations and the draft forms of agreement that
passed back and forth. As a general rule, of course, such evidence
is not properly considered in the exercise of interpreting
a contract. However, this prohibition is liberalized where the
issue is not one of interpretation, but rather concerns the very
existence of a disputed agreement.
Secondly, the Court of Appeal agreed that, in both
British Columbia and Ontario, the governing principles to be used
in determining whether or not negotiations have led to a binding
agreement are those set out by the Ontario Court of Appeal in
Bawitko Investments Ltd. v. Kernels Popcorn Ltd. (1991),
79 D.L.R. (4th) 97:
.... When [the parties] agree on all
of the essential provisions to be incorporated in a formal document
with the intention that their agreement shall thereupon become
binding, they will have fulfilled all the requisites for the
formation of a contract. The fact that a formal written document to
the same effect is to be thereafter prepared and signed does not
alter the binding validity of the original contract. However, when
... the understanding or intention of the parties, even if there is
no uncertainty as to the terms of their agreement, is that their
legal obligations are to be deferred until a formal contract has
been approved and executed, the original or preliminary agreement
cannot constitute an enforceable contract....The execution of the
contemplated formal document is not intended only as a solemn
record or memorial of an already complete and binding contract but
is essential to the formation of the contract itself ...
Thirdly, in the absence of evidence to the contrary,
solicitors negotiating on behalf of their clients are assumed to
possess the requisite authority to create a final contract binding
on their clients. Although the record indicated that, at certain
moments, one solicitor had excused himself to seek further
instructions from his client, this was insufficient to displace the
On the facts of the case, the Court of Appeal affirmed the trial judgment, and concluded that the
solicitors possessed full authority to reach a binding agreement,
there was no mutual understanding that a formal written agreement
was a prerequisite to a binding contract, and (assessed
objectively) there were no outstanding issues between the
Unfortunately, reasonable accommodation for employees in the workplace continues to be the source of significant litigation and even today we continue to see outrageous examples of employers behaving badly.
We are now beginning to see reported cases involving charges and subsequent fines laid against employers for failing to provide information, instruction and supervision to protect a worker from workplace violence.
On October 13, 2016, the Supreme Court of Canada denied leave to appeal an Ontario Court of Appeal decision which ordered an employer to pay a former employee 37 months of salary and benefits following termination.
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