Canada: Settling For It: Two New NS Decisions On Settlement Agreements And Releases

Introduction

It sounds simple: Two disputing parties, hoping to resolve their disagreement without drawn-out court proceedings, will mutually agree to a settlement on clear terms; release each other from all claims; and move on with their lives. 

But we know real life isn't that simple, and stumbling blocks often appear on the road to settlement. The parties might disagree about the terms of the alleged settlement, the details of the mutual release that follows, or both. What happens then?

Well, they end up in court after all.

Two recent Nova Scotia decisions canvass these issues, providing a welcome review of basic principles about settlements and releases. Both cases involved motions to enforce a settlement agreement under Nova Scotia Civil Procedure Rule 10.04.

Decision 1: Certified Design Consulting Inc v Alex Lane Properties Inc

First up was Certified Design Consulting Inc v Alex Lane Properties Inc, 2015 NSSC 367. This was a construction case. ALP wanted to develop a barn on its property into a residential building, and reached an agreement for CDC to become the general contractor (para 3).

Things did not go as planned with the construction work. ALP stopped paying CDC; CDC eventually filed a lien claim under the NS Builders' Lien Act, and also commenced a lawsuit against ALP (para 8). The parties tried to work out their dispute after running into each other at a building supply store (para 9). Many back-and-forth emails followed. 

The "critical email exchange" happened on September 14, 2015 (para 11). It's worth setting out those emails, because they're written—as these kinds of agreements often are—in the parties' own words, not drafted by lawyers. Here's what the principal of ALP wrote to the principal of CDC (see para 26):

I had the chance to meet with Kirk and Ross at Progressive Cabinets. They showed me a sale invoice for the cabinets for a total of $45K which was $6K higher than the contract allowance.

At this point, we are confirming that if the lawsuit is removed and the lien is removed, both part[ies] can part their separate ways.

You can have your lawyer send an agreement to Peter stipulating that these items will or have been done and that['s] it. We will take over the cabinets with Progressive. We expect this to be done in a expeditious manner.

The principal of CDC responded, and agreed (see para 27):

OK, I agree with your offer. I will have my lawyer lift the lien and law suit removed. This has concluded our dealings period. There will be no further communications, business or legal dealings between Certified Design Consulting Inc or Alex Lane Properties. The contract is considered null and void, the complete issue is resolved period. Our relationship is concluded period. I have contacted my lawyer, instructed her to do the necessary paper work.

But subsequent events complicated matters. As the Court put it: "What was thought to have been a final settlement went off the rails when legal counsel for CDC...prepared mutual release documents and a consent order (that would serve to both vacate the lien and dismiss the legal action) and sent them to [APL's counsel] for his review and approval" (para 13).

APL challenged two terms of the release that CDC's lawyer provided: (1) The provision releasing the parties from all future claims, which "would encompass any presently unknown deficiencies which might later be discovered"; and (2) the provision preventing ALP "from ever bringing any kind of claim or action against any third party who might, in turn, claim contribution or indemnity against CDC" (para 15).

Furthermore, ALP said "it was a condition of the purported settlement agreement that its terms be subject to review and approval by its lawyer," so it was entitled to wait and see what CDC's counsel sent before confirming the settlement (para 16).

The Court disagreed – noting that the settlement offer, which came from ALP, said nothing about being contingent on approval by ALP's own lawyer (paras 32-35). The emails exchanged on September 14 created a final and binding settlement agreement; the documentation to come was just meant to formalize that agreement, not affect its substance (paras 36, 39).

The Court also rejected APL's challenge to the "future claims" provision, finding that the parties clearly intended to "end their contractual relationship and go their separate ways" (para 39). 

However, there was something to APL's second point, about third party claims. According to the Court, "there was never any discussion at any point in the settlement negotiations of the requirement that ALP undertake not to pursue a claim against any third parties who might claim contribution or indemnity against CDC" (para 44). The Court ordered a revised release without that clause, but otherwise declared the settlement agreement to be enforceable (paras 44-46).

Decision 2: Webber v Boutilier

The second decision was Webber v Boutilier, 2016 NSSC 5. The parties agreed that they had reached a settlement of two different personal injury claims at a judicial settlement conference in June 2015. Afterwards, defence counsel sent a standard release to plaintiff's counsel, which he returned "with a large 'X'" through two paragraphs.

The contentious paragraph was the "clause requir[ing] the plaintiff to hold the defendants harmless from any existing and future subrogation claims" (e.g. under the NS Health Services and Insurance Act – see paras 8, 12-14).

The defendants brought a Rule 10.04 motion before the same Judge who had conducted the settlement conference. She found that the settlement "was full and final and included a clear understanding, that all matters were settled as against the defendants including any subrogated claims" (para 21). It was up to the plaintiff and not the defendants to explore the possibility of any subrogated claims, which hadn't been done here (paras 18-20). 

Conclusion

The process of settlement can be messier in reality than in theory. The deal is not necessarily done when one party purports to accept the other side's settlement offer, because there is probably still documentation—like a formal written agreement and mutual releases—that needs to be drawn up. Settlements often stumble on whether this "further documentation is a condition of there being an agreement, or whether it is simply an indication of the manner in which the agreement already made will be implemented" (see Certified Design Consulting at para 30, point 3). 

And, as these two cases show, there may be a fight over the terms of a release.

On Rule 10.04 and similar motions, the court will do its best to determine what the parties objectively intended. And if the court finds they intended to reach a settlement agreement, a release will usually be considered an implied term of that agreement (Certified Design Consulting at para 41, citing the ONCA in Cellular Rental Systems Inc v Bell Mobility Cellular Inc). These cases suggest that dissatisfaction with the specific terms of the release will not usually derail what was meant to be a final settlement.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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