No settlement if, on an objective standard, there is no agreement on essential terms
In Apotex v Allergan,1 the Federal Court of
Appeal considered whether settlement discussions between the
parties had actually resulted in a binding settlement agreement.
The case involved a patent infringement action by Allergan against
Apotex in relation to the drug gatifloxacin. The settlement
contemplated that Allergan would discontinue its patent
infringement action against Apotex in exchange for Apotex
undertaking not to manufacture or sell the drug. However, the
precise scope of the restrictions to be placed on Apotex was at
issue between the parties, leading to 23 months of negotiations.
Ultimately, counsel for Apotex agreed to "recommend to its
client" that Apotex accept certain terms that had been
proposed by Allergan. Counsel for Allergan responded by advising
Apotex that "our clients agree to
Based on its understanding that the parties had actually reached
an agreement, Allergan subsequently moved for an order in the
Federal Court to enforce its terms. Justice Hughes granted
Allergan's motion, finding that the parties had substantially
agreed to the terms of settlement, and characterizing the 23 months
of negotiation as lawyers' "fussing and
The Court of Appeal overturned that decision, and in doing so
provided clear guidance to parties as to when settlement
discussions cross the line from negotiations and become a binding
What You Need To Know
Whether an agreement has been reached must be assessed
on an objective standard. The Court of Appeal concluded
that the motion judge had erred by being "distracted by
Allergan's subjective view," that an agreement had been
reached. The Court clarified that the proper question is whether
the parties had a mutual intention to create binding legal
relations, from the perspective of a reasonable bystander
(i.e., an objective standard). Evidence as to the parties'
subjective intention is therefore irrelevant.4
But this does not mean that a formal, signed agreement
is required. The Court emphasized that the requirement of
a mutual intention to create legal relations does not mean that
there must be formality. Rather, "seemingly idle conversations
can have binding, legal consequences."5 Thus, where
parties do not wish to be bound until they have agreed to
all terms they consider to be essential to the agreement, the Court
encouraged parties to make their intentions clear in every offer
The key question is whether the parties have agreed to
all "essential terms." In determining whether a
settlement agreement has been reached, the question is whether,
viewed from the perspective of the reasonable business person, had
the parties agreed to all "essential terms," or was there
something essential left to be worked out? In this case, the terms
at issue all related to the scope of restrictions to be placed upon
Apotex. The Court of Appeal rejected the characterization of the
negotiations on this point as "fussing and wordsmithing."
Instead, it concluded that the scope of restrictions formed an
important part of the consideration that Allergan was to receive
under the contemplated agreement.7 Because there was no
agreement on these "essential terms," there could be no
Lawyer's recommendations to clients to agree do not
constitute agreement. The Court found that, even if the
e-mail exchange had reflected consensus on the essential terms,
there could be no agreement between the parties because counsel had
merely agreed to recommend those terms to his client. The
client—Apotex—had not actually accepted them. The Court
noted that language such as "subject to my client's
instructions" or "I will seek instructions" is not
language that can be "glossed over or ignored." Rather,
this language clearly communicates to the opposite party that the
lawyer has no authority to bind his or her client.
1 Apotex Inc. v Allergan, Inc., 2016 FCA 155
2 Ibid. at ¶ 74
3 Allergan, Inc. v. Apotex Inc., 2015 FC 367 at
4 Allergan CA at ¶ 21-22, 45-48,
5 Ibid. at ¶ 24
6 Ibid. at ¶ 52
7 Ibid. at ¶ 33, 69-71
8 Ibid. at ¶ 76, 80
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general guide to the subject matter. Specialist advice should be
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A recent Saskatchewan Court of Queen's Bench decision allowed a court-appointed receiver to sell and transfer intellectual property rights free and clear of encumbrances, finding that a license to use improvements of an invention was a contractual interest and not a property interest.
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