Canada: When Is A Settlement Agreement Reached? Federal Court Of Appeal Provides Guidance In Apotex Inc v Allergan Inc, 2016 FCA 155

In today's litigation landscape 95% to 97% of all civil cases are settled without a trial.1 Settlement negotiations increasingly happen informally, over email, through a back-and-forth dialogue between counsel. What happens when one party steadfastly believes a settlement was reached and moves to enforce that settlement and the other party disagrees? This was the situation before the Federal Court of Appeal in Apotex Inc v Allergan Inc, where a collection of "without prejudice" letters and emails formed the basis for Allergan Inc ("Allergan") to argue that Apotex Inc ("Apotex") had agreed to settle a patent infringement case. It was against this backdrop the Federal Court of Appeal clarified the objective test for when a settlement agreement is reached, cautioning:2

The requirement of an objective, mutual intention to create legal relations does not mean that there must be formality. Settlements need not be reached through counsel or in pre-planned, formal negotiations....Sometimes much to the surprise of clients and lawyers alike—seemingly idle conversations can have binding, legal consequences. Binding settlements can arise from impromptu, informal communications in relaxed, non-business settings.

To Prove a Settlement Agreement, Without Prejudice Communications Become Evidence

In general, settlement privilege prevents communications made in the course of negotiations from being admitted as evidence. The public policy underlying settlement privilege is compelling – to promote settlements and improve access to justice – but not absolute. A well-established exception to settlement privilege is to prove a settlement has been reached.3 It was within this exception that Allergan and Apotex found themselves before the Federal Court and the Federal Court of Appeal.

Counsel for Allergan and Apotex had an initial exchange of three letters and an email in April 2012 regarding settlement. A further 23 months of emails between counsel followed, including draft minutes of settlement, however no formal agreement was ever executed. Six months later, in October 2014, Allergan moved for an order enforcing the settlement agreement which it said had been reached. The Federal Court agreed with Allergan; the Federal Court of Appeal did not and provided a useful primer on when settlement agreements are reached.4

The Test: A Reasonable Bystander Would Conclude that Both Parties Intended to Enter Legal Relations

Fundamentally, the test for whether a settlement agreement is reached is whether a reasonable bystander would conclude that both parties, in making a settlement offer and in accepting it, intended to enter into legal relations.5 In other words, the subjective intentions of one party do not matter unless objectively expressed. To meet the test, a court must consider the whole of the parties' negotiations in light of the following five criteria.

1. Consideration

As with any contract, settlement agreements require consideration. Because all settlements are compromises between parties in some respect, there is consideration flowing in return for a promise. As Justice Stratas commented, consideration is almost certainly never a problem.6

2. Sufficiently Certain Terms

A court must be satisfied that the parties were objectively of a common mind—there must be sufficiently certain terms. Courts will strive to give effect to reasonable expectations that can be discerned; however, courts will not make a "new agreement" for the parties in the absence of certainty. Words that have a range of meaning are acceptable (e.g., "scientific", "material") and not necessarily lacking in certainty. A lack of certainty of terms means a lack of settlement agreement.7

3. Matching Offer and Acceptance

A settlement agreement crystallizes when there is matching offer and acceptance on essential terms. Disagreement on an essential term means no agreement at all. In this regard, a court is to look through the eyes of a reasonable businessperson (not a lawyer!) in the parties' shoes and ask have the parties agreed on all the essential terms.8

Provided there is an agreement on essential terms, courts may imply non-essential terms such as the granting of a release, manner of payment, or timing of payment.9

4. Authority to Conclude the Agreement

When parties to litigation are represented by counsel, a matching offer and acceptance by counsel binds their clients and concludes the settlement agreement. However, if counsel has qualified their authority, for example, by saying "subject to my client's approval" or "subject to instructions" then no settlement agreement can legally arise regardless of counsel's view of the proposed settlement.10

5. Legislative Requirements

Legislation may import additional requirements to certain types of settlement agreements. For example, if the settlement offer involves the sale of land, then the sale of land will be need to be in writing. Legislation may also incorporate certain mandatory terms, notwithstanding the parties' actual agreement.11

A Settlement Agreement Was Not Reached in Apotex

In Apotex, the Federal Court of Appeal held no settlement agreement was reached for two reasons:

  1. no offer and acceptance occurred with respect to an essential term – the scope of the restrictions on Apotex with respect to Allergan's patent and,
  2. because counsel for Apotex did not have the authority to bind Apotex and Apotex never confirmed its acceptance of the draft settlement agreement.

With respect to the scope of restrictions on Apotex, the Federal Court of Appeal reasoned that Allergan had sued over patent infringement, for Apotex manufacturing, selling and exporting products containing gatifloxacin. The reasonable businessperson, viewing the matter objectively, would appreciate that Allergan would need to know how Apotex would abide by the patent in the future in order to settle the lawsuit. As there was no offer and acceptance with respect to the scope of restrictions, no settlement agreement could arise.12

With respect to counsel's authority, the Federal Court of Appeal held that this was not a minor matter to be glossed over. Although counsel for Apotex expressed optimism that progress towards a deal was being made, Apotex never confirmed its agreement to Allergan's settlement proposal. In these circumstances, there could be no legally-effective acceptance of the settlement proposal based only on the words of counsel for Apotex.13


When engaging in without prejudice settlement discussions, both clients and counsel should be aware that such discussions can be entered as evidence if there is a dispute as to whether a settlement has been reached. Counsel should be careful to qualify their authority to conclude a settlement. Importantly, subjective intentions do not matter unless they are outwardly, objectively expressed. While the Supreme Court of Canada has made clear that settlements should be promoted,14 this public policy does not reach so far as to compel settlement agreements contrary to the established principles of contract formation.

Case Information

Apotex Inc v Allergan Inc, 2016 FCA 155 per Nadon, Trudel, Stratas JJA on appeal from Hughes J.

Date of Decision: May 18, 2016

Docket: A-204-15


[1] See e.g., Ontario Civil Justice Review, 1st Report, ch 13.1 – Caseflow Management Generally. (Although dated, it remains true that most cases never go to trial).

[2] Apotex Inc v Allergan Inc, 2016 FCA 155 at paras 23-24 ("Apotex").

[3] Sable Offshore Energy Inc v Ameron International Corp, 2013 SCC 37 at paras 2, 12, 16, 19 ("Sable").

[4] Apotex, supra note 2 at paras 8-10.

[5] Ibid at para 22.

[6] Ibid at para 25.

[7] Ibid at paras 26-29

[8] Ibid at paras 30-32, 39.

[9] Ibid at para 33.

[10] Ibid at para 43.

[11] Ibid at paras 40-42.

[12] Ibid at paras 5, 59, 60, 69-71, 82-87.

[13] Ibid at paras 72-77, 80.

[14] Sable, supra note 3; see also Bombardier Inc v Union Carbide Canada Inc, 2014 SCC 35.

To view original article, please click here.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.