Canada: It's Settled Then: Federal Court Enforces Settlement Where Parties Disagreed On Terms Of Formal Settlement Agreement

The Federal Court's recent decision in Maoz Betser-Zilevitch v Nexen Inc. et. al., 2018 FC 735 is a reminder to litigants that "a settlement agreement may be reached quickly without formality and, from a subjective standpoint, sometimes unexpectedly".

In this case, Betser sued Nexen for patent infringement. After Nexen filed its defence, the parties entered into settlement discussions, exchanging several rounds of offers and counter-offers.

In January 2017, Betser sent Nexen its latest settlement proposal. One month later, Nexen agreed "in principle" to the terms set out in Betser's proposal. Two weeks later, Betser advised the Court that "settlement had been reached, subject to formalization, review and execution by the parties of a formal settlement agreement".

The parties attempted to formalize the agreement but disagreed on several terms, including the scope of the release and licence. After some back and forth, Betser took the position that there was no settlement. In response, Nexen moved for a declaration that a settlement was reached.

The parties and Court agreed that the considerations to determine whether a settlement agreement was reached were set out by Justice Stratas in Apotex Inc. v Allergan, Inc., 2016 FCA 155 (at paras. 21-30):

  • There must be an objective, mutual intention to create legal relations
  • There must be consideration flowing in return for a promise
  • The terms of the agreement must be objectively, sufficiently certain
  • Courts will be reluctant to hold agreements void on the ground of uncertainty, and will rather strive to give effect to the reasonable expectations of the parties, objectively determined
  • There must be a matching offer and acceptance on all terms essential to the agreement

With these principles in mind, the Court concluded that a settlement was reached. Central to the Court's analysis was Betser's letter confirming settlement subject to formalization:

[33]      Betser-Zilevitch's status letter to the Court affirming that "a settlement has been reached, subject to formalization, review and execution by the parties of a formal settlement agreement", confirms - in words chosen by Betser-Zilevitch - that a settlement was reached, subject to formalization.

[34]      Betser-Zilevitch did not equivocate with the Court, nor in my view could he have. He did not state that a settlement was being negotiated, that a settlement was almost reached, or that one would likely be reached with one or another degree of confidence. Nor did Betser-Zilevitch state there were ongoing settlement discussions, or that there was agreement subject to a contract not yet concluded.

[35]      Betser-Zilevitch's letter was a letter to the Court, a Court with jurisdiction over the patent litigation he had commenced, and a Court that had done what it could to assist both parties to resolve their issues or proceed to trial. There is no suggestion Betser-Zilevitch's representation to this Court was anything but truthful. It is also unequivocal; it states that a binding settlement had been reached. This Court was entitled to rely on Betser-Zilevitch's March 10, 2017 representation then, and in my respectful view is equally entitled to rely on it now. The letter to the Court is convincing evidence of the intent of both parties to create legal relations in the form of the settlement agreement Betser-Zilevitch himself proposed on January 25, 2017.

Interestingly, Betser's proposal of January 25, 2017 included only five provisions:

  1. Betser will agree to provide Nexen an up-front, fully paid up license to make, construct and use the invention of the Canadian Patent No. 2.584.627 and US. Patent No 7.647.976 for the duration of the Patents;
  2. Betser will provide the defendants with a release of liability with respect to all claims as asserted in the Statement of Claim relating to the above mentioned Patents;
  3. Both parties agree to discontinue the main action and counterclaim on a without costs basis
  4. [Redacted]
  5. Nexen will agree to execute a confidentiality agreement in a form acceptable to Mr. Betser, to keep the terms of its settlement agreement confidential.

Nexen's February 23, 2017 response was likewise brief:

Nexen is prepared to agree in principle to the settlement terms set out in your letter of January 25, 2017. In the circumstances, we will prepare a draft Settlement Agreement which incorporates those terms, as well as other standard settlement terms, for your review.

Despite the brevity of this exchange, the Court concluded that the parties reached an agreement on all essential terms. It noted that requiring additional documentation to formalize an agreement is not an impediment to finding that a written exchange constitutes a binding contract, and that Courts may use the subsequent conduct of the parties to shed light on whether there has been an agreement on essential terms.

On the disputed terms, Justice Brown considered the parties' conduct from the perspective of an objective, honest and sensible business person to conclude that:

  1. The release includes both the Canadian and U.S. patents
  2. The agreement does not include the right to sell the patented invention
  3. The license is to Nexen and its respective subsidiaries, parent companies, directors, officers, employees, etc.; but not to customers or affiliates
  4. The release is to Nexen and its respective subsidiaries, parent companies, directors, employees and successors, assigns, etc.; but not to unspecified affiliates or customers
  5. The release is limited to "claims asserted", and it does not include "claims assertable"

Justice Brown rejected Nexen's request for the implied terms be set out in a draft order. He observed that the Federal Court of Appeal expressed concerns with adding implied terms into a draft order, as this would elevate what would normally be contractual terms into a Court order with attendant liability to civil contempt proceedings for non-compliance.

Justice Brown's decision demonstrates that courts are reluctant to hold agreements void for uncertainty, and prefer to give effect to the reasonable expectations of the parties. As a result, Justice Stratas' warning in Allergan bears repeating:

"If a party does not want to be bound until it has agreed to all terms it subjectively considers essential to the deal, in every offer it communicates it must make that wish objectively clear."

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