Canada: The Basics: Settling Disputes - Why, When And How

Formal dispute resolution procedures such as litigation and arbitration can involve significant financial and time investment which can detract from a company's key business and be an unwelcome drain on resources. In addition, parties in litigation are positively encouraged to settle their disputes without a full trial, and can be penalised in costs for failing to make a genuine attempt to do so. As a result, the overwhelming majority of disputes are resolved by some form of negotiated compromise between the parties, rather than by a final decision from a court or other tribunal. But finding a workable commercial compromise is only the first step in settlement. In this insight we look at the key considerations in reaching, documenting and enforcing settlement of disputes.

What is a settlement?

In essence, settlement or compromise is when the parties come to a binding agreement for the resolution of a dispute - they settle their differences. Like any other agreement, it can be formed orally and does not necessarily need to be documented, although it is best practice to ensure it is captured in writing to avoid satellite disputes as to the terms of settlement.

When should I consider settlement?

In short, at all times. Disputes can be settled at an early stage, before legal proceedings are commenced, or much later "on the steps of the court" - before, during or even (in rare cases) after a final hearing. Many commercial contracts will contain dispute resolution provisions, which expressly require the parties to negotiate at an early stage of their dispute, with a view to resolving it without recourse to litigation or arbitration. However, there is a risk with this approach that if early negotiations do not resolve a dispute, the parties (and their lawyers) then become absorbed in the ensuing legal proceedings and are drawn inexorably towards a trial that may not be in their best interests. Parties should therefore avoid compartmentalising negotiations and instead keep settlement in mind and revisit whether a compromise is possible at regular intervals as a dispute unfolds.

Will settlement negotiations prejudice my position in legal proceedings?

No, provided settlement negotiations are conducted on a "without prejudice" basis.

How do I document a settlement?

As referred to above, there is usually no strict requirement to document settlement, but it is advisable in order to avoid subsequent disputes. Settlement can be documented simply by an exchange of emails or letters between the parties. In all but the simplest cases though, parties are advised to document settlement in a more detailed written settlement or compromise agreement (or, in some cases, deed).

What should a settlement or compromise agreement contain?

The key driver of settlement, and usually the first element to be agreed is the commercial deal. Usually (but not always) this amounts to what one party is prepared to pay to resolve another's claim against it, taking into account not only the risks of losing at trial, but also the management time which would be spent and the irrecoverable costs which would be incurred even in the event of winning at trial. But the commercial agreement is only one element of a settlement agreement, and there are other important considerations which interact with it, including the following.

  • Parties - it may be obvious who the parties to settlement will be but, particularly where a group of companies is involved, it is important to ensure the correct entity or entities are bound by the agreement. You should consider whether a party should (and is able to) settle claims on behalf of its parents and subsidiaries too, or should they be parties to the agreement in their own right? In a multi-party dispute, bear in mind that settling with only one party may leave you open to a claim for contribution from another party - so it is advisable to settle in a way which means you cannot be dragged back into proceedings between the remaining disputants.
  • Consideration - what is being given in return for the settlement of claims? As outlined above, often this will be financial (whether a lump sum payment or payment in instalments). But in some cases where parties have claims and counterclaims against one another, the mutual release of those claims might be consideration enough. Alternatively, settlement may involve one party transferring a disputed asset to the other or, if the parties are to continue their working relationship, they may agree that one of them will provide goods or services of a certain value free of charge. If no consideration will be given for the settlement, then the parties should document their agreement in a deed rather than a simple contract in order to ensure the agreement is valid and enforceable.
  • Extent of settlement - subject matter - it's vital to give careful consideration to exactly what is being settled and ensure this is clearly described in any settlement agreement. A range of possible options include settling:

    • some or all of the particular claims set out in the claim form (a narrow definition);
    • all claims arising out of the facts underlying the dispute;
    • all claims arising out of a particular contract (whether or not relating to the current dispute); or
    • all claims arising out of the entire relationship between the parties (a much wider ranging definition).
  • Extent of settlement - future and unknown claims - it is possible for parties to agree to settle claims which have not yet arisen, and claims which they do not know they have.
  • Parties therefore need to give careful consideration to the terms of settlement in the context of the nature of the dispute and the relationship between them, to ensure that they are not inadvertently making the release too narrow (so it does not fully settle the dispute at hand) or wide (so it settles disputes which may arise between them in future). For an illustration of the importance of considering the extent of settlement, see our insight " How wide is your settlement agreement?"
  • Statements & Confidentiality - it is also important to consider what the parties can say about settlement, and to whom. In many cases, the parties will want both the terms and the very fact of settlement to remain confidential, except to the extent the parties need to disclose it to their professional advisers. But you should consider whether the parties would like to prepare an agreed statement on the settlement which the parties can either release freely, or issue in response to a specific request for comment. Related considerations may include non-disparagement clauses (where, in addition to not mentioning the dispute or its settlement, the parties agree not to make any generally disparaging remarks about one another), non-admission wording (which reflects that the settlement is not an admission of liability) or, at the opposite end of the spectrum, the release (privately or publicly) of a formal apology - something which can in some cases be just as valuable to a party as monetary settlement.
  • Costs - the parties should consider how their costs of the dispute will be treated. Often the settlement agreement will say that each party bears their own costs, but in practice these are commonly factored into any agreed settlement payment. To the extent any costs orders have been made by a court or tribunal, the parties should address how any such costs liabilities are to be treated.
  • Tax consequences - advice should be sought on the tax treatment of any settlement payment. Don't forget VAT if appropriate.
  • A settlement agreement should also address how the parties will co-operate to bring an end to any extant legal proceedings.

How do I end legal proceedings that have been settled?

There are three main ways that litigation can be brought to a formal close following settlement:

  • Discontinuance - in this process, governed by Civil Procedure Rule 38, the claimant simply withdraws their claim (although in some cases it may require the court's permission to do so). Note though that the default position on discontinuance is that the claimant is liable for the defendant's costs of the proceedings. For this reason, discontinuance may not be an attractive option, and if it is to be used then a claimant should seek to agree an alternative position on costs.
  • Dismissal- the parties can agree to seek an order from the court that the proceedings be dismissed by consent. If the court agrees, the proceedings are then closed. If there is a further dispute (e.g. settlement monies are not paid) the parties would then have to commence new court proceedings to deal with this.
  • Stay - unlike with dismissal, if proceedings are stayed, they are held in abeyance until a party applies to the court to lift the stay in order to take further action. There is little practical difference between dismissal and a stay unless and until there is a dispute over settlement. In those circumstances though, the advantage of a stay is that a party can resurrect the original proceedings to enforce the terms of the settlement agreement, which will be more time and cost-effective than starting new proceedings. A stay is documented using a particular form of consent order known as a Tomlin order. The parties can either append the settlement agreement as a confidential schedule to the Tomlin order, or simply identify the settlement agreement in the order itself without filing it at court. If the terms of settlement are particularly sensitive, then the latter approach may be preferable to ensure confidentiality is not lost (although practice in different courts does differ on this point).

In the case of arbitral proceedings, the method of bringing the proceedings to a close will depend on the rules of the chosen arbitral institution or otherwise any agreement between the parties.

Read the original article on GowlingWLG.com

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 Mondaq.com.

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

Authors
Events from this Firm
19 Sep 2019, Seminar, Birmingham, UK

Providing GCs, Heads of Legal and senior in-house lawyers with timely, topical and practical legal advice on a variety of topics.

26 Sep 2019, Seminar, London, UK

Providing GCs, Heads of Legal and senior in-house lawyers with timely, topical and practical legal advice on a variety of topics.

8 Oct 2019, Seminar, Birmingham, UK

Supporting the development of paralegals, trainees and lawyers of up to five years' PQE by providing valuable knowledge and guidance together with practical tips.

Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions