Since most civil dispute cases are settled before they ever go to trial, understanding the settlement process is crucial for everyone involved. By having a deep understanding of how the settlement process works, parties can engage in effective negotiations and reach mutually agreeable resolutions, without the need for costly and time-consuming litigation.

But what happens when parties disagree about the existence of a settlement?

When is a Settlement Binding?

Courts across Canada have confirmed that parties can enforce a settlement even before they have executed and completed the formal settlement documentation.1 This means that a legally binding settlement agreement can be reached through both verbal and written discussions between the parties or their legal representatives. It is important for parties to understand that once a settlement has been agreed upon, it is binding and enforceable, even if formal documentation has not yet been signed. For defence counsel and insurers, this highlights the significance of having a clear understanding of the settlement process and ensuring that all parties are in agreement, before moving forward with any settlement negotiations.

Factors in Determining whether Settlement has been Reached:

Determining whether a settlement has been reached is fact-specific; it will depend on the particular circumstances of each case. Generally, this occurs once parties have agreed on the essential terms of the settlement. During settlement discussions, it is helpful to keep in mind the factors that a court may consider in determining whether a binding settlement has been reached:

  1. an agreement to settle a claim is a contract;
  2. to establish the existence of a contract, the parties' expression of agreement must demonstrate a mutual intention to create a legally binding relationship, and contain agreement on all of its essential terms;
  3. where the parties agree on all the essential provisions to be incorporated into a formal document with the intention that their agreement shall be binding, they will have fulfilled the requisites for the formation of a contract. The fact that a formal written document needs to be prepared and executed does not alter the binding validity of the original contract;
  4. where the essential provisions intended to govern a contractual relationship have not been settled or agreed upon, the original or preliminary agreement does not constitute an enforceable contract;
  5. in considering whether certain terms of the settlement were implied, the court will look at the settlement discussions and the documentation and correspondence, in the context of normal business practice and common sense; and
  6. no party is bound to execute a document to effect the settlement agreement which contains terms or conditions that have not been agreed upon, and which are not reasonably implied in the circumstances.2

Keeping these factors in mind during settlement discussions can help parties reach a mutually agreeable settlement that is less likely to be disputed or challenged later on.

Enforcing a Disputed Settlement Agreement

In cases where parties dispute whether a settlement agreement has been reached, defence counsel may need to turn to the courts to enforce the validity of the agreement. Depending on the jurisdiction, this could involve filing an application or a motion to enforce the settlement agreement.

In the Saskatchewan case of Mihalyko v Tanos Holdings Ltd., 2022 SKQB 54, the plaintiff claimed against the defendant for damages arising out of a slip and fall on ice on the defendant's premises. The defendant brought a summary judgment application under Rules 7-2 and 7-5 of The Queen's Bench Rules. The defendant sought a summary dismissal of the plaintiff's claim, on the basis that there was no genuine issue requiring a trial, because the parties had settled the claim.

In this case, the defendant had written to the plaintiff by email, offering the plaintiff $7,500.00, contingent on execution of mutually agreeable settlement documentation, including minutes of settlement, a release and a discontinuance on a without cost basis.

The plaintiff accepted the defendant's $7,500.00 settlement offer by email. Shortly after, the parties exchanged settlement documents. However, plaintiff's counsel wrote to the defendant, stating that his client misheard the settlement amount on the telephone and refuses the $7,500.00 settlement.

The court found that by not discontinuing his claim against the defendant, that the plaintiff breached the settlement agreement. Therefore, the court dismissed the plaintiff's slip and fall claim, with costs for the defendant, finding that a settlement agreement was made and ought to be enforced.

Conclusion

Parties may disagree about whether a settlement has been reached between them, which can lead to further legal disputes. To avoid such disagreements, it is important to clearly define the terms of any settlement agreement, and to ensure that both parties agree to those terms before executing it. In cases where a dispute arises over the validity of a settlement agreement, counsel may need to seek judicial enforcement.

In certain cases, a settlement agreement can be considered as having been reached even if there are unsettled details or steps to be taken in order to execute the agreement. This is particularly true if the unsettled details are not central to the agreement, and if the outstanding documents or steps are simply a matter of carrying out the agreement already reached.

It is important to keep in mind that any unsettled details must not go to the heart of the matter in question, and that all parties must agree on the terms of the existing agreement before moving forward with the settlement process. Having a clear understanding of the legal framework surrounding settlement contracts is crucial to navigating the settlement process effectively and efficiently.

Footnotes

1. For example, see Neilas (799 College St) Inc. v. Houston Engineering & Drafting Inc., 2020 ONCA 496; Diegel v. Diegel, 2008 ABCA 389; Great Sandhills Terminal Marketing Centre Ltd. v. J-Sons Inc., 2008 SKCA 16 where parties disputed whether a settlement agreement was reached.

2. See Mihalyko v Tanos Holdings Ltd., 2022 SKQB 54 at para 17, citing Aleph-Bet Child Life Enrichment Program Inc. v Kalo, 2006 MBQB 107 which summarized the findings in Cellular Rental Systems Inc. v. Bell Mobility Cellular Inc., [1995] O.J. No. 721.

Originally published by Risk Management Counsel of Canada.

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