Sometimes when parties arrive at a settlement, notwithstanding that the settlement may objectively be in their interests, they may not necessarily be pleased with the outcome. If the settlement has been concluded and fully documented, however, a party who has had second thoughts will likely be out of luck if they want to avoid complying with the agreement. This is important because parties should usually be held to the bargains that they make in a settlement.
A settlement does not necessarily have to be in writing to be valid, but like any contract, there must be a “meeting of the minds” on the essential terms of the agreement.
In a recent decision, Daehn v Lalonde, 2021 ONSC 301, the court considered a motion to enforce a settlement where draft minutes of settlement had been exchanged, but not signed. The dispute between the parties underlying the settlement concerned the validity of competing Wills. The parties were engaged in negotiations between January and July 2019, during which time several offers and versions of draft minutes of settlement were exchanged. In mid-July, counsel for the responding parties to the motion advised the moving party that he would no longer be acting for the responding parties, and retracted all offers to settle made by the responding parties.
The moving party took the position that certain conduct by counsel for the responding parties should be taken as akin to acceptance of terms in the minutes of settlement. Such conduct included providing bank statements that had been requested as a condition of settlement, and proposing changes to some terms of the draft minutes without complaint about others. The court did not accept this argument, and did not find acceptance of the agreement by words or conduct of the responding parties.
The court briefly reviewed the law regarding validity and enforcement of settlements. Like a contract, a concluded settlement requires both a mutual intention to create a legally binding contract, and agreement on all essential terms of the settlement.
The court found that the responding parties never agreed to the terms of settlement. Despite the moving party’s argument that the responding parties had agreed to the sole “essential” term, the court found that it cannot be the case that the moving party alone can dictate what terms of the settlement are essential. The court concluded that a settlement cannot be imposed where no agreement was reached.
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At what point does a settlement become final? Is it when the parties agree on all of the terms of the settlement and sign a written agreement, such as minutes of settlement? Or at an earlier time?
In the recent decision of Cox v Baker, 2019 ONSC 2859, the court was asked to make a determination as to whether a binding settlement had been reached. The litigation involved an inter vivos trust (the “Trust”) settled by a mother for the benefit of her two daughters and subsequent generations. After the death of Donna (the second to die of the two daughters), the three living beneficiaries were Donna’s sons, Brett and Brent, and her niece, Marnie. Brett was the sole trustee after Donna’s death.
Prior to her death, Donna was living at a house that was owned by the Trust (the “Property”), with her husband, John. About a year after Donna’s death, in March 2018, John brought an application against Brett, as trustee of the Trust, and against all three of the beneficiaries, personally, seeking, among other things, an interest in the Property by way of resulting and/or constructive trust.
In May 2018, John and Brett ran into each other at Donna’s gravesite. They discussed John’s application, John advised Brett that he would call his lawyer and withdraw his application, and the two shook hands. Thereafter, a number of emails were exchanged between counsel for John, and counsel for Brett, Brent, and Marnie. It appeared that the parties had reached an agreement that John would withdraw his application, without costs, provided that all parties sign a mutual release. However, John subsequently took the position that there was never a binding settlement agreement, as the parties had not agreed on the specific terms of the mutual release. Brett, Brent, and Marnie brought an application to enforce the settlement.
Ultimately, the court concluded that a binding settlement had been reached. Some of the key factors were, in the court’s finding, that there had been a mutual intention between the parties to create a legally binding contract, and that all essential/material terms had been agreed upon. The court also noted that the agreement had been reduced to writing by way of the email exchanges between counsel.
The court specifically considered whether the fact that the parties had not yet agreed on the specific wording of the mutual release was necessary to create a binding settlement. After reviewing the case law, the court concluded that, unless there is some indication that the settlement was conditional on the parties also agreeing on the language for a release, it is not required that the parties agree on the specific terms of such a release before there will be said to be a binding settlement agreement.
The court also commented on the importance of the principle of finality, which demands that settlements entered into with the assistance of legal counsel be upheld, as it is a matter of good public policy to encourage settlement. Settlements of this kind should be upheld other than in exceptional cases, which the present case was not.
This decision is an important reminder that, if the parties have reached an agreement on all essential terms, even if the more minor details have not been agreed upon, and the minutes of settlement and/or release have not been finalized and executed, a binding settlement may still exist. Parties should be aware that once a binding settlement has been reached (which could happen prior to signing minutes of settlement), they cannot simply change their minds. It is important to keep this in mind at all stages of a negotiation, and to be alert as to when it could be said that all essential terms have been agreed upon.
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This weekend marks the end of the 105th Tour de France. This year’s race has been full of controversies, first as a result of allegations of doping by pre-race favourite and four-time winner Chris Froome (and a related threatened cyclist strike) and subsequently ranging from disqualification of one cyclist for punching another to the inadvertent tear-gassing of cyclists by French police.
This spring, news surfaced regarding a settlement negotiated in respect of the claims against controversial cycling figure Lance Armstrong. Armstrong’s former teammate, Floyd Landis, had commenced proceedings against him in 2010 under the False Claims Act. The United States government became involved in the fraud proceedings in 2013 after Armstrong admitted to using performance-enhancing drugs after years of public denial.
The litigation commenced by Landis was settled earlier this year. Terms of settlement were reported to involve a payment by Armstrong of $5 million (of the $100 million claimed against him), as well as a payment to Landis of $1.65 million in legal fees. Accordingly, Landis’ one-quarter share in the settlement payment is less than what he will receive in legal fees.
It is not unusual in our work to see settlement terms involving the payment of one or more party’s legal fees as part of or in addition to a settlement payment. Especially where litigation spans the better part of a decade, the legal fees incurred can rival or exceed the quantum of the settlement payment itself and may form an important part of negotiations.
Have a great weekend,