Tuesday 1 October 2013

When Is a Settlement Not a Settlement?

     The Alberta Court of Appeal

Settlement agreements often contemplate formal documentation that is to be prepared and executed later, most commonly a release "in a form satisfactory to counsel".  What happens if the form of the release proposed by one party's lawyer is not acceptable to counsel for the opposing party? That was the issue in Tessier v. City of Edmonton, a recent decision of the Alberta Court of Appeal.
The Settlement Discussions
This was an expropriation case.  During a break in the hearing before the Alberta Land Compensation Board, counsel for the property owners telephoned the lawyer for the City and offered to settle for $650,000, plus an additional amount of money that had been agreed previously.  Legal and expert fees were to be subject to a later negotiation.  Counsel for the City called back a few minutes later and, upon receiving confirmation that the owners would sign a release, accepted this proposal.
These terms, including the provision for a release, were confirmed later that day in an email from the City's lawyer to counsel for the owners.  On resumption of the hearing the following day, the lawyer for the owners advised the Board that the dispute had been settled, and asked that the case be adjourned subject to the execution of final documents and the payment of funds.  Two days later, however, the owners' lawyer told the solicitor for the City that his clients did not want to proceed with the settlement.  Counsel for the City took the position that a settlement had been concluded and sent opposing counsel a draft release.  In a letter the following day, the City's lawyer enclosed cheques for the settlement funds, to be held in trust pending execution and return of the release and the filing of a discontinuance with the Board.
Decision of the Board
The City applied to the Board for a determination as to whether or not there was a settlement.  When the lawyer for the owners was called as a witness, he testified that there was a settlement that had to be "papered".  The release he received from opposing counsel was typical of those he had previously negotiated with the City, except it had no confidentiality provision.  The Board ruled that there was a binding settlement, and the owners appealed to the Court of Appeal.
Decision on Appeal
The Court stated that the issue on appeal involved questions of contract law outside the Board's specialized expertise, so the standard of review was correctness.
The owners argued that the City's acceptance of the $650,000 offer was conditional because it contained additional terms that were set out in the release and the letter imposing trust conditions.  This was a counteroffer, and there was no deal as the counteroffer was never accepted.
The Court of Appeal rejected these arguments.  A settlement is a contract, and the contract is formed when the parties agree on the essential terms.  Once there is an agreement on essential terms, one party can tender a release on trust or escrow conditions without rescinding the agreement.  Although in some cases there will be a dispute over the terms of the release or the escrow conditions, that didn't happen in this case as the owners disavowed the settlement before the draft release was delivered.  In this situation, proffering a release or imposing trust conditions could not amount to a counteroffer.
In this case, it seems that the Board and the Court of Appeal were both influenced by the fact that the owners tried to back out of the agreement before the draft release was tendered, and that the objections to the release appeared to be an attempt to justify this after the fact.
Settled Law on Settlements
What if there is a genuine dispute over the terms of the release? These documents can be lengthy and complex, and are often the subject of much back-and-forth negotiation between counsel for the parties.  If counsel cannot reach an agreement about the terms of the release, is the settlement dead? Or can the court approve a release that the parties will be required to sign?
This issue has been the subject of previous litigation.  In Tessier v. Edmonton, the Court of Appeal referred to Fieguth v. Acklands Ltd., a 1989 decision of the British Columbia Court of Appeal.  The principles are well-established in the case law:
(1)     The question of whether or not a case has been settled is to be resolved by the application of the rules of contract formation;
(2)     Once there is an agreement on essential terms, the settlement is a binding contract;
(3)     A settlement implies an obligation to furnish a release, and if an action is outstanding, a consent dismissal as well;
(4)     A proposal to discontinue an action, with nothing more, does not amount to an offer to settle the underlying claim, so a release is not implied and need not be provided;
(5)     Settlement includes an implied right to a simple release of the claim that is the subject of the litigation, but unusual or additional terms, such as indemnity provisions, are not implied and have to be specifically agreed;
(6)     Once the parties agree on terms of settlement a contract has been formed, and this stage must be distinguished from later actions directed towards the execution or implementation of the settlement contract, such as the payment of funds or the proffering of a release;
(7)     Once the essential terms are agreed, subsequent conduct relating to the payment of funds, imposition of escrow terms, or the exchange of concluding documents in draft form will not vitiate the settlement unless one party goes so far as to repudiate the settlement agreement by refusing to carry out its terms;
(8)     In order to amount to repudiation, the conduct must constitute an unequivocal refusal to perform the contract, the equivalent of frustration or rescission of the contract;
(9)     If counsel cannot agree on a release, either party can apply to the Court for an order enforcing the settlement, which would include an order approving the release;
(10)    If there is an actual repudiation, the opposing party has the option of accepting the repudiation, which voids the settlement.  The litigation would then proceed as if there never was a settlement agreement.
Contact Richard Hayles at Billington Barristers:
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Any legal information provided is general in nature and may not apply to particular situations. It does not constitute legal opinion or advice. Please consult your lawyer regarding your specific legal issue.


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