A Settlement Agreement Is a Binding Contract. Not an “Agreement to Agree”

Published on: November 2019 | What's Trending

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Our justice system is rightfully geared towards settlement. Judicial resources are scarce and litigation is expensive. It should come as no surprise then, that when parties agree to settle a lawsuit, there is no going back. This holds true whether the settlement is set out in a formal document or reached by email.  Although the court can technically void the settlement at its discretion, the chances of this happening are slim to none.

The Ontario Superior Court recently confirmed these principles in Lumsden et al. v. The Toronto Police Services Board et al., 2019 ONSC 5052.  That case started in 2013, when the plaintiff, David Lumsden sued the Toronto Police Services Board, as well as the Chief of Police and six other defendants in an action related to his arrest and detention as a youth.  Mr. Lumsden was self-represented in the lawsuit.  After he moved to France several years ago, his father Brian Lumsden took over the lawsuit as a derivative claimant under the Family Law Act, also as a self-represented litigant.

After six years, two procedural motions and three summary judgment motions (all of which were brought by Mr. Lumsden), the case had barely made it past the pleading stage.

The Defendants got some reprieve on the week of April 11, 2019, when Mr. Lumsden surprisingly agreed by email that both he and his son were willing to settle the entire action on a without-costs basis, provided an outstanding costs award would be forgiven.  On April 18, 2019, the Defendants’ counsel confirmed the deal to Mr. Lumsden by email and stated that the Lumsdens would need to sign a full and final release.

Not to walk away without (yet another) fight, Mr. Lumsden wrote to the Defendants’ lawyer three days later with a “Notice of Claim” in which he alleged a new cause of action.  Specifically, Mr. Lumsden claimed that a video disc produced by the Toronto Police Services Board in the lawsuit had damaged his computer and that he intended to sue both the Board and opposing counsel as a result.  Consequently, Mr. Lumsden requested that the release should contain an exception to allow his new action to proceed.

The Defendants’ lawyer complied with Mr. Lumsden’s request and sent him a release by email with the exemption that he requested.  In response, not only did Mr. Lumsden refuse to agree to the release, he also went on to state that “[w]e were forced to accept an inadequate settlement” and that he needed to speak to a lawyer “for guidance”.  In response, the Defendants’ lawyer reminded Mr. Lumsden that he was required to sign a release and referred to his earlier email where he requested that the release not preclude him from pursuing his other action.

The next day, Mr. Lumsden wrote the Defendants’ lawyer again and claimed that the action was “NOT settled” and that he and his son “will not consent to a release until we have been compensated for the damages”.

A few weeks after he tried to get out of the settlement, Mr. Lumsden sent the Defendants’ lawyer a record of a hospital visit that he made a week before agreeing to settle the action.  The record showed that Mr. Lumsden checked himself into the hospital complaining that he was suffering from anxiety.

The Defendants then brought a motion under Rule 49.09 of the Rules of Civil Procedure, which permits a party to move for judgment when an adverse party fails to follow a settlement agreement. In order to win such a motion, the moving party has to show that there was a binding agreement in place.  If this is established, the responding party must demonstrate that there is a reason for the court to exercise its discretion to void the agreement.

To satisfy the first facet of the test, it must be shown that there was a mutual intention to create a binding agreement on the essential terms.  Formal minutes of settlement do not have be executed in order for such an agreement to exist, provided the language chosen by the parties objectively reflects their agreement.

In this case, Mr. Lumsden took the position that there was no actual settlement agreement, but rather just a tentative “agreement to agree”.  He therefore argued that there was no intention to create a binding agreement and that he never agreed to the release as a term of settlement.

Justice Schabas rejected this argument and held that, when the subject emails were viewed objectively, there was a binding agreement reached between the parties on the essential terms of settlement.  Following well established principles the Court agreed that a full and final release is an implied term of a settlement that has been reached. It also held that the draft release which was sent to Mr. Lumsden “reflected the settlement, and included an exception for Brian Lumsden’s benefit, as he had requested.  It was not open to the plaintiffs to object to the Release, and they cannot rely on it to resile from their agreement”.  Not only did the parties reach an agreement, but a release was a term of the settlement.

In considering the second prong of the test, Schabas first noted that the policy consideration driving cases like this is that settlement is to be encouraged.  A party seeking to invalidate the agreement therefore has a “heavy onus” to demonstrate and the court’s discretion not to enforce a settlement should be “exercised rarely”.

In his effort to satisfy the high burden facing him, Mr. Lumsden raised a multitude of arguments.  Namely, he argued that he and his son were suffering financial hardship and that he was not healthy, referring to his voluntary hospital visit before agreeing to settle the case.  Schabas rejected both of these arguments on the basis that financial difficulties are not a basis to overturn a settlement agreement and that there was no evidence that Mr. Lumsden was medically unfit to enter into a binding agreement.

Mr. Lumsden also argued that he was coerced into entering the agreement under duress.  This argument was also rejected, as it was clear that Mr. Lumsden agreed on the terms of settlement and confirmed them.  In particular, Schabas noted that, after agreeing to settle the action, Mr. Lumsden “had second thoughts as he developed a new claim on April 22, and then attempted to use the threat of that claim to extract a better deal in the settlement.  This is not duress”.

Finally, Mr. Lumsden also argued that the settlement agreement should be set aside on the basis that it was unconscionable.  Schabas paid no mind to this argument either, as there was no evidence that the settlement agreement was unfair or improvident.  He also noted that, given that the action had dragged on for six years, Mr. Lumsden had become quite familiar with the legal process and there was no reason to believe that he didn’t know what he was doing.

This case demonstrates the necessary finality of an agreement to settle. Once a party opts to put an end to a lawsuit, they cannot have a change of heart. This holds true whether or not the agreement is reduced to a formal contract and whether or not the party is represented by counsel.

Bearing this in mind, we would be wise to caution our clients before they decide to settle a case.  Once we send an email to opposing counsel stating that a deal has been reached, it is game over.

Author: Daniel Waldman, Lawyer

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