Getting Out of a Settlement Agreement

For one reason or another, a party to a lawsuit may want to get out of a settlement agreement reached with the opposing party. This is easier said than done as illustrated in the recent case of Wannan v. Hutchison, 2020 BCSC 1233.

In that case, the plaintiff claimed damages for injuries and losses allegedly suffered as a result of naturopathic treatments provided by the defendant.

Two-and-a-half years after the lawsuit was filed, the defendant offered to settle the lawsuit by offering to pay the plaintiff $5,000 in exchange for a release and consent dismissal order. The defendant’s offer explicitly said that the release would include a confidentiality and non-disparagement clause preventing the plaintiff from publicly criticizing the defendant. The lawyer for the defendant attached the proposed release to the offer to settle.

The lawyer for the plaintiff forwarded the offer to settle to the plaintiff to seek her instructions. The plaintiff instructed her lawyer to accept the offer, which she did. Unfortunately, the lawyer for the plaintiff forgot to provide her client with the proposed release, which was much broader than anticipated. Namely, the non-disparagement clause would prevent the plaintiff from criticizing the type of treatment she received from the defendant irrespective of whether the plaintiff criticized the defendant herself at the same time. The plaintiff was not agreeable to such a term and advised her lawyer. The lawyer for the plaintiff then communicated her client’s concerns about the release to the lawyer for the defendant and asked him to amend the release. The defendant’s lawyer refused on the basis that the parties had reached a binding agreement.

When the plaintiff refused to capitulate, the defendant brought a court application seeking to have the settlement agreement enforced.

At the hearing, the judge had to determine (a) whether there was a binding agreement between the parties and, if so, (b) whether the court should exercise its discretion to refuse to enforce it.

The court noted that, for a settlement agreement to be binding, the terms of the offer must be clear and unambiguous. Acceptance of the offer must be absolute and unqualified. Only if there is agreement on all essential terms will the transaction be declared an effective contract.

Even if there is a binding agreement, the court retains limited discretion to deny an application to enforce the settlement agreement where it has not yet been perfected. There are four grounds for exercising such discretion:

1. There was a limitation on the instructions of the lawyer known to the opposite party;
2. There was a misapprehension by the lawyer making the settlement of the instructions of the client or of the facts of a type that would result in injustice or make it unreasonable or unfair to enforce the settlement;
3. There was fraud or collusion; or
4. There was an issue to be tried as to whether there was such a limitation, misapprehension, fraud or collusion in relation to the settlement.

Other factors to consider include:

• whether the defendant will be prejudiced if the settlement is not enforced beyond losing the benefit of the agreement;
• the degree to which the plaintiff would be prejudiced if judgment is granted relative to any prejudice the defendant would suffer if the settlement is not enforced; and
• whether any third parties would be affected if the settlement is not enforced.

In the present case, the court determined that there was clearly a binding agreement between the parties. Nevertheless, the court found that it would be unjust to enforce the settlement agreement and declined to do so, stating:

[20]        I am satisfied that plaintiff’s counsel entered into the settlement under a misapprehension – both on her part and the part of her client. In these unusual times counsel are doing business differently. Instead of meeting face to face with clients, they are now forced to communicate electronically. It is a new way of doing business. That counsel inadvertently failed to attach the release to the offer to settle is not out of the realm of possibilities. I accept that counsel did not realize that she had failed to provide the release to her client until after she sent the acceptance email, and that her client did not understand the scope of the release when she instructed counsel to accept the offer.

The court further found that the non-disparagement clause was overly broad. It emphasized the fact that the plaintiff’s lawyer had communicated her client’s concern to the defendant’s lawyer within 24 hours of accepting the offer at a time when the agreement had not been perfected. The court said that there was no evidence of any prejudice to the defendant apart from losing the benefit of the agreement. There was no evidence of any impact on third parties from refusing to enforce the agreement. Conversely, the court accepted that the plaintiff would be prejudiced if the agreement was enforced in that she would be precluded from being about to publicly warn others about what she considered to the poor treatment she received, which was very important to her.

In all the circumstances, the court was satisfied that this was one of the rare cases in which it would be unjust to enforce a settlement agreement.