May 15th, 2020
Apr 23rd, 2019
By Laurent Debrun
The Federal Court recently dealt with settlement negotiations and the risk for a party to find itself bound by a settlement resolving a litigation informally and, perhaps to a certain degree, unexpectedly. In Maoz Betser-Zilevitch v. Nexen Inc et al, plaintiff, an engineer, sued for patent infringement. The patent relates to equipment intended to inject steam and extract heavy oil from oil sands. The parties engaged in settlement discussions for one year, reaching an agreement in principle “subject to formalization, review and execution by the parties of a formal settlement agreement.” Subsequently, the parties were unable to agree on the terms of a formal agreement and Plaintiff took the position that there was no settlement. The Defendant moved to enforce the settlement in the Federal Court, asking the court to assist in “identifying the terms of the settlement”.
In finding that the parties had indeed settled, the Court quoted from the Federal Court of Appeal’s 2016 decision in Apotex Inc v Allergan, Inc. to the effect that “a settlement agreement may be reached quickly without formality and, from a subjective standpoint, sometimes unexpectedly”. Applying the Allergan decision, the Court found that an honest, sensible business person, when objectively considering the parties’ conduct, would reasonably conclude that the parties intended to be bound by the offer and acceptance. Even if further documents necessary a settlement may be formed to have been reached if the terms in the exchange contain agreement on all of its essential terms. The conduct of the parties and of counsel is critical. Here the court gave great weight to the fact that plaintiff’s counsel had advised the court that the parties had settled the matter, without raising conditions or reserves except to state “subject to formalization, review and execution”.
The Court then reviewed the negotiation history to determine the essential terms to the agreement. As is the case under the Civil Code of Quebec rules pertaining to the requisite elements for the formation of a contract to be found to exist, to the extent a term of the settlement not yet agreed upon by the negotiating parties is not essential to the agreement, it could be implied by a court in the settlement agreement if the honest business person would reasonably have agreed to include it.
Courts tend to hold parties to their bargain failing evidence of an error as to a material fact or fraud. Here, however, the Court was not prepared to imply certain terms in the draft order homologating what the defendant claimed to be the settlement, noting that “[t]he Federal Court of Appeal expressed concerns with adding even implied terms into a draft order thereby elevating what would normally be contractual terms, into provisions of a Court order with attendant liability to civil contempt proceedings for non-compliance”. As a result, the terms implied by the Court in the stead of Plaintiff were set out in the reasons but not in the draft order.
This publication is of a general nature, is as of the date indicated and is not intended to constitute an opinion or legal advice. The facts and circumstances of your particular situation should be specifically identified and addressed before appropriate legal advice may be given.