July 11, 2023

There are many reasons parties may settle a lawsuit: a settlement mitigates the risks of losing in court, and puts an end to the emotional and financial drain of litigation. If all the parties to the litigation are capable adults, there is no barrier to reaching (and implementing) a settlement: once the settlement agreement is signed, it is binding on all parties.

As is often the case in estate litigation, one or more of the parties to a lawsuit may be a minor or an  incapable adult. The party under disability is represented in the litigation by a litigation guardian. While the litigation guardian can (and does) participate in the settlement negotiations and may sign minutes of settlement, rule 7.08(1) of the Rules of Civil Procedure requires that any settlement involving an incapable person must be approved by a judge before it is binding on the incapable person, regardless of whether or not litigation has been commenced.

When Will a Court Approve a Settlement?

While the parties to a settlement may need to ask the court for assistance implementing the terms of the settlement, settlements generally do not require court approval. In fact, courts will only review a settlement when one (or more) of the parties to the settlement is a person under disability. Sub-rule 7.08(1) reads:

7.08 (1)           No settlement of a claim made by or against a person under disability, whether or not a proceeding has been commenced in respect of the claim, is binding on the person without the approval of a judge.

In Wu Estate v Zurich Insurance Co., 2006 CanLII 16344 (ON CA), the Court of Appeal summarized the role of the court on a motion to approve a settlement as follows:

“The duty of the court is to examine the settlement and ensure that it is in the best interests of the party under disability … The purpose of court approval is plainly to protect the party under disability and to ensure that his or her legal rights are not compromised or surrendered without proper consideration.”

More recently, Regional Senior Justice Firestone summarized the role of the court on a motion to approve a settlement in Spicer v Wawanesa Mutual Insurance Company, 2023 ONSC 3221 (ON SCJ):

“When considering whether to approve the proposed settlement, the test is whether the settlement is in the best interests of the person under disability. Approval does not depend on a comparison of what would have been awarded at trial, but rather an assessment of whether the settlement is reasonable and in the party’s benefit given the risks of litigation and the desire of the party to settle …

Although it is the litigation guardian’s duty to be satisfied of the fairness and reasonableness of the lawyer’s fees, the court must be satisfied that the fees, along with the rest of the proposed settlement, are for the person under disability’s benefit ... Where the Children’s Lawyer or Public Guardian and Trustee is involved and endorses the settlement, the court should give the recommendation considerable weight absent evidence suggesting any impropriety or lack of skill ...”

Materials Required for Court Approval

Sub-rule 7.08(4) sets out the information required on an approval motion:

(4) On a motion or application for the approval of a judge under this rule, there shall be served and filed with the notice of motion or notice of application,

(a)  an affidavit of the litigation guardian setting out the material facts and the reasons supporting the proposed settlement and the position of the litigation guardian in respect of the settlement;

(b)  an affidavit of the lawyer acting for the litigation guardian setting out the lawyer’s position in respect of the proposed settlement;

(c)  where the person under disability is a minor who is over the age of sixteen years, the minor’s consent in writing, unless the judge orders otherwise; and

(d)  a copy of the proposed minutes of settlement. 

Where the Public Guardian and Trustee or the Children’s Lawyer is acting as litigation guardian for the incapable party, they are only required to file one affidavit in support of the motion to approve the settlement (pursuant to sub-rule 7.05(3), only the Public Guardian and Trustee and the Children’s Lawyer do not need to be represented by a lawyer).

Regional Senior Justice Firestone explained the need for a fulsome motion record in Spicer v Wawanesa Mutual Insurance Company as follows:

“As a general principle, an assessment of whether a proposed settlement is in the best interests of a person under disability requires full and frank disclosure on the merits of a settlement. The court cannot properly exercise its parens patriaejurisdiction and make a meaningful and expeditious assessment of the proposed settlement without sufficient evidence on all the material issues, including conflicting evidence …”

In deciding to approve a settlement on behalf of an incapable party, the court is performing a balancing act between the public policy reasons for encouraging settlement and ensuring that the settlement adequately protects the needs of the incapable party. If the settlement is not something that a reasonable person would agree to for themselves, the court will order the parties back to the negotiating table or to move forward with the litigation.