Litigation is long, expensive, and stressful, and its outcome is never certain. This is why lawyers often encourage their clients to attempt to mediate their legal problems outside the court room. If a mediation is successful, the parties will enter into a settlement agreement which sets out the terms under which the parties agree to bring the litigation (or part of it) to a close. A settlement agreement usually marks the end of litigation or at least narrows the list of issues that will continue to be litigated. Sometimes, a settlement agreement will create new problems of its own, as may be the case where one of the parties resiles or otherwise declares their intention to back out of the agreement.
When a party resiles from a settlement agreement, the other party has the option of bringing a motion to have the settlement enforced by the court. Depending on the circumstances, a motion to enforce may be brought under Rule 37 or Rule 49 of Ontario’s Rules of Civil Procedure, though case law suggests that the court has jurisdiction to hear a motion to enforce regardless of what rule it is brought under. Indeed, the court’s authority to hear a motion to enforce a settlement agreement derives from the common law.
There are two stages to a motion to enforce a settlement agreement. First, the court will look to see whether a concluded settlement agreement in fact exists between the parties. If such an agreement is found, the court will move to the second stage and consider whether it would be appropriate in the circumstances to enforce the agreement.
The First Stage
Because settlement agreements are contracts, they are subject to the general law of contract. A valid contract will exist where the parties (1) had a mutual intention to create a legally binding contract and (2) agreed on all essential terms of the contract. When looking to see if these two conditions were met, the court will take an objective approach. If a reasonable person would conclude that the parties entered into a binding contract based on what they said, wrote, or otherwise did, then the court will find that a settlement agreement in fact exists between those parties. Importantly, the subjective or unexpressed intentions of the parties are irrelevant to the court’s analysis.
The Second Stage
Assuming a valid settlement agreement exists, the next step is for the court to consider whether it ought to exercise its discretion to enforce the agreement. In some circumstances, the court may find a good reason not to. In general, however, there is a very strong presumption in favour of enforcement. Only if enforcement would create a real risk of a clear injustice will the court refuse to enforce the settlement agreement.
During this second stage, the court may look at things such as: whether any mistakes were made; the reasonableness of the agreement; any prejudice to the parties if the court were to enforce or not enforce the agreement; the impact of not enforcing the agreement on any third parties; and other special circumstances that may point away from enforcement.
The Importance of Mediation
In Ontario, litigants are strongly encouraged (by lawyers and judges alike) to resolve their legal disputes outside the court room. Successful mediations benefit all parties by cutting down on overall costs, time, and stress, all of which invariably accompany litigation. For a brief primer on mediation, see our blog post here.