Settlement offers and agreements are here to stay

Our civil justice system is rightly geared toward settling disputes. Litigation is expensive and judicial resources are becoming increasingly scarce. It should come as no surprise, then, that courts have recently reinforced the principle that parties cannot easily slip out of agreements to settle, nor escape the penalty of turning down a reasonable settlement proposal.

In Lumsden et al. v. The Toronto Police Services Board et al., Justice Paul Schabas of the Ontario Superior Court of Justice made it clear that, once a party agrees to settle a lawsuit, there is no turning back. This particular case had been ongoing for six years yet had not made it past the pleading stage. After the parties reached an agreement to settle via a clear email exchange, the plaintiffs refused to sign a release and tried to get out of the agreement by arguing that the parties had simply reached an “agreement to agree,” and not a formal settlement agreement.

The plaintiffs argued that there was no intention to create a binding agreement and that they never agreed to the release as a term of settlement. Schabas did not accept this argument and held that the emails exchanged between the parties objectively demonstrated a mutual agreement on the essential terms of settlement. The court also held that a full and final release is an implied term of a settlement that has been reached.

 Schabas made it clear that settlement is always encouraged and a party seeking to invalidate a settlement has a “heavy onus” to demonstrate and the court’s discretion in this regard should be “exercised rarely.” In the end, the settlement agreement was enforced and the plaintiffs were deemed to have executed the release.

The Lumsden decision provides much-needed relief when it comes to settling disputes. If parties reach an agreement to settle – even through an email exchange -- they can take comfort in knowing that they have solidified an agreement.

On a similar note, in Barresi v. Jones Lang Lasalle Real Estate Services Inc. the Ontario Court of Appeal recently confirmed that the costs consequences of refusing to accept a reasonable offer to settle cannot be easily avoided. Specifically, it was held that judges can only depart from the costs presumption in Rule 49.10(1) of Ontario’s Rules of Civil Procedure under very limited circumstances. This rule triggers an entitlement to partial indemnity costs to the date of service of the offer and substantial indemnity costs after the offer is served.

In this case, the plaintiffs served a Rule 49.10(1) offer long before trial and ended up obtaining a judgment which was more favourable than the offer. The trial judge agreed that this offer fell under the ambit of Rule 49.10(1), but she refused to apply the applicable costs consequences for two reasons: first, the plaintiffs were only partially successful at trial; and second, the individual plaintiff did not act reasonably over the course of the litigation insofar as he provided late answers to undertakings.

The Court of Appeal overturned the trial judge’s decision on the costs award. The court unanimously held that the discretion to depart from the costs presumption in Rule 49.10(1) “is not unfettered and must be exercised in accordance with the purpose of the rule”. The court went on to hold that the presumption must be the norm and that we cannot lose sight of the incentive behind the rule – namely, to induce parties to settle lawsuits and avoid trials.

It was also held that, although a successful party’s conduct could affect the beneficial nature of an offer to settle, this conduct must be sufficiently serious. In the Barresi case it was held that the conduct at issue did not rise to the level of being sufficiently serious, and it took place well before trial. The court therefore held that to allow such conduct to invalidate the applicable costs consequences under Rule 49.01(1) “would again defeat the policy and incentives of the rule, because it would mean that no offer to settle could have resulted in the higher scale of costs in this case.”

From these decisions it seems evident how seriously the courts will apply and protect rules that are geared toward a successful settlement process. Although both decisions confirm that judges do have some leeway to invalidate settlement agreements and depart from the applicable costs presumption, this discretion has very strict limits. 

We may therefore take comfort in knowing that not only will parties have a very difficult time in weaseling out of settlement agreements, but that the costs consequences of refusing to accept a reasonable settlement offer are here to stay.

In navigating the litigation process we should never lose sight of the fact that the system is geared toward settlement — because the courts certainly won’t.