Pandemic not an excuse to default on settlement agreement: court

The Ontario Court of Appeal has rejected the defense that the COVID-19 pandemic altered a party’s obligation under a settlement agreement.

In 1504641 Ontario Inc. v. 2225902 Ontario Inc., 2022 ONCA 175, the parties, two incorporated entities, entered into a Minutes of Settlement where the appellants agreed to pay the respondents $40,000 in four monthly instalments of $10,000 each. Pending the completion of their instalment payments, the appellants also agreed to deliver a consent to judgment in the amount of $120,000 to be held in escrow, as well as a consent to the dismissal of the action without costs to be held in escrow by counsel for two other defendants.

However, the COVID-19 pandemic started shortly after the parties entered into the agreement. The appellants failed to deliver the required consents and stopped payment on their last instalment. As a result, the respondents arranged separately for the dismissal of the action against the other defendants.

The respondents also brought a motion to enforce the Minutes of Settlement against the appellants. The judge granted a summary judgment in the amount of $90,000, which was equivalent to the amount held in escrow less the three instalments previously paid by the appellants.

The appellants claimed that the pandemic or the respondents’ arrangements with the other defendants should alter the appellants’ obligations under the Minutes of Settlement. They further claimed that the judge made an error in dealing with the motion as a motion for judgment, rather than as an in-writing motion, and in converting it to a summary judgment motion.

The court disagreed, ruling that the pandemic or the respondents’ arrangements with the other defendants did not alter the appellants’ obligations. The motion judge observed that the appellants did not “advance any grounds, much less evidence, [to support] a rational link between the pandemic and their failure to comply with the terms of the Minutes of Settlement,” the appeal court said.

Furthermore, the court concluded that, due to the failure of the appellants to deliver the consent to the dismissal of the action, the respondents were obliged to make other arrangements to dismiss the action against the other settling defendants. The court ultimately dismissed the appeal with costs payable to the respondents.