Settlement Agreements to be Evaluated Objectively, Not Subjectively: C.A.

In Olivieri v. Sherman et al., the Court of Appeal today allowed an appeal from a decision of Justice Colin Campbell, in which His Honour had refused to enforce a settlement of a defamation suit, involving claims for millions of dollars. The ostensible settlement had taken place at a mediation held in November, 2004. The terms of a counter-offer by the defendants were set out on several pages of a large “flip chart”. They included a “non-disparagement” provision.

The plaintiff accepted the counter-offer within the 48 hour “window” provided for in the proposal. However, a considerable amount of time then passed with no communication between the parties. On October 31, 2005, the plaintiff’s solicitor advised counsel for the defendants that the plaintiff was in a position to complete the settlement. The defendants then took the position that there was no settlement, as they claimed that the plaintiff had continued to disparage them after the mediation. They also contended that the terms of the counter-offer that had been written on the flip chart were an outline of an agreement only and were subject to further documentation.

The plaintiff brought a motion to enforce the settlement and that motion was dismissed by Justice Campbell. He concluded that there had been no “meeting of the minds” about the meaning of “disparage”. He felt that the parties, particularly the defendants, believed that there would be a more detailed description, in other documentation, of what constituted disparaging conduct.

The Court of Appeal (Justices Rosenberg, Gillese and Lang) allowed the plaintiff’s appeal and ordered that the settlement be enforced.

Writing for the Court, Gillese J.A. said that “a settlement agreement is a contract” and that “for a concluded contract to exist, the court must find that the parties: (1) had a mutual intention to create a legally binding contract; and (2) reached agreement on all of the essential terms of the settlement”.

Here, there was no doubt that the first requirement was met, given the context in which the flip-chart counter-offer had arisen (at a mediation). The issue was whether the second part of the test could be satisfied.

Justice Gillese said that Campbell J. had made an error in principle in the way that he had evaluated the settlement agreement. He had mistakenly relied on evidence from the defendants as to what had been going through their minds at the mediation. There was no evidence that the defendants’ subjective concerns had been conveyed to the plaintiff.

Instead, said Gillese J.A., Justice Campbell should have made his ruling based on an objective reading of the flip-chart counter-offer. According to the Court, that approach led to the conclusion that the counter-offer was straightforward and unconditional.

Justice Gillese went on to say that because the policy of the courts is to encourage settlement, the courts “‘should not be too astute to hold’ that there is not the requisite degree of certainty in any of an agreement’s essential terms”.

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