The Effect of Mistake on the Enforceability of Minutes of Settlement

 In Commercial Litigation

The recent Court of Appeal decision in Kearns v Canadian Tire Corporation Limited examined when a settlement is enforceable in cases of mistake, specifically when a party executed Minutes of Settlement with a mistaken understanding of the material facts.

Background

The litigation arose out of the termination of the Plaintiff’s employment by Canadian Tire. Canadian Tire made some significant termination-related payments to the Plaintiff, but the Plaintiff ultimately commenced an action for wrongful dismissal seeking additional damages.

Mediation took place in the context of the litigation, during which the matter settled and Minutes of Settlement were executed. Counsel for Canadian Tire drafted the Minutes of Settlement which provided that Canadian Tire would pay the Plaintiff $150,000. The Plaintiff’s lawyer requested that the Minutes of Settlement include language that the $150,000 would be in addition to amounts already paid. Canadian Tire agreed and that language was included in the Minutes of Settlement.

It was subsequently discovered that the representatives of Canadian Tire who attended the mediation were not aware of the earlier termination-related payments to the Plaintiff, which were argued to have been made in error, and upon discovery of them, they took the position that those payments should be deducted from the settlement amount of $150,000.

The Motion Judge’s Decision

The Plaintiff brought a motion to enforce the Minutes of Settlement for the payment of the full amount under the Minutes of Settlement. Canadian Tire brought a cross-motion seeking to compel the Plaintiff to answer questions about the legal advice he received in respect of the previous payments, and to examine the Plaintiff’s lawyer.

The Motion judge found that there was no ambiguity in the written terms of the Minutes of Settlement, that there was not an evidentiary basis on which to draw an inference that the Plaintiff knew that Canadian Tire was mistaken when it signed the Minutes of Settlement, and there was no basis for a finding of fraud.

The Motion Judge declined to exercise his discretion to refuse to enforce the Minutes of Settlement and granted the Plaintiff’s motion to enforce the Minutes of Settlement, thereby awarding him the $150,000 without deduction for previous payments. Canadian Tire’s cross-motion was dismissed.

The Appeal

Canadian Tire subsequently appealed the Motion Judge’s decision to the Court of Appeal.

On appeal, among other things, Canadian Tire argued that the Minutes of Settlement arose by a mistake, and there was a good faith duty on the Plaintiff and his lawyer to disclose the receipt of those payments.

The Court of Appeal was not persuaded by those arguments, noting that certain factors prevented it accepting Canadian Tire’s argument that the Minutes of Settlement arose from a unilateral mistake, including that others in the company had known about the payments.

The Court of Appeal ultimately dismissed Canadian Tire’s appeal, finding that there was no reversible error in the Motion Judge’s analysis and findings.

Takeaways

This decision highlights the importance of detail and specificity in documents such as Minutes of Settlement. As the Court of Appeal noted in the decision, “this litigation could have been avoided through the simple drafting device of quantifying in the Minutes the amounts already paid”.

This decision also reinforces that when parties enter into Minutes of Settlement they should take care to ensure they have a complete and correct understanding of the material facts and that the terms of settlement corresponds with their understanding and intention to be bound.  Both the reasons and results in Kearns suggest that even where they acted under mistake, they may not be able to resile from the settlement.

This blog post was written by Alexander Bissonnette, a member of the Commercial Litigation team.  He can be reached at 613-369-0358 or at Alexander.Bissonnette@mannlawyers.com.

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