In COVID times, given the backlog at the courts, more and more parties are using negotiation or mediation to resolve their disputes. In most cases, parties who agree to settle honour their agreements. But what happens if your settlement agreement is breached? How do you enforce your settlement? And when might the court refuse to enforce your agreement?
If a party has breached a settlement agreement, the first consideration is whether the agreement has a valid mediation or arbitration clause. These dispute resolution clauses typically require that any disputes relating to the contract or the dispute proceed through the prescribed dispute resolution process.
The next consideration is whether you have incorporated a consent to judgment in your settlement agreement. During the negotiation or mediation process, parties can prepare a draft judgment which is appended to the Minutes of Settlement and incorporated into the agreement. Consents to judgment typically include financial penalties (over and above the damages owed in relation to the dispute) in the case of default. If a party breaches the terms of the agreement, the other can bring a motion to enforce the consent to judgment. A consent to judgment can be an invaluable part of a mediated or negotiated settlement agreement since it disincentives a potential breach. It also makes enforcement more expeditious and less expensive.
In the absence of a consent to judgment or a dispute resolution clause, if you’ve settled a dispute in the context of litigation, you can bring a motion to enforce the settlement under Rule 37 of the Ontario Rules of Civil Procedure. If your agreement meets the requirements of Rule 49, you can also bring a motion to enforce the settlement.
If you have settled your dispute outside of the context of litigation, then it is important to recall that a settlement agreement is a contract like any other and subject to contract law. This means it is enforceable in court. You can either bring an application or an action, depending on the circumstances of your case. If the value of the settlement is between $35,000 and $200,000, you can use the Simplified Procedure under Rule 76. In the context of an action, you could also proceed more expeditiously by bringing a Motion for Summary Judgment under Rule 20. For breaches in Ontario under $35,000, you can file an action in Small Claims Court.
Courts typically uphold negotiated settlement agreements. The Ontario Court of Appeal has provided guidance on how courts should exercise their discretion when enforcing settlement agreements. In Srebot v. Srebot Farms Ltd, the Court of Appeal held that a court’s discretion not to enforce settlement agreements is reserved for cases where there are compelling circumstances and where enforcement would lead to an injustice. In that case, the Court declined to enforce the settlement agreement based on the “respondent’s state of mind and condition at the time of the settlement, the truncated and brief nature of the mediation and the respondent’s alleged lack of understanding about what was agreed upon at the mediation, as well as the consequences of the settlement”.
In Milios v. Zagas, the Court of Appeal declined to enforce the settlement because it held that there was uncontradicted evidence that the plaintiff was fundamentally mistaken about the settlement terms that he agreed to. The Court emphasized the importance of considering all the relevant factors, including: (a) whether the parties’ pre-settlement positions remained intact; (b) whether the moving party would be prejudiced if the settlement were not enforced (aside from losing the benefit of the challenged settlement); (c) the degree to which the defaulting would be prejudiced if the settlement were enforced compared to the prejudice that the moving party would suffer if the settlement were not enforced; and (d) whether any third parties would be affected if the settlement were not enforced.
Most recently, in Huma v. Mississauga Hospital, the Court of Appeal reminded us that courts have an “undoubted discretion” to refuse to enforce settlement agreements that are unconscionable. An agreement will be held to be unconscionable if all the following criteria are met: (1) there is a grossly unfair and improvident transaction; (2) the victim did not receive independent legal advice or other suitable advice; (3) there is an overwhelming imbalance in bargaining power; and (4) other parties knowingly took advantage of the vulnerability.
Ultimately, there are many ways in which parties can protect and enforce a settlement agreement. The best way to protect against potential breach is by crafting mutually beneficial terms with the help of a skilled negotiator or mediator.
As a lawyer and a mediator, Natai Shelsen can help you to resolve your legal dispute through negotiation, mediation or litigation. You can reach her at the contact information above.