Court File No.: CV-13-0235 Date: 2018-07-09 Superior Court of Justice - Ontario
Re: Paul Thompson, Plaintiff And: Hendrika Broeze and Canadian Hydro Developers, Inc., Defendants
Before: Petersen J.
Counsel: Howard Kohn, for the Plaintiff Roger Chown and P. Graham, for the Defendants Sean Dewart, for the Lawyers Professional Indemnity Company
Heard: March 9, 2018
Endorsement
Introduction
[1] The defendant Canadian Hydro Developers (“CHD”) brings this motion to enforce Minutes of Settlement agreed to by the parties. CHD also seeks a declaration regarding the correct interpretation of a key element of the settlement. The parties’ counsel agreed to a particular interpretation that is now disputed by the plaintiff.
[2] The settlement pertains to the plaintiff Paul Thompson’s action in nuisance. Mr. Thompson owns a rural property in Grand Valley, Ontario where he repairs farm equipment and stores and restores vintage tractors. He lived at the property from 1998 until 2009. He commenced this action in February 2008, claiming damages resulting from the installation and operation of CHD’s transformer station on the adjacent land belonging to his neighbour, the defendant Hendrika Broeze. He alleged that noise from the transformer station adversely affected his health, interfered with the use and enjoyment of his property, and reduced the property’s value. He stopped living at the property and moved to rental accommodation because of the alleged negative effects on his health.
[3] A comprehensive settlement of the action was executed at a mediation session on June 17, 2014. All parties were represented by counsel during the mediation. At the time, Mr. Thompson’s lawyer was John Carruthers. Mr. Thompson retained his current counsel, Howard Kohn, in August 2017.
[4] One provision of the Minutes of Settlement was that CHD would purchase Mr. Thompson’s property for a price to be determined by a specified appraisal process. Another provision was that CHD would also pay Mr. Thompson the sum of $142,500.00 once the real estate transaction was completed. There were other terms of settlement that are not germane to this motion.
[5] The Minutes of Settlement specified that Mr. Thompson would forfeit the lump sum payment if he violated the confidentiality provisions of the agreement. Unfortunately, confidentiality was necessarily vitiated by this motion proceeding.
[6] The settlement was partially implemented. Appraisals of Mr. Thompson’s property were completed, but the sale of the property did not take place and no payments were made pursuant to the Minutes of Settlement.
[7] Mr. Thompson argues that the Court should not enforce the settlement because he and his former lawyer agreed to it based on factual assumptions that later proved to be incorrect. Alternatively, he argues that his former lawyer acted without instructions and contrary to his wishes by agreeing to a particular interpretation of a critical term of the settlement, which ought not to be enforced. The interpretation dispute relates to the date to be used to appraise the property and fix the purchase price for the sale of the property.
Issues
[8] The issues for the Court to decide are the following:
(i) Should the settlement be set aside because Mr. Thompson and his counsel misapprehended facts and failed to appreciate the consequences of the deal?
(ii) If the settlement is not set aside, what is the correct interpretation of the Minutes of Settlement with respect to the valuation date for fixing the sale price of the property?
(iii) Is Mr. Thompson bound by his lawyer’s agreement to settle on a particular valuation date, even though he did not instruct his lawyer on the issue, or should the court set aside the unauthorized settlement in the interests of justice?
(i) Issue no.1: Misapprehension of Facts
[9] Mr. Thompson claims that, when the settlement was executed, neither he nor his former lawyer, Mr. Carruthers, fully appreciated the devastating consequences of selling the property. He asks the Court not to enforce the settlement based on their misapprehension of the facts.
[10] Mr. Thompson earns his living as a farm equipment mechanic. His workshop is in a large custom-built shed on the property, which contains a sizeable collection of machinery and tools required to operate his business. He also owns approximately 50 tractors, many of them unique and/or antique — one of which he described as priceless and irreplaceable. The tractors are stored on the property. His plan is to restore and sell them, as needed, in order to fund his retirement.
[11] Mr. Thompson’s uncontested evidence is that, when he agreed to sell his property to CHD, he was intending to use the proceeds of sale to secure a comparable property in a farming community (without adjacent wind turbines or transformer stations) so that he could continue his business. He planned to live and work at the same location, as he had done on his current property for many years before CHD’s transformer station was installed.
[12] Mr. Thompson deposed that, after the settlement was executed, he learned that no such comparable property is available. He claims also to have learned that the cost of moving his tractors and other equipment would be prohibitive, even if a suitable alternate property could be secured.
[13] Mr. Thompson deposed that Mr. Carruthers “never considered the problem” of moving his equipment and tractors, despite his having raised the concern during mediation. Under cross-examination, Mr. Thompson noted that Mr. Carruthers had toured his property prior to the mediation and had seen his machinery and tractors. Mr. Thompson suggested that the complexity and expense of moving his belongings should have been obvious.
[14] Neither Mr. Thompson nor Mr. Carruthers obtained any quotes for moving expenses prior to the mediation, despite anticipating that the sale of his property to CHD would be a possible outcome if a settlement could be reached. Mr. Thompson thought there was “no point in putting the cart before the horse”; he stated that he now realizes it was Mr. Carruthers’s responsibility to ensure that quotes were obtained prior to the mediation so that an accurate accounting of his damages would be factored into the settlement negotiations.
[15] When Mr. Thompson changed lawyers, his new counsel promptly advised him to investigate the moving costs. Consequently, in the fall of 2017, he obtained a couple of quotes, which are in the range of $650,000 to $700,000 (plus HST). The quotes assume a move within a short radius of Peterborough and are based on using sea shipping containers to transport his vintage tractors, which Mr. Thompson believes is the most desirable — if not the most economical — way to facilitate the move.
[16] CHD argues that the quotes are manifestly inflated and are premised on moving the tractors in an inefficient and unnecessarily expensive manner (i.e. using sea shipping containers rather than flatbed trucks). CHD also submits that Mr. Thompson’s moving costs were specifically addressed during the mediation and are reasonably contemplated by the terms of settlement.
[17] The Minutes of Settlement do not include a breakdown of the $142,500 lump sum payment to Mr. Thompson. Various heads of damages were, however, discussed by the parties during the mediation session. CHD’s mediation notes show that one of Mr. Thompson’s offers to settle included a demand for $30,000, plus HST, for moving expenses. The notes also show that a subsequent offer included a demand for $25,000 for moving expenses.
[18] During his cross-examination, Mr. Thompson could not clearly remember the breakdown of these offers, but he did not deny that the demands for moving expenses were made. He stated that Mr. Carruthers came up with the figures during the mediation. He said his input was limited to telling Mr. Carruthers that it would cost at least $100/hour to rent a flatbed truck to move his tractors.
[19] Julie Ellery, a paralegal employed by Mr. Chown’s (the defendants’ counsel) law firm, attended the mediation session. She recalled the mediator justifying the plaintiff’s high demands for moving costs by advising the defendants that Mr. Thompson had told him, during a private caucus, that it would be difficult and expensive to move his tractors.
[20] Mr. Thompson argues that he and Mr. Carruthers not only underestimated the moving costs, they also erroneously assumed that he would be able to use the proceeds of sale of his property to buy a comparable property in a nearby farming community. He deposed that he would need to move to another property in close proximity to his current location. Otherwise, he would lose the goodwill built up in his business and would be required to rebuild his clientele from scratch.
[21] After executing the settlement, Mr. Thompson retained a real estate agent to search for suitable nearby properties that had both a home and a workshop where he could operate his business. He deposed that the agent has not been able to identify any available comparable properties for any price. She has identified some available options in Simcoe, Grey and Dufferin Counties, but they have greater acreage and are therefore not comparable and are considerably more expensive. She advised Mr. Thompson that his only feasible option would be to purchase a vacant lot and custom build on it. Mr. Thompson believes that it would be a challenge to obtain municipal permission to construct both a residence and a business workshop on a vacant lot.
[22] Mr. Thompson submits that, if the settlement is enforced, it will have a devastating effect on him because he has nowhere to go to continue his business. He would either be forced to acquire substantial debt in order to purchase a more expensive property and rebuild his clientele from scratch in a new location, or he would be forced to incur great expense constructing a new residence and workshop on vacant land. Either way, his business operations would be interrupted and he would not be able to recover his losses.
[23] Moreover, Mr. Thompson argues that, even if he could secure a suitable alternate property nearby, he would not be able to afford to move his machinery and tractors. He therefore would not be able to provide vacant possession of the property to CHD, which would inevitably lead to more costly litigation. He deposed that the full value of his vintage tractors could not be realized if he were required to sell them in their current unrestored condition.
[24] In oral submissions on behalf of Mr. Thompson, Mr. Kohn argued that the settlement has such disastrous consequences for Mr. Thompson that he would have been better off simply agreeing to a dismissal of his action without costs. Mr. Kohn described Mr. Carruthers’s representation of Mr. Thompson during the mediation meeting as irresponsible and inexcusable. Among other criticisms of Mr. Carruthers’s services, Mr. Kohn submitted that he failed to prepare a proper estimate of Mr. Thompson’s damages prior to the mediation and that he recommended a settlement involving a sale of the property without first assessing the implications of the sale. Mr. Kohn characterized the negotiation of the Minutes of Settlement by Mr. Carruthers on Mr. Thompson’s behalf as an example of a “farm mechanic being taken to the woodshed by his lawyer.”
Analysis of Issue no.1
[25] Ms. Ellery’s recollection of and contemporaneous notes from the mediation contradict Mr. Thompson’s claim that Mr. Carruthers never considered the moving expenses during the mediation discussions. I find that the moving costs were contemplated by both Mr. Thompson and Mr. Carruthers. Mr. Thompson essentially admitted this during his cross-examination. Moreover, the mediation notes establish that the moving costs were explicitly factored into the settlement negotiations.
[26] Based on the record, I accept that when the settlement was negotiated neither Mr. Carruthers nor Mr. Thompson fully appreciated the uniqueness of Mr. Thompson’s property and the difficulty (or near impossibility) of replacing it. I do not, however, accept that they overlooked or grossly underestimated Mr. Thompson’s moving costs.
[27] I am not persuaded that the quotes of moving costs obtained by Mr. Thompson are realistic. There is little detail provided in the quotes, such as, for example, the size of the crew required to perform the work, the hourly wages of the workers, and the estimated amount of time required to complete the move. It is therefore difficult to assess the reasonableness of the quotes. However, they appear to represent the most expensive means of transporting the tractors, using up to 50 large sea shipping containers. They do not contemplate any potential efficiencies, such as transporting some of the less precious tractors on open flatbed trucks. I believe that more economical means of moving the tractors could be identified.
[28] Even if I had concluded that the quotes were accurate and not inflated, Mr. Thompson’s and Mr. Carruthers’s failure to investigate the moving costs prior to the mediation meeting and their underestimation of those costs would not be appropriate bases upon which to permit Mr. Thompson to resile from the settlement. Similarly, their failure to investigate the availability of suitable alternate properties and their lack of appreciation of the difficulty of replacing Mr. Thompson’s property do not justify setting aside the settlement.
[29] The sale of Mr. Thompson’s property was not a surprise proposal raised by CHD for the first time at mediation in June 2014. The possible sale of the property had been raised in “without prejudice” discussions between counsel as early as January 2014. Selling and moving from the property was therefore a possible outcome known to Mr. Thompson and Mr. Carruthers long before the mediation meeting. Indeed, the sale of the property was part of Mr. Thompson’s first settlement offer on the morning of the mediation meeting. He and Mr. Carruthers ought to have investigated the implications of their own offer. They should have made inquiries about the availability of other suitable properties and about the cost of moving his belongings prior to the mediation meeting.
[30] Although the interests of justice at times require the Court to decline enforcement of a settlement concluded by a lawyer based on a misapprehension of their client’s instructions, the jurisprudence is clear that a lawyer’s misapprehension of facts relating to the consequences of a settlement does not justify the Court setting aside or refusing to enforce a settlement: Cambrian Ford Sales (1975) Ltd. v. Horner (1989), 69 O.R. (2d) 431 (Div. Ct.), at paras. 12, 13, 16; Milios v. Zagas (1998), 38 O.R. (3d) 218 (C.A.), at para. 17; and Vanderkop v. Manufacturers Life Insurance Company (2005), 78 O.R. (3d) 276 (S.C.), at paras. 27-29, aff’d , 40 C.C.L.I. (4th) 180 (Ont. C.A.).
[31] The policy considerations underlying this jurisprudence are obvious. Settlements are an essential feature of our justice system, necessary to the effective functioning of the courts. They are encouraged and incentivized by the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (such as Rule 49) and by pre-trial court proceedings. The principle of finality in settlements is fundamental because, without the expectation of irrevocable closure, parties would have little reason to invest time and resources in efforts to settle their own disputes.
[32] Parties must be encouraged to approach settlement discussions carefully and to take settlement agreements seriously, knowing that enforcement of such agreements cannot easily be defeated. The motivation for parties to settle would be eroded if litigants could avoid enforcement of a settlement because they failed to exercise due diligence in protecting their own interests, were influenced by incorrect and unverified assumptions, or simply had second thoughts about the desirability of the resolution reached. The principle of finality in settlements is even more important where the terms of settlement are negotiated with the assistance of counsel, since the opposing party may reasonably assume that the compromise was reached with the benefit of appropriate and independent legal advice.
[33] The parties in this case both had legal representation. They spent an extended day engaged in settlement discussions with the assistance of a mediator. They exchanged written briefs beforehand. They met and caucused from 10:00 AM until 7:30 PM. They passed multiple offers back and forth throughout the day, eventually reaching agreement on terms and drafting and signing Minutes of Settlement.
[34] Mr. Thompson alleges that he did not understand the voluntariness of the mediation process. He deposed that he was under the misunderstanding that when he agreed to participate in mediation, he effectively waived his right to a trial and was required to resolve the action through a mediated settlement. He claims that he was left alone for long stretches of time during the mediation session and had limited access to the mediator. He alleges that Mr. Carruthers was unprepared, did not evaluate all of his damages, failed to consider and advance his litigation goals, did not properly explain the terms of settlement to him (which he felt were written in incomprehensible “legalese”), and placed undue pressure on him to sign the Minutes of Settlement.
[35] Notably, Mr. Thompson does not suggest that any of these alleged circumstances were known (or ought to have been known) to the defendants. As far as the defendants were concerned, they participated in a typical, albeit somewhat lengthy, mediation meeting and arrived at mutually satisfactory terms of settlement.
[36] The defendants reasonably relied on the executed Minutes of Settlement as a full and final resolution of the action. Mr. Thompson’s and Mr. Carruthers’s failure to appreciate the consequences of the settlement is not an appropriate ground upon which to set aside the settlement agreement.
[37] Mr. Thompson may have a claim to a remedy based on an improvident settlement executed due to inadequate legal representation (an issue about which I express no opinion), but that claim lies against Mr. Carruthers, not the defendants. The record establishes that Mr. Thompson has already commenced a professional negligence action against his former counsel.
[38] For the above reasons, I find that Mr. Thompson’s and Mr. Carruthers’s misapprehension of the consequences of the settlement is not an appropriate basis upon which the Court should intervene and set aside the settlement.
(ii) Issue No.2: Interpretation of Minutes of Settlement (Valuation Date)
[39] The correct interpretation of a key component of the settlement is in dispute and remains to be determined by this Court. The Minutes of Settlement stipulate that the purchase price for Mr. Thompson’s property is to be determined by averaging two property valuations to be provided by separate appraisers, one retained by each side. The valuation date to be used by the appraisers is not specified in the Minutes of Settlement.
[40] Mr. Thompson asserts that the date the appraisals are conducted is the valuation date. CHD argues that the date of the settlement (i.e., June 17, 2014) is the valuation date.
[41] This interpretation dispute is significant because appraisals of the property did not occur until June 16, 2016. The value of the property increased in the intervening two years.
[42] The delay in completing the appraisals is attributable to Mr. Carruthers, who was dilatory in taking the necessary steps to implement the settlement. Mr. Chown’s office repeatedly called and wrote to Mr. Carruthers, expressing frustration about the delay, threatening to bring a motion either to enforce the settlement or for a declaration that it had been repudiated by the plaintiff, and inquiring as to whether Mr. Thompson changed his mind about selling the property. Mr. Carruthers was largely uncommunicative but when he did respond to Mr. Chown’s correspondence, he consistently reassured the defendants that Mr. Thompson still wanted to proceed with the sale.
Analysis of Issue No.2
[43] The meaning to be attributed to a written agreement must be determined based on the language used in the agreement and not based on the negotiating parties’ subjective intentions. The law imputes to the parties an intention corresponding to the reasonable meaning of the words used, regardless of their actual subjective intention. Parole evidence relating to the negotiations of a written agreement is therefore generally inadmissible: Turner v. DiDonato, 2009 ONCA 235, 95 O.R. (3d) 147, at para. 44, and Eli Lilly & Co. v. Novopharm Ltd., [1998] 2 S.C.R. 129 at paras. 54-55 and 58.
[44] In this case, the Minutes of Settlement include the following clause: “Sale to take place six months after price agreed upon, or sooner at the request of Plaintiff, all parties acting with due dispatch.” CHD submits that it is reasonable to infer from this language that the parties intended both the valuation and the sale of the property to take place without delay. CHD further argues that a proper interpretation of the Minutes of Settlement, in this context, is that the date of settlement was to be used as the valuation date.
[45] I disagree. The language of the Minutes of Settlement is ambiguous and does not clearly lend itself to an interpretation that the date of settlement would be used as the valuation date. The 6 month timeframe and the undertaking to act “with due dispatch” explicitly refer to the sale of the property, not its valuation. The parties agreed that the sale was to take place within 6 months of the completion of the appraisal process. They did not agree on a specific timeframe for conducting the appraisals. They did not specify a valuation date to be used by the appraisers. One cannot reasonably conclude, from the language of the written agreement alone, that the parties intended the date of settlement to be the valuation date.
[46] I must therefore look beyond the words used in the written agreement. As an exception to the parole evidence rule, extrinsic evidence may be admitted and considered as an aid to interpretation of a written agreement if the language used in the agreement is ambiguous. Eli Lilly & Co., at para. 55 and 58. In this case, the Minutes of Settlement are silent with respect to the valuation date, resulting in ambiguity on that issue.
[47] While cross-examining both Mr. Thompson and Mr. Carruthers, Mr. Chown attempted to get them to agree that the phrase “with due dispatch” in the Minutes of Settlement was intended to refer not only to the ultimate sale of the property, but also to the appraisal process to fix the purchase price. Neither witness confirmed this understanding.
[48] There is no evidence that a specific timeframe for completing the appraisal process was ever raised during the mediation. The record suggests that the parties simply did not turn their minds to this issue. However, witnesses confirmed that everyone was expecting the appraisals to be completed within a few months. Those expectations were not communicated during the mediation and no commitments were made to conclude the appraisals by a particular date. More importantly, no one discussed what would happen if the appraisals did not occur promptly or what the valuation date would be.
[49] It is clear from the evidence that the defendants did not turn their minds to the question of the valuation date during the mediation session. Mr. Thompson deposed that it was his understanding that the date of the appraisals would constitute the valuation date. He also deposed that he would not have agreed to a settlement based on a valuation date that corresponded with the date of settlement. Considering that his intention in settling the action was to use the proceeds of sale to purchase a similar property and that a rising real estate market was common knowledge at the time of the mediation, I accept that it was his expectation that the valuation date would coincide with the date of the appraisals.
[50] The defendants knew, based on discussions during the mediation (e.g., regarding Mr. Thompson’s moving costs), that it was Mr. Thompson’s intention to use the proceeds of sale to purchase another property where he could continue to conduct his business. Given Mr. Thompson’s known plans, it is not reasonable to infer that the parties mutually intended the date of settlement to constitute the valuation date, particularly since there was no agreement on a timeframe for the appraisal process to be completed and the parties were negotiating in the context of a rising real estate market. A more reasonable inference would be that the parties intended the valuation date to be the date the appraisals took place.
[51] Consequently, if the parties’ settlement discussions had ended after the mediation I would find -- based on the language of the Minutes of Settlement, the evidence of the parties’ subjective intentions and the circumstances surrounding the negotiations -- that the date of the appraisals is the valuation date. However, the parties’ counsel had ongoing settlement discussions after the mediation session regarding the interpretation of the Minutes of Settlement. It is necessary to examine those discussions because counsel settled on a valuation date.
(iii) Issue No. 3: Lawyer’s Misapprehension of Client Instructions
[52] Mr. Chown first raised the issue of the valuation date after Mr. Carruthers’s delay in arranging for the appraisals became inordinate. It became apparent that a specific agreement needed to be reached on the valuation date because none was specified in the Minutes of Settlement. On two occasions in 2015, Mr. Chown asked Mr. Carruthers to confirm that the valuation date would be June 2014. Mr. Carruthers neither confirmed nor disagreed with that proposed valuation date on those occasions.
[53] June 16, 2016 was eventually fixed as the date for the appraisals to take place. On June 13, 2016, Mr. Carruthers confirmed in an email to Mr. Chown’s office that June 17, 2014 would be used as the valuation date, even though it was not specified in the Minutes of Settlement. This email exchange between counsel effectively constituted a settlement on the valuation date, which CHD is seeking to enforce.
[54] Mr. Thompson deposed that he was not aware that Mr. Carruthers had agreed to the June 17, 2014 valuation date until shortly after the appraisers left his property on June 16, 2016. He was never consulted about it and did not agree to it. He testified that it was a shock to him when Mr. Carruthers told him that the valuation date was June 17, 2014.
[55] I accept Mr. Thompson’s evidence on this point as credible. Mr. Carruthers acknowledged that he did not discuss the valuation date with Mr. Thompson and did not seek Mr. Thompson’s instructions before agreeing to June 17, 2014 as the valuation date.
[56] The defendants and their counsel had no knowledge of Mr. Carruthers’s lack of instructions.
[57] Mr. Carruthers received the plaintiff’s appraisal report on or about June 18, 2016, valuing the property at $350,000, effective June 17, 2014. Mr. Thompson was not satisfied with the report, not only because of the valuation date, but also because it contained numerous inaccuracies in the description of the property.
[58] The defendants’ appraisal report was delivered to Mr. Chown on June 27, 2016, valuing the property at $372,000 as of June 17, 2014.
[59] CHD was prepared to exchange appraisal reports and proceed with the sale of the property, but a further period of delay ensued. Mr. Chown’s office again followed up repeatedly with Mr. Carruthers by email and voicemail, with virtually no response from him.
[60] Mr. Carruthers eventually wrote to Mr. Chown on November 14, 2016, advising that the plaintiff’s appraisal report contained a number of significant factual errors that needed to be corrected. He also advised that he had “misunderstood Mr. Thompson’s instructions/understanding of the Minutes of Settlement.” He explained that Mr. Thompson had understood the valuation date to be the date the appraisals were conducted. Mr. Carruthers indicated that he would be retaining a different appraisal firm to perform another appraisal using a current valuation date.
[61] Although Mr. Chown requested a copy of the plaintiff’s appraisal report, it was not provided at that time. The defendants took the position that Mr. Thompson’s actions amounted to bad faith, but they agreed, on a without prejudice basis, to wait for his new appraisal report to see whether there was a significant difference between it and their appraiser’s estimated value of the property.
[62] The plaintiff’s second appraisal report was completed on February 16, 2017, valuing the property at $500,000, effective February 15, 2017. (The defendants object to the fact that the second appraisal was conducted by an individual who authored a study in 2012 on wind turbines and their effect on real estate prices. The Minutes of Settlement specify that all appraisers must be independent of the wind industry.)
[63] CHD requests an order for the sale of Mr. Thompson’s property, pursuant to the Minutes of Settlement, based on the June 2014 valuation date that was agreed to by counsel in June 2016. Specifically, CHD seeks an order that the property be sold to CHD for $361,000, a price reflecting the average of the plaintiff’s and the defendants’ appraisals in the amounts of $350,000 and $372,000 respectively.
[64] Mr. Thompson argues that it would be extremely prejudicial to him to force the sale of the property in 2018 based on 2014 market pricing. He asks the court not to enforce counsels’ agreement to use June 2014 as the valuation date because his lawyer entered into that settlement agreement without his instructions and contrary to his wishes.
[65] CHD argues that, since it was not aware of Mr. Carruthers’s lack of instructions when the valuation date was confirmed, it should be entitled to rely on the agreement that was reached through counsels’ communications. CHD submits that, if there is any unfairness to Mr. Thompson, it arises from his own lawyer’s dilatory conduct, not from the valuation date. Mr. Chown characterized Mr. Kohn’s submissions as a plea that Mr. Thompson’s former lawyer delayed for so long that the terms of settlement became unfair. CHD argues that this is not an equitable basis upon which to set aside the settlement agreement on the valuation date. CHD submits that Mr. Thompson should pursue a remedy against Mr. Carruthers instead.
Applicable Legal Principles
[66] As a general rule, a person is bound by terms of settlement agreed to by their lawyer, even if they did not instruct the lawyer to settle. The public policy reasons for this rule are obvious. In the absence of an express limitation on a lawyer’s authorization to settle issues on behalf of their client, litigants and their lawyers need to be able to rely on the representations of counsel who are retained to conduct litigation on behalf of opposing parties, without questioning the lawyer’s instructions.
[67] The jurisprudence is clear, however, that in exceptional circumstances, the Court may exercise judicial discretion not to enforce a settlement reached as a result of a lawyer’s lack of instructions or misapprehension of their client’s instructions where enforcement is not in the interests of justice. The Ontario Court of Appeal and the Divisional Court of the Ontario Superior Court have made numerous pronouncements on this issue. The following legal principles are set out in the jurisprudence:
a) A lawyer who is retained to conduct litigation has ostensible authority to act for their client in agreeing to a settlement, unless there is an express limitation on their authority that is communicated to the opposing party: Scherer v. Paletta, [1966] 2 O.R. 524 (C.A.), at para. 10; Srajeldin v. Ramsumeer, 2015 ONSC 6697, 343 O.A.C. 122 (Div. Ct.), at paras. 21, 27.
b) The usual rule is that a settlement negotiated with the assistance of counsel ought to be enforced regardless of whether one of the lawyers was operating without instructions or under a mistaken belief as to their instructions, unless the lawyer’s lack of authorization was known to the opposing party: Scherer, at para. 11; Srajeldin, at para. 36.
c) However, in the context of enforcement of a settlement of litigation, the Court does not simply apply contract law principles in determining whether terms of settlement are binding. Given that the parties have invoked the judicial process, there is a residual judicial discretion as to whether to grant judgment in accordance with the terms of settlement. This discretion exists regardless of whether or not the settlement was reached pursuant to Rule 49 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194: Scherer, at para. 11; Milios, at para. 15; Vanderkop, at para. 23.
d) The Court’s discretion not to enforce a settlement should only be exercised in rare and exceptional circumstances: Srebot v. Srebot Farms Ltd., 2013 ONCA 84, [2013] O.J. No. 584, at para. 6; Srajeldin, at paras. 33, 42.
e) In deciding whether to exercise its discretion not to enforce a settlement, the Court must take all relevant equitable factors into consideration, including the reasonableness of the terms of settlement, the degree to which the moving party will be prejudiced if the settlement is not enforced, the degree to which the responding party will be prejudiced if the settlement is enforced, whether any third parties will be affected if the settlement is not enforced, whether the unauthorized lawyer acted out of a misapprehension of their instructions (i.e. mistake), and whether the parties’ pre-settlement positions remain intact: Milios, at paras. 16, 19-22; Srebot, at para. 10.
f) The discretionary decision not to enforce a settlement, especially where the settlement has been partially performed, should be reserved for those rare cases where compelling circumstances establish that the enforcement of the settlement is not in the interests of justice: Srajeldin, at paras. 33, 42; Srebot, at para. 6. The test is whether, on consideration of all the relevant factors disclosed by the evidence, the enforcement of the settlement would lead to clear injustice: Srebot, supra, at para. 10.
Analysis of Issue No.3
[68] For the reasons that follow, I have concluded that this is one of those rare cases where compelling circumstances establish that the enforcement of a settlement is not in the interests of justice. I come to this conclusion notwithstanding that the settlement was negotiated through counsel and despite the fact that the party seeking enforcement was not aware of the opposing counsel’s lack of authorization to settle.
[69] The relevant equitable factors for consideration in this case are as follows.
[70] First, the agreement between counsel in June 2016 to use the mediation date (June 2014) as the valuation date is unreasonable. It was not reasonable to expect Mr. Thompson to sell his property in late 2016 or early 2017 [^1] at market rates from June 2014. (Nor would it have been reasonable to expect CHD to purchase the property at 2014 market rates if there had been a crash in the real estate market in the intervening years.) As noted earlier in these reasons, I am of the view that it would not have been reasonable, even at the moment when the Minutes of Settlement were executed in June 2014, to infer that Mr. Thompson was agreeing to the date of settlement as the valuation date.
[71] Second, there is no doubt that Mr. Carruthers acted out of a misapprehension of his instructions when he settled on June 2014 as the valuation date. Mr. Carruthers made a mistake by erroneously assuming (without consulting his client) that Mr. Thompson consented to a particular interpretation of the ambiguous Minutes of Settlement.
[72] Third, the defendants will not be seriously prejudiced if the June 2014 valuation date is not enforced. They will not be required to defend the action at trial because the Minutes of Settlement are being enforced. As such, there is no need to consider whether the passage of time has prejudiced their ability to present their defence.
[73] The fact that CHD will almost certainly be required to pay more for the purchase of Mr. Thompson’s property than it would have paid at 2014 market prices does not amount to serious prejudice. CHD will be paying current market value and will acquire a property worth the price. Its only real loss will be the (minimal) cost of having to conduct another appraisal of the property.
[74] I recognize that CHD has been prejudiced by the loss of the confidentiality of the settlement, but that prejudice will not be exacerbated by non-enforcement of the June 2014 valuation date.
[75] Fourth, Mr. Thompson will be severely prejudiced if he is now forced to sell his property to CHD at June 2014 market rates. It will not be possible for him to purchase a comparable property (assuming that he can find one) at 2018 market rates with proceeds of sale from a property sold at 2014 market rates. CHD would obtain a significant windfall, at Mr. Thompson’s expense, if it acquired the property at 2014 market prices.
[76] Fifth, no third parties will be affected if the June 2014 valuation date is not enforced.
[77] All of the above factors weigh heavily in favour of non-enforcement of the settlement reached with respect to the June 2014 valuation date.
[78] Whether the parties’ pre-settlement positions remain intact is not a relevant consideration in the particular circumstances of this case because the Minutes of Settlement are being enforced. It is only enforcement of counsels’ subsequent agreement to use June 17, 2014 as the valuation date that is at issue. (During the motion hearing, Mr. Chown confirmed that CHD would prefer an order to enforce the Minutes of Settlement, even if I did not adopt CHD’s interpretation of the Minutes of Settlement and decided not to enforce counsel’s agreement on the June 2014 valuation date.)
[79] The only equitable factor that favours the defendants is the unreasonable conduct of Mr. Carruthers, who not only delayed implementing the settlement, but also strung the defendants’ counsel along. Mr. Carruthers repeatedly stated that Mr. Thompson had not changed his mind about selling the property and represented that the appraisals would be conducted imminently. It was based on these assurances that CHD did not bring an earlier motion to enforce the settlement or seek a declaration of its repudiation. The prejudice to Mr. Thompson of enforcing the June 2014 valuation date has been exacerbated by his own (former) lawyer’s conduct, not by any fault of the defendants. This consideration does not, however, outweigh the equitable factors discussed above, which demonstrate that enforcement of the June 2014 valuation date would lead to a clear injustice.
[80] The Minutes of Settlement will therefore be enforced but counsels’ agreement to use June 2014 as the valuation date will not. The date when the appraisals are conducted will be used as the valuation date. The purchase price for the property has yet to be determined by averaging two property valuations conducted by appraisers who meet the independence criteria in the Minutes of Settlement.
Conclusion and Orders
[81] CHD’s motion is granted in part.
[82] The Minutes of Settlement executed by the parties on June 17, 2014 at mediation shall be enforced.
[83] The settlement reached by the parties’ counsel on June 13, 2016 regarding the June 17, 2014 valuation date is set aside.
[84] The valuation date for the purpose of assessing the value of the plaintiff’s property shall be the date when the appraisals are conducted.
Costs
[85] Although the motion was only partially successful, CHD is nevertheless entitled to its costs. CHD should not be required to bear any of the plaintiff’s costs in the circumstances of this case, notwithstanding that Mr. Thompson was successful in persuading the court not to enforce the June 2014 valuation date agreed to by Mr. Carruthers.
[86] At the motion hearing, the parties agreed that, should the Court enforce the settlement in any fashion (regardless of the valuation date), then CHD would be entitled to $25,000 in costs against Mr. Thompson. LawPro indicated that it would provide an indemnification for those costs. In my view, this is a reasonable and proportionate amount of costs given the issues raised in the motion.
[87] I therefore order the plaintiff Mr. Thompson to pay CHD $25,000 in costs, all inclusive.
Petersen J. Date: July 9, 2018
[^1]: Six months after the appraisals were completed, pursuant to the Minutes of Settlement.