CITATION: Levac v. Pychel, 2017 ONSC 4509
COURT FILE NO.: 10758/15
DATE: 2017/07/28
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Jacques Levac and Claudette Levac
S. Draper for the Plaintiffs
Plaintiffs
- and -
Michael James Pychel, and The Corporation of the City of Welland
A. Scott for the Defendants
Defendants
- and -
Maximum Concrete Foundations Inc., 1671233 Ontario Limited and Gabmar Construction Ltd.
L. Thompson for the Third Party Maximum Concrete Foundations Inc.
L. DeLisio for the Third Party 1671233 Ontario Limited
Third Parties
- and -
Salvatore De Donato
G. Phelan for the Fourth Party Salvatore De Donato
Fourth Party
HEARD: July 21, 2017
CORRECTED DECISION ON MOTION – September 5, 2017
The release date has been corrected to indicate: DATE: 2017/07/28.
No changes to the content have been made.
The Honourable Mr. Justice J.R. Henderson
DECISION ON MOTION
[1] This is my decision with respect to three motions that were heard together. All three motions concern the effect of a purported settlement of this proceeding.
[2] The first motion was brought collectively by the plaintiffs, Jacques Levac and Claudette Levac, and the defendants, Michael James Pychel (“Pychel”) and the Corporation of the City of Welland (”Welland”), for an order declaring that a settlement agreement between the plaintiffs, the defendants, and the third parties, Maximum Concrete Foundations Inc. (“Maximum”) and 1671233 Ontario Limited (“167”), is binding, and for an order compelling 167 to execute a mutual full and final release ("the Release").
[3] It is the moving parties’ position that a valid settlement agreement was reached by counsel for these parties on or about December 8, 2016, but, contrary to the terms of the settlement agreement, 167 has refused or failed to execute the Release. Maximum supports the position of the moving parties.
[4] Furthermore, subsequent to the settlement agreement, 167 issued a fourth party claim against Salvatore De Donato ("De Donato"). This pleading was improperly issued because leave to issue the fourth party claim had not been obtained. In addition, it is alleged that the fourth party claim violated the settlement agreement as it breached the provisions of a no further action clause that was contained in the Release.
[5] Therefore, the second motion before the court today was brought by 167 for an order granting leave to issue the fourth party claim, nunc pro tunc. The third motion was brought by De Donato for, among other things, an order granting a stay of the fourth party claim.
[6] In this decision, I will deal with the following issues:
i. Was a valid settlement agreement made between the plaintiffs, the defendants, Maximum, and 167?
ii. If so, should I exercise my discretion to find that the settlement agreement is binding and order that 167 execute the Release? and
iii. Should I permit the fourth party claim to proceed, or grant an order to stay the fourth party claim?
FACTUAL BACKGROUND
[7] In approximately 2012, the plaintiffs purchased a newly constructed residential home, known as 101 Clare Avenue, Welland, Ontario, from Pychel. Pychel was the builder of the residence and the predecessor in title on the property.
[8] In 2015 the plaintiffs discovered defects in the foundation walls of the residence and commenced this action against Pychel and Welland for breach of contract, negligence, and breach of duty. Thereafter, Pychel issued third party claims against Maximum, 167, and Gabmar Construction Ltd. (“Gabmar”). Later, the third party claim was discontinued against Gabmar.
[9] All of the parties to the litigation were ultimately represented by counsel.
[10] 167 had a Commercial General Liability policy of insurance with Economical Insurance Company ("Economical"). Therefore, the principal of 167, Pasquale Mammoliti ("Mammoliti"), notified Economical of the third party claim against 167. Economical then, pursuant to the terms of the insurance policy, appointed a lawyer, Jennifer Huneault ("Huneault"), to represent 167 in the action.
[11] Thereafter, all counsel participated in settlement negotiations. In general, the lawyers for the two defendants, Maximum, and 167, ("the settling parties") agreed to make joint offers to the plaintiffs to settle the plaintiffs’ claims as well as all cross-claims, counterclaims, and third party claims.
[12] At all relevant times, Huneault acted on behalf of 167 in the settlement negotiations. In particular, Huneault agreed to the terms of all joint offers from the settling parties to the plaintiffs.
[13] In July 2016, the settling parties made an initial written offer to settle the plaintiffs’ claims for a total of $40,000. As between the settling parties, it was agreed that each would contribute the sum of $10,000 toward the settlement funds. In addition, the offer was subject to all parties executing a release in a standard form to be approved by the parties.
[14] The initial joint offer to settle was rejected by the plaintiffs, and the plaintiffs subsequently made a counter offer that was rejected by the settling parties.
[15] Then, in November 2016, the settling parties made a second written offer to settle the plaintiffs’ claims for a total of $60,000, on the same terms as set out in the previous offer. Each of the settling parties had agreed to contribute the sum of $15,000 toward the settlement funds. The second offer was also rejected.
[16] The third and final offer to settle from the settling parties was made in a telephone conversation between counsel for Welland and counsel for the plaintiffs on December 7, 2016. Prior to this telephone conversation counsel for all of the settling parties, including Huneault on behalf of 167, had agreed, and authorized counsel for Welland to make this third offer to the plaintiffs.
[17] In summary, on December 7, 2016, the settling parties offered to settle the plaintiffs’ claims for a total of $80,000 on the same terms as set out in the previous written offers. Each of the settling parties had agreed to contribute the sum of $20,000 toward the settlement funds.
[18] Counsel for the plaintiffs accepted this third offer from the settling parties on December 8, 2016, and confirmed the plaintiffs’ acceptance by correspondence of the same date.
[19] Thereafter, a draft of the Release was prepared and circulated for approval by all counsel. The Release was a standard form of release that was ultimately approved by counsel for all parties. Huneault approved the Release on behalf of 167 on December 13, 2016.
[20] The Release, as approved, contained a no further action clause that read, in part, “[I]t is agreed and understood that no Party to this Full and Final Mutual Release will make any claim or take any proceedings against any other person or corporation … who might claim, in any manner or forum, contribution or indemnity in common law or in equity … from any of the Undersigned, in connection with the matters outlined above and in the Main Action and the Third Party Action".
[21] By early January all parties, except 167, had signed the Release. The settlement funds from all parties were paid to the plaintiffs’ lawyers to be held in trust until the documentation was completed. Economical paid 167's share of the settlement funds. By that time Economical had asked 167 for payment of the deductible in the amount of $1000, as set out in 167's insurance policy.
[22] On January 5, 2017, new independent counsel for 167 informed all other counsel that 167 would not sign the Release. Further, on that day 167 caused the fourth party claim to be issued against De Donato.
[23] 167's position is that 167 was not properly represented by Economical or by Huneault. 167 submits that 167 was not consulted about the settlement and did not give Economical authority to settle the claim on its behalf. Moreover, 167 submits that it has a valid defence to the third party claim.
IS THERE A VALID SETTLEMENT AGREEMENT?
[24] The moving parties submit that all parties to the settlement agreement were represented by counsel who negotiated a valid full and final settlement of the plaintiffs’ claims, the cross-claims, the counterclaims, and the third party claims.
[25] It was submitted that Economical had the authority to appoint Huneault to act on behalf of 167; that Economical had the right to settle the third party claim against 167 in its discretion; and that Huneault acted within the scope of her ostensible authority when she agreed to the terms of the settlement. On the return of this motion counsel for 167 did not strenuously oppose the position of the moving parties on these points.
[26] Accordingly, I find that the settling parties and the plaintiffs entered into a valid settlement agreement by way of the joint offer that was made in the telephone conversation of December 7, 2016, and accepted by correspondence from plaintiffs’ counsel dated December 8, 2016.
[27] The scope of the settlement agreement covered the settlement of all claims, cross-claims, counterclaims, and third party claims in consideration of a total payment of $80,000 to the plaintiffs, with contributions of $20,000 from each of the settling parties.
[28] Moreover, I find that the settlement agreement included a term that each of the parties was to sign the Release. I find that counsel for all parties approved the Release that was circulated, and that the Release forms part of the settlement agreement.
IS THE SETTLEMENT AGREEMENT BINDING?
[29] Rule 49.09 provides a discretion to the motions judge to either declare the settlement agreement to be binding or to allow the proceeding to continue. It states that where a party to an accepted offer to settle fails to comply with the terms of the offer, the other party may make a motion and “[t]he judge may grant judgment accordingly".
[30] In the case of Milios v. Zagas (1998), 1998 7119 (ON CA), 38 O.R. (3d) 218 (OCA) at para. 21, followed recently by this court in Re Galevski Estate, 2012 ONSC 3460, and Ahmed v. Shang, 2016 ONSC 4794, the Ontario Court of Appeal set out a number of factors that should be considered when a motions judge decides whether to enforce or not enforce a settlement agreement, including:
i. Whether the offer was clear and unequivocal,
ii. Whether a mistake was made,
iii. The reasonableness of the settlement,
iv. The degree of prejudice to the parties if the settlement agreement is or is not enforced, and
v. The effect of the settlement on any third party.
[31] In my view, the first three factors listed above all strongly favour enforcement of the settlement agreement. All of the parties were represented by counsel. The terms of the first two written offers to settle were very specific and counsel confirmed that the third offer made by telephone was on the same terms as the written offers. Moreover, the draft Release was circulated and approved by all counsel. The terms of the settlement were clear and unequivocal. There was no mistake.
[32] Further, the settlement appears to be reasonable. Each counsel was in a position to weigh the merits of the various claims, the risks involved in proceeding with or defending the claims, the value of the claims, and the potential cost consequences. There is nothing on the face of the settlement agreement that suggests that it was unreasonable. The amount of the settlement and the equal contributions to the settlement funds all suggest reasonableness.
[33] I accept that there is some modest prejudice to 167 if the settlement agreement is binding because 167 will be required to pay its deductible of $1000. In my view, however, the monetary prejudice of $1000 is not significant in light of all of the other factors. Further, any judgment made after a trial would likely exceed the amount of 167’s deductible in any event.
[34] 167 also submits that it will suffer prejudice if the settlement agreement is binding because as a result of this claim Economical has changed the terms of 167's Commercial General Liability insurance policy by, among other things, increasing the deductible on the policy to $5000.
[35] In my view, this change to the policy does not relate to the settlement, but relates to the contractual relationship between Economical and 167. The evidence is clear that Economical informed 167 of the changes to its policy, including the increased deductible, in October 2016, well before Huneault entered into the settlement agreement on behalf of 167. If 167 has a contractual grievance against Economical because of Economical’s actions in response to the third party claim, it is still open to 167 to pursue that grievance in an action against Economical. Thus, there is no prejudice to 167 that is caused by the settlement in this regard.
[36] 167 also submits that Economical did not have the authority to agree to a settlement without obtaining the consent of 167. On this point, the Commercial General Liability insurance policy makes clear that Economical may choose to settle a claim in its discretion. The policy does not require Economical to obtain 167's consent to a settlement agreement. Accordingly, the settlement by Economical without the consent of 167 does not cause prejudice in this regard.
[37] 167 further submits that Economical acted in bad faith by settling the claim without consulting 167. 167 claims that it has a valid defence to the third party claim, and moreover that it has been prejudiced because the settlement precludes 167 from making a fourth party claim.
[38] In my view, without expressing an opinion as to the merits of any bad faith claim, if 167 does in fact have a bad faith claim against Economical, that bad faith claim is not prohibited by the terms the settlement agreement. That is, 167 may still proceed with the bad faith claim against Economical even if the settlement agreement is binding. Thus, there is no prejudice to 167 in this regard.
[39] Finally, 167 submits that if the settlement agreement is binding 167 will suffer prejudice because 167 may be subject to future claims from future owners of this property and 167 will not be able to make a claim over against the plaintiffs and the defendants in this action. I reject this submission outright. In my view the terms of the settlement, as set out in the Release, do not cover future claims made by future owners. Thus, there is no prejudice to 167 in this regard.
[40] Overall, I find that any prejudice to 167 caused by the enforcement of the settlement agreement is insignificant.
[41] Regarding the other parties, I accept that each of the other parties to the agreement will suffer prejudice if the settlement agreement is not declared to be binding. Specifically, the other parties would lose what would appear to be an early and reasonable resolution of this action.
[42] If I did not enforce the settlement agreement each of these parties would continue to be engaged in what is likely to be a lengthy litigation process. As a consequence, the parties would be put to extensive legal costs and expenses; the parties would be committed to spending more time and energy on this proceeding; and, the parties would be exposed to the risks associated with a possible adverse outcome of this litigation.
[43] Furthermore, there will be a benefit to all parties if the settlement agreement is enforced as the agreement provides closure and finality to this proceeding. In my view it would be unduly prejudicial to the moving parties to waste the fruits of their lawyers’ efforts by not enforcing an early and reasonable resolution.
[44] Finally, I accept that the settlement agreement affects the rights of the potential fourth party, De Donato. Again, if this causes prejudice to 167, it is open to 167 to make a claim against Economical.
[45] For all of these reasons, I declare that the settlement agreement is binding, and I order 167 to execute the Release.
THE FOURTH PARTY CLAIM
[46] Given my finding that the settlement agreement is binding and enforceable, the fourth party claim cannot proceed.
[47] If I were to permit the fourth party claim to proceed, De Donato would become a party to this action and would make a claim for contribution and indemnity against the plaintiffs and the defendants. The terms of the Release that form part of the settlement agreement prohibit 167 from making any claim against any entity who might claim contribution from the other parties to the Release. Thus, the claim against De Donato cannot proceed.
[48] Accordingly, it is hereby ordered that the fourth party claim is stayed.
CONCLUSION
[49] For reasons set out above, an order will go in accordance with the terms of this decision; the form of the order to be approved by counsel.
[50] If there are any issues arising out of this decision, including costs, I direct that the party seeking relief shall deliver written submissions to the trial coordinator at Welland within 14 days of the release of this decision with responding submissions to be delivered within 10 days thereafter. If no submissions are received within this timeframe, the parties will be deemed to have settled all of the remaining issues as between themselves.
J.R. Henderson J.
Released: July 28, 2017
CITATION: Levac v. Pychel, 2017 ONSC 4509
COURT FILE NO.: 10758/15
DATE: 2017/07/28
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Jacques Levac and Claudette Levac
Plaintiffs
- and –
Michael James Pychel, and The Corporation of the City of Welland
Defendants
- and –
Maximum Concrete Foundations Inc., 1671233 Ontario Limited and Gabmar Construction Ltd.
Third Parties
- and –
Salvatore De Donato
Fourth Party
DECISION ON MOTION
J. R. Henderson J.
Released: July 28, 2017