Settlements and releases 101
By AdvocateDaily.com Staff
Silver, principal of Jeffrey C. Silver Barrister, explains that parties too often see settlement as the end of a legal dispute. He says they would be better served to view it as the transition point between the litigation phase and a fresh contractual phase in which the terms and scope of the settlement are still to be formalized.
“You really need to spend the same amount of effort, thought and legal expertise on defining the terms of the settlement and drafting the documents as you would for the action itself,” Silver says. “Because, if you don’t, you could end up with a fresh set of problems down the line, including further litigation over whether a settlement was actually reached at all.
“Even if the court finds a settlement was reached, a dispute over the scope of the settlement can result in substantial litigation costs."
He points to one recent case between a brand-name drug manufacturer and a generic counterpart as a classic example of how disputes over settlement can “take on a life of their own.”
After apparently reaching an agreement over the patent for a drug, they ended up fighting a four-day trial over whether a settlement actually existed. In the end, the court sided with the generic manufacturer — which argued that no binding agreement had been reached — and it was awarded $350,000 in costs.
“It’s an unusual case, but it gives you an idea of what can happen," Silver says. "That’s a huge amount of money to spend on determining whether a settlement had been reached."
According to case law on the issue, agreements to settle are binding "if they contain all essential terms," he says. "This is so even if the parties also agree that those terms will later be recorded in a more formal document along with the usual terms ancillary to that type of agreement.”
But an “agreement to agree” on essential terms, or to defer its binding nature until after the signature of settlement documents, will not be considered final or binding.
A judge will decide that a final and binding agreement was reached if each of the following is demonstrated:
- The parties agreed to all essential terms
- The terms were defined with sufficient clarity
- The parties intended to become immediately bound by all essential terms without the need for additional steps or documentation
When it comes to settlement documentation, Silver says parties must first consider what form they want it to take, as well as whether court approval may be needed, such as in class actions or matters involving a minor or incapable person.
In addition, when one side is self-represented, he says the opposing party may want to impose a condition requiring them to secure independent legal advice or sign an acknowledgement of their failure to do so.
Silver says there are a number of protective steps parties can take to minimize the chance that either side will later dispute the existence of a settlement because of a disagreement over the scope of any release.
“Because there is still some conflicting law over whether the failure to agree to the terms of the release may preclude a settlement, you may want to put it right in the agreement — that even if you need to go to court to finalize the terms of the release, there is no issue that a settlement was concluded,” he says. “It’s best to dot all your i's and cross all your t's ahead of time so that you don’t end up in litigation again.”
Parties should also think carefully about when to sign settlement documents, Silver says, noting that consensus is often reached following mediation.
“This is a more practical question than ever because people bring their laptops to mediation and start printing out standard forms of release and minutes of settlement right at the mediator’s office,” he says. “If it’s a relatively straightforward case, that may be the way to go, but if you’ve got a very difficult, costly and complex case involving large legal fees, you may want some extra time to go back and properly draft all the paperwork.”
According to Silver, here are some clauses for parties to consider including in their settlement documents to avoid common disputes:
- Confidentiality: “If you want confidentiality to be part of the settlement, then you need to stipulate it in the minutes of settlement,” he says. “If it’s not included, there's no requirement to have it in the release.”
- Non-disparagement: “In today’s social media environment, it’s especially important to have this kind of clause, so that no side can talk against the other in any manner,” Silver says.
- Penalties: “If confidentiality is ultimately breached, then there should be a liquidated damages clause as part of the terms that says how much the breaching party has to pay,” he says.
- Claims over: “This clause provides that the settling party can’t commence litigation against those who are not party to the release where they would receive indemnity from a settlement,” Silver says.
- Jurisdiction: “This dictates under what jurisdiction the minutes of settlement will be governed and interpreted in the event of a breach, which is usually Ontario,” he says. “You might also describe in what forum a dispute would be heard, such as whether it is done through the court or by way of an arbitration.”