By: Michael Blinick, Partner & Simren Dhother, Articling Student
There is an implied expectation between parties to a dispute that a full and final agreement (Release) will be prepared and executed to document the terms of settlement. The purpose and intent of a Release is to contractually bind parties to the terms of the agreed upon settlement.
Whether confidentiality is an implied term of settlement so as to be documented in a standard-form Release was recently considered by the Court. The decision of Bouzanis v. Greenwood et al., arising as a result of a motion by the Defendants to enforce settlement, addresses whether the inclusion of a confidentiality clauses in a Release ought to be considered an implied term of settlement or whether it represents a separate term that must be agreed to and negotiated between the parties.
Facts
The Plaintiff initiated a legal action as against her former lawyer and other defendants arising from the alleged professional negligence associated with the restructuring of the ownership of shares in privately-held companies and the associated adverse tax consequences arising from the restructuring.
During the course of the litigation, the Plaintiff proposed to withdraw the claim as against the Defendants on a without costs basis. The lawyer for the Defendants agreed to the dismissal on a without costs basis on the condition that the Plaintiff sign a Release in the form provided by the Defendants’ insurer. When presented with the draft Release, the Plaintiff refused to sign the Release as it contained a confidentiality clause. The Defendants then brought the motion to enforce the settlement.
The Defendants argued that the settlement occurred when the offer to settle the litigation on a without cost basis was accepted and that they would have altered the draft Release to remove the confidentiality clause had they known of the objection to its inclusion. The Plaintiff responded by arguing that no settlement was reached because the Defendants made the settlement conditional on the execution of the standard form Release and the confidentiality clause was an essential term of the Release that was provided.
The Court held that it is well established that the delivery of a full and final release, in customary form, whose terms give effect to common sense and normal business practice, is an implied term of the settlement of an action, unless the parties agree otherwise. If the Defendants, in accepting the Plaintiff’s settlement offer had been silent on the terms of the release, the court would have no difficulty in determining that a settlement has been reached, subject to an agreement on the terms of the Release. This is not what occurred, as the Defendants’ response was conditional on the Plaintiff agreeing to execute the LawPRO standard form Release. The Court found that the requirement of execution of the standard form Release was a condition of settlement and an essential term of the agreement.
While counsel for the Defendants argued that the inclusion of a confidentiality clause could be a standard term in a Release, the Court stated:
When the parties have agreed that a release will be executed, but the settlement agreement is silent as to the content of the release, the court will imply that the parties agreed to sign a standard form general release consistent with the settlement.
In order to determine what terms fall within the scope of a standard release, the jurisprudence has established that the test to be applied is objective, rather than the subjective intentions of the parties to the settlement.
The Court ultimately concluded that there was no suggestion that the Plaintiff agreed to execute a release with a confidentiality clause and the Defendants’ motion to enforce settlement was dismissed. As the Defendants had made the execution of the Release which contained a confidentiality clause a condition of settlement, there was no meeting of the minds between the parties and there is no settlement.
Conclusion
The Bouzanis decision reinforces the basic law of contract whereby there must be an offer and acceptance, with both parties clearly and intentionally agreeing to the terms of settlement for there to be an enforceable agreement. Included in the terms of settlement will be anything out of the ordinary, including the inclusion of a confidentiality clause, in the Release to be signed by the parties. If a settling party requires for there to be confidentiality as a term of settlement, then this needs to be clearly communicated and accepted by the other party for settlement to be enforceable.
For parties who are concerned about confidentiality when settling disputes, this must be clearly communicated early and often during settlement discussions. It is wise for counsel and their clients to properly consider this before engaging in settlement talks.