Settlement Agreement Breached

Settlement Agreement Breached

Stewart v . Stewart 2019 BCSC 985 found a settlement agreement had been breached when one party insisted that mutual releases be signed when such term had not specifically been included in the settlement agreement. The court specifically found that there was no implied term that the plaintiff would provide a mutual release before the defendants had to pay the plaintiff.

Where the alleged contract contemplates further negotiations, the question remains the same: whether the parties reached an agreement on essential terms of the agreement, or simply intended to defer their obligations until a final agreement could be reached. Berthin v Berthin 2016 BC CA at para. 49.

Berthin further stated that when examining the settlement agreement, the court should at the first stage, consider “whether the parties reached consensus ad idem. In making this determination, the court does not consider with the parties subjectively intended, but whether parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract .”

A contract exists at common law if a reasonable person would understand that a contract formed, and what is essential terms were Salimen v Garvie 2011 BC SC 339 at paragraphs 32 – 33.

There are three ways that terms can be implied into a contract:

1) Based on custom or usage;
2) as legal incident of a particular class or kind of contract;
3) based on the presumed intention of the parties where the implied term must be necessary to give business efficacy to a contract or as otherwise meeting of the “reasonable bystander “test as a term which are the parties would agree they assumed. Canadian Pacific Hotels v. Bank of Montréal (1999) 1 SCR 711

In failing to find an implied term that the plaintiff would provide a mutual release, the court stated that it was following the direction of the BC Court of Appeal in Marquest Industries v Willows Poultry farms LTD (1968) 1 DLR 513 at paragraph 12:

“Every effort should be made by a court to find a meaning, looking at substance and not mere form, and that difficulties in interpretation do not make a clause bad as not being capable of interpretation, so long as a definite meaning can properly be extracted. In other words, every clause in the contract must, if possible, be given effect to.”

The court emphasized the words ”every clause in a contract must, if possible, be given effect to”.