Blog Posts

Settlement Offers and Releases: Pitfalls and Problems

Most litigants are able to resolve their issues without trial by agreement. Releases are a standard part of the process and provide assurance to both sides of the transaction that the issue has been laid to rest and neither side can bring any future claims. Often the releases are drafted using standard boiler plate language. However, sometimes releases contain more restrictive clauses including confidentiality and non-disparagement clauses. If these clauses are not negotiated as part of settlement, they can cause problems for both parties and their counsel in the future, including a determination that the settlement itself is unenforceable.

Non-Disparagement Clauses vs. Confidentiality Clauses

Non-disparagement clauses are aimed at protecting reputation and public perception . These clauses typically prevent a person from communicating anything negative about the other party. This can extend from preventing a person from telling a close friend something negative to posting negative comments on social media or on google reviews. Disparagement is not the same as defamation. Non-defamation only prevents a person from making false or untrue statements while non-disparagement prevents a person from communicating negative statements, even if they are true. The consequences for breaking a non-disparagement clause can include forfeiting any settlement monies that the party received.

Confidentiality clauses are aimed at keeping the terms of settlement (including the amount) and the information exchanged in the course of litigation confidential. Confidentiality clauses can be extremely restrictive in terms of the information that a party can reveal or they can be specifically directed to only preventing disclosure of certain facts.

A binding settlement?

Problems can arise where counsel for parties agree on settlement but not on the specific terms of the release. Often the parties will agree on the amount of the settlement and that a release should be signed but don’t discuss whether confidentiality or non-disparagement is part of that settlement. When one party sends over a release that includes a restrictive non-disparagement or confidentiality that the other party refuses to sign the question becomes whether those parties truly reached a binding settlement agreement.

To determine whether there is a “binding settlement” the courts look at whether the parties reached an agreement on “all essential terms”. The terms of an offer must be clear and unambiguous and the acceptance of that offer must be absolute and unqualified. The courts are not in a position to make the contract between the parties, they can only determine whether the parties truly had a “meeting of the minds” on the essential issues. Where a party seeks a release that includes restrictive confidentiality or non-disparagement clauses that severely limits a party to speak freely about the matter, it is crucial to negotiate these terms as part of the settlement; not after.

A recent chambers decision of Madam Justice Murray in Wannan v. Hutchison, 2020 BCSC 1233 provided a useful summary on the law courts will apply in determining whether a settlement is truly binding:

[10] The ordinary rules of contractual interpretation apply in determining whether there was a binding settlement agreement. In Fieguth v. Acklands Ltd., 1989 CanLII 2744 (BC CA), Chief Justice McEachern, writing for the Court, stated that:

“[35]In these matters it is necessary to separate the question of formation of contract from its completion. The first question is whether the parties have reached an agreement on all essential terms. There is not usually any difficulty in connection with the settlement of a claim or action for cash. That is what happened here and as a settlement implies a promise to furnish a release and, if there is an action, a consent dismissal unless there is a contractual agreement to the contrary, there was agreement on all essential terms.

[11]The terms of an offer must be clear and unambiguous: The Owners, Strata Plan NW 3079 v. Chan, 2010 BCSC 527 at para. 81. The acceptance must be absolute and unqualified: Urban Communications Inc. v. BCNET Networking Society, 2014 BCSC 485 at para. 74.

[12] It is not for the court to formulate a contract between parties. The court must view the transaction on an objective basis to determine whether there was a meeting of the minds between the parties. It is only if there has been an agreement on all of the essential terms that the transaction can be declared an effective contract: All Out Contracting Ltd. v. Gourlay, 2020 BCSC 481 at para. 31.

Where a non-disparagement clause is overly broad and not reasonably contemplated by the parties as part of the settlement, a court may refuse to enforce a settlement. This was the case in the recent decision of Wannan v. Hutchison, 2020 BCSC 1233 where a plaintiff who had been injured by her naturopath had agreed to terms of settlement that included a release but without realizing that the non-disparagement clause in the release was so broad it would have prevented her from even discussing the treatment she received. The court found while there was a binding settlement agreement of the issues it would be unjust to enforce the settlement. The court explicitly noted that there would be prejudice to the plaintiff if the settlement clause was enforced as it would result in the plaintiff being silenced from publicly warning others about the treatment she received.

To ensure that settlement agreements are fully enforceable, its wise practice for both parties to discuss and agree on the terms of the release at the time settlement is discussed. Subsequent court hearings to address the issue after the fact can be time consuming and costly.