B.C. – adverse inferences and undocumented terms thwart proof of binding settlement alleged in mediation – #498

In Govorcin Fisheries Ltd. v. Medanic Fisheries Ltd., 2021 BCSC 1092, Mr. Justice Frits E. Verhoeven dismissed Defendants’ claim that the parties had entered into a binding, verbal settlement agreement, determining that Defendants failed to meet the elements of an enforceable settlement set out in  Apotex Inc. v. Allergan, Inc., 2016 FCA 155.  Despite the complexity of the issues and disputed amount, the parties did not document the terms which Defendants alleged formed the parties’ agreement concluded during mediation.  “This case illustrates the difficulty of attempting to prove that a settlement agreement was reached verbally at a mediation, where nothing was signed by the parties signifying their agreement to a settlement, and, further, where there was no consensus between them that a settlement had been achieved”.  At the hearing to enforce the alleged settlement agreement, Verhoeven J. also drew adverse inferences based on the “unexplained” absence of “obviously a key material witness” who participated on Defendants’ behalf in the mediation and could have attended to challenge the facts adduced by Plaintiff.

Plaintiffs and Defendants disputed the management of joint venture assets involving fishing vessels and licensed quotas of bocaccio, skate and sablefish.  Prior to the commencement of a nineteen (19) day trial scheduled to start January 27, 2020, the parties on December 18, 2019 engaged in mediation conducted before a mediator.  

Plaintiffs asserted a monetary claim of $6,274,000.00 as well as the return of specific fish quotas and Defendants disputed those claims.  Verhoeven J. noted that Defendants submitted that the parties in their mediation agreed to those terms set out at para. 18 of Verhoeven J.’s reasons, including a payment of $5,000,000.00, interest, security and certain transfers or return of specific quota transfers.  Despite the complexity of the dispute and amount in issue, no memorandum of settlement was signed and the parties disputed the existence and terms of the December 2019 settlement.  

Verhoeven J. summed up the difficulties generated by the absence of a written document for the settlement.

This case illustrates the difficulty of attempting to prove that a settlement agreement was reached verbally at a mediation, where nothing was signed by the parties signifying their agreement to a settlement, and, further, where there was no consensus between them that a settlement had been achieved”.

Due to the mediation, the initial January 27, 2020 trial date was adjourned and, further to disputes over the existence of a settlement, rescheduled for September 27, 2021.  Defendants applied for summary enforcement of the settlement they alleged existed and which Plaintiffs denied but Defendants’ application was denied due to the number of disputed facts.  The action was then severed in order to address the settlement issues.  See also an interim decision on document disclosure in Govorcin Fisheries Ltd. v. Medanic Fisheries Ltd., 2019 BCSC 413.

Verhoeven J.’s decision dealt with whether the parties had entered into an agreement to settle.  Based on his review of the record and applicable principles, he concluded that the parties did not reach a settlement at the mediation.

(i) Legal principles applicable to settlement agreements (paras 21-24) – Verhoeven J. drew on Apotex Inc. v. Allergan, Inc., 2016 FCA 155 for its statement of the five (5) elements required for an enforceable settlement agreement.  At the close of his review of those principles (see the summary which follows below), Verhoeven J. provided the following under the heading “A warning” based on that review which he referred to by the mention of “foregoing”:

[52] The foregoing shows that a settlement agreement may be reached quickly without formality and, from a subjective standpoint, sometimes unexpectedly: settlement agreements almost always involve consideration, settlement discussions usually take place in a context where an intention to create legal relations can be presumed, informal discussions can count, a meeting of minds is assessed objectively, an agreement on all essential terms is binding even though the parties are still negotiating over other terms and, unless essential, terms such as the provision of releases can be easily implied into an agreement to complete it. The recent decision of the Supreme Court of the United Kingdom in [RTS Flexible Systems Limited v. Molkerei Alois Muller Gmbh, 2010 UKSC 14], above, underscores these points.

[53] This has practical ramifications. If a party does not want to be bound until it has agreed to all terms it subjectively considers essential to the deal, in every offer it communicates it must make that wish objectively clear”.

Those comments closed off Verhoeven J.’s reference to the following excerpts and case references drawn from Apotex Inc. v. Allergan, Inc. regarding the five (5) elements of an enforceable settlement agreement:

(1) “[21] First, the court must find on the evidence before it that, objectively viewed, the parties had a mutual intention to create legal relations”.

See also McCabe v. Verge (1999), 1999 CanLII 18936 (NL CA) paras 11 and 13; British Columbia (Minister of Transportation & Highways) v. Reon Management Services Inc., 2001 BCCA 679 para. 24; UBS Securities Canada, Inc. v. Sands Brothers Canada Ltd., 2009 ONCA 328; Ward v. Ward, 2011 ONCA 178 para. 64; RTS Flexible Systems Limited v. Molkerei Alois Muller Gmbh, 2010 UKSC 14 para. 45.

(2) “[25] Second, like all other agreements, a settlement agreement must satisfy the requirement that there be consideration flowing in return for a promise. In settlement agreements, this is almost certainly never a problem – by definition, settlements are compromises, and so there will be consideration flowing both ways”.

(3) “[26] The Court must also find, as an objective matter, that the terms of the agreement are sufficiently certain: see, e.g., Bawitko Investments Limited v. Kernels Popcorn Limited (1991), 1991 CanLII 2734 (ON CA), 53 O.A.C. 314, 79 D.L.R. (4th) 97 at pp. 103-104 at p. 104 (Ont. C.A.); Olivieri v. Sherman et al., 2007 ONCA 491, (2007), 86 O.R. (3d) 778 at para. 49 (C.A.). Where the parties “express themselves in such fashion that their intentions cannot be divined by the court…the agreement will fall for lack of certainty of terms”: John McCamus, The Law of Contracts (Toronto: Irwin Law, 2005) at p. 91. Another way of putting this is that the court must be satisfied that the parties were objectively ad idem or were objectively of a common mind.

[27] It is not for the courts to amend the parties’ offer and acceptance and make the terms certain. The Court will not make “a new agreement for the parties” where they “were never ad idem”: Kelly v. Watson (1921), 1921 CanLII 23 (SCC), 61 S.C.R. 482, 57 D.L.R. 363”.

See also Hunt River Camps/Air Northland Ltd. v. Canamera Geological Ltd. (1998), 1998 CanLII 18009 (NL CA); Canada Square Corp. v. Versafood Services Ltd. (1982), 1981 CanLII 1893 (ON CA).

(4) “[30] An agreement does not arise until there is matching offer and acceptance on all terms essential to the agreement: Olivieri, above at para. 32; Fieguth v. Acklands Ltd. (1989), 1989 CanLII 2744 (BC CA), 59 D.L.R. (4th) 114, 37 B.C.L.R. 62 (C.A.) at para. 35; Bawitko, above at pages 103-04. Disagreement, objectively assessed, on an essential term will mean that there is no agreement: Reon Management Services Inc., above at para. 34”.

See also British Columbia (Minister of Transportation & Highways) v. Reon Management Services Inc. para. 34; Hughes v. City of Moncton, 2006 NBCA 83 para. 6; Olivieri v. Sherman et al. para. 49; Hodaie v. RBC Dominion Securities, 2012 ONCA 796 para. 3; Imperial Oil Ltd. v. 416169 Alberta Inc., 2002 ABQB 386; Calvan Consolidated Oil & Gas Ltd. v. Manning, 1959 CanLII 56 (SCC), [1959] S.C.R. 253 p. 261; Gutter Filter Company LLC v. Gutter Filter Canada Inc., 2011 FC 234 para. 11; Andrews v. Lundrigan, 2009 ONCA 160 para. 8; Dominak v. Lockhart, 2014 BCCA 432 para. 35.

(5) “[40] In particular cases, other requirements might arise. For example, legislation can create special requirements for certain types of contracts, such as the need for an agreement for a sale of land to be evidenced in writing: see, e.g., An Act for Prevention of Frauds and Perjuries, 29 Chas. 2 c. 3, (Eng., 1677); and by way of illustration see Girouard v. Druet, 2012 NBCA 40, 386 N.B.R. (2d) 281”.

(ii) Adverse inference for unexplained absence of key witnesses (paras  60-65) – Key witnesses for Defendant did not testify at trial and Plaintiff submitted that adverse inferences should be drawn.

At para. 60, Verhoeven J. referred to the discussion of adverse inferences in Rohl v. British Columbia (Superintendent of Motor Vehicles), 2018 BCCA 316 paras 1-4 and, in doing so, provided excerpts detailing key authoritative comments from the cases.

Verhoeven J. noted that Defendants’ chief representative did not testify despite being “obviously a key material witness” and “a central player” in disputing the terms discussed and agreed to during the mediation. In his place, Defendants relied almost exclusively on the testimony of their attorney who had been involved in the mediation.  Verhoeven J. determined that Defendants’ failure to call that witness was “unexplained” and “in my view, the inference is irresistible that his evidence would be contrary to the defendants’ case, or at least, would not support it”. 

(iii) Application of the principles to the facts – At paras 25-57, Verhoeven J. detailed the give-and-take of the negotiations, including the participants, the exchange of offers and responses and counteroffers and disputed versions of what transpired.  At paras 67-96, Verhoeven J. analysed those facts in light of the applicable principles identified and concluded that the parties came to no real agreement on either the security terms or quota terms.  Verhoeven J.’s prior treatment of adverse inferences necessarily informed that analysis and conclusions.

urbitral notes – First, Verhoeven J. recorded no substantive objection by the parties or participants to testifying about the mediation exchanges.  For other decisions addressing settlement privilege, compelling testimony from the mediator and confidentiality of mediation exchanges, see the earlier Arbitration Matters notes:

(i) “Ontario – exceptions to solicitor-client and settlement privileges arise in post-settlement dispute – #410” regarding Laliberté v. Monteith, 2021 ONSC 14. Madam Justice Sandra Nishikawa ordered Respondent to answer questions and to provide his lawyer’s complete file. First, she determined that Respondent had waived solicitor-client privilege over exchanges relating to a disputed, negotiated settlement.  Though Respondent’s pleadings were “carefully drafted to avoid putting the Respondent’s state of mind, and any legal advice that might have had an impact on his state of mind, at issue”, Respondent’s denials did put in issue his state of mind and his reliance on legal advice in not disclosing facts material to Applicant’s decision to enter into the settlement. Second, Nishikawa J. further held that the record justified applying an exception to settlement privilege, namely where “a party perverts the purpose of a settlement negotiation and attempts to use it to mislead the other party into changing its position”.

(ii) “B.C. – from litigation to settlement to mediation to repudiation back to litigation on settlement – #372” regarding Park v. Mitchell, 2020 BCSC 1147. Mr. Justice Robert Johnston dealt with probate issues reserved exclusively to the courts but, in doing so, recorded how parties can move from court litigation, to negotiated settlement, to mediation agreement, to repudiation and back again, attempting to resolve their disputes.  His reasons illustrate how court-ordered cross-examination in litigation can lead to information disclosure and/or meetings which occasion negotiated settlements. Those settlements may require mediation which generate agreements but, once repudiated, require the parties to return to their earlier settlement and then to court to enforce that settlement.  The dispute resolution sequence prompted Johnston J. to question whether a litigant could enforce a settlement in probate proceedings or be obliged to sue on the settlement in a separate action.

(iii) “Québec – trial judge on own initiative quashes subpoena issued to mediator – #339” regarding PC Avocats inc. (Perras Couillard Avocats) v. Perreault, 2020 QCCQ 1972. Without need for application by either the opposing party or the proposed witness, Madam Justice Céline Gervais quashed a subpoena sent to the attorney who served as mediator in court-supported mediation.  In quashing it proprio motu, Gervais J. explained to the self-represented litigant that the mediator was not compellable and all that transpired during the mediation was confidential.  Gervais J. also commented on the role/liability of lawyers in a client’s own decision to engage in mediation and negotiate a settlement

(ii) “Québec – use of confidential mediation exchanges permitted to prove fraud vitiating settlement consent – #330” regarding Viconte inc. v. Transcontinental inc., 2020 QCCQ 1475. Madam Justice Céline Gervais recognized that that the exception to settlement privilege applies to permit a party to adduce confidential exchanges made in a mediation to prove the existence or scope of a transaction but she saw no principle under which that exception did not also apply if a party challenged the validity of a transaction and not its existence or scope.  The party resisting homologation of a settlement sought to prove that the other party had given false information or allowed it to be retained, thereby vitiating consent and justifying annulment of the settlement.  Gervais J. cautioned that her decision was only a preliminary one and did not consider the difficulty a party may have at trial to prove its allegations.

(iii) “Québec – post-mediation dispute over existence/terms of agreement permits disclosure of confidential exchanges – #329” regarding Bisaillon v. Bouvier, 2020 QCCA 115. Québec’s Court of Appeal applied the exception to confidentiality of mediation, confirmed in Union Carbide Canada Inc. v. Bombardier Inc., 2014 SCC 35, [2014] 1 SCR 800, allowing disclosure of confidential exchanges necessary to prove (i) that an agreement resulted from mediation or (ii) the scope of the agreement which the parties acknowledged making. The parties could but did not tailor their mediation to eliminate that exception. Absent a clear, express statement of their intention to prevent subsequent disclosure, the exception applied to permit disclosure. The mediator’s summary of the agreement was only a simple writing, reflected his understanding of the agreement’s terms and did not bind the parties unless signed by them. Update: leave to appeal granted August 6, 2020 in Association de médiation familiale du Québec v. Isabelle Bisaillon, et al., 2020 CanLII 52976 (SCC).

(iv) “Ontario – Court of Appeal upholds arbitrator’s decision to “blue pencil” mediation clause having impact on limitation period – #057” regarding PQ Licensing S.A. v. LPQ Central Canada Inc., 2018 ONCA 331. Ontario’s Court of Appeal upheld an arbitrator’s decision on a preliminary issue involving the application of a limitation period.   The Court of Appeal agreed with the Superior Court which had held that it was reasonable for the arbitrator to sever the mention of “in Delaware” in a mediation clause because that stipulation violated remedial legislation applicable to franchising.  The balance of the mediation clause remained valid.  Completing the mediation was a condition precedent to triggering the date at which one of the parties could “discover” its claim and delayed triggering the two-year limitation period in Ontario’s Limitations Act, 2002, SO 2002, c 24, Sch B. (“Limitations Act”).