Court refuses to enforce binding settlement because of misapprehension partially caused by pandemic changes to business practices

Insurance law – Practice – Settlement of action – Releases – Discretion of court

Wannan v. Hutchison, [2020] B.C.J. No. 1306, 2020 BCSC 1233, British Columbia Supreme Court, August 19, 2020, C. Murray J.

The plaintiff sued the defendant for damages for injury and loss she alleged she suffered as a result of  naturopathic treatments performed on her by the defendant (the “Treatment”).

Counsel for the defendant issued a formal offer to settle which required the plaintiff to sign a Release that included a confidentiality and non-disparagement clause, the latter of which was directed at preventing the plaintiff from disparaging, criticizing or otherwise negatively commenting in any public manner on the defendant or the Treatment.  Counsel for the plaintiff communicated the offer to her client electronically; however she failed to attach the Release.  Although the plaintiff understood the Release to contain a confidentiality and non-disparagement clause, she did not realize the non-disparagement clause extended beyond the defendant to include the Treatment.  In the face of her misunderstanding, the plaintiff accepted the offer and her counsel communicated that acceptance to the defendant’s counsel; however, within 24 hours of that communication, counsel for the plaintiff sent counsel for the defendant an email indicating a problem with the Release, namely that, given that the plaintiff had a very negative experience in respect of the Treatment, she did not want to be prevented from telling others about its side effects and lack of effectiveness, and requested that the Release be amended in that regard.

The defendant, however, sought to enforce the settlement agreement which she claimed was reached between the parties.

The court framed the issues as:  1. whether the parties entered into a binding settlement agreement; and 2. if so, whether the court should exercise its discretion to refuse to enforce it.

The court found that “there [was] no question that the parties had a binding settlement agreement; the terms of the offer were clear.”  The court found that the real question was whether the court should exercise its discretion to refuse to enforce it.  In that regard, the court cited Carlton v. Carlton, 2017 BCSC 603, where the court held, at paragraph 37, that: “Where the settlement has yet to be perfected or, in other words, fully implemented, the court retains a limited discretion to deny an application to enforce the agreement and refuse to stay the proceeding.”  The court then further cited from Carlton, at paragraph 37, where the court  referred to the four grounds for the exercise of this discretion as set out previously by the B.C. Court of Appeal in Hawitt v. Campbell, [1983] CanLII 307:

The judge may refuse the stay if:

• There was a limitation on the instructions of the solicitor known to the opposite party;
• There was a misapprehension by the solicitor making the settlement of the instructions of the client or of the facts of a type that would result in injustice or make it unreasonable or unfair to enforce the settlement;
• There was fraud or collusion;
• There was an issue to be tried as to whether there was such a limitation, misapprehension, fraud or collusion in relation to the settlement;

The court held that it was satisfied that plaintiff’s counsel entered into the settlement under a misapprehension both on her part and the part of her client.  The court found that, due to the pandemic, plaintiff’s counsel was not meeting her clients face to face, and when she communicated the offer to the plaintiff she inadvertently failed to attach the Release to the offer to settle.  The court found that plaintiff’s counsel did not realize that she had failed to provide the Release to her client until after she sent the acceptance email, and that her client did not understand the scope of the Release when she instructed her counsel to accept the offer.

The court held it was “…satisfied that this was one of those rare cases in which it would be unjust to enforce the agreement” therefore it refused to enforce the plaintiff’s acceptance of the settlement offer. The court referred to the following factors as instrumental to its decision:  the misapprehension was communicated within 24 hours of acceptance; the settlement had not been perfected; no further steps had been taken; there was no evidence that the defendant would be prejudiced if the settlement was not enforced; there was no evidence that there would be an impact on any third parties if the settlement was not enforced; and the plaintiff would be prejudiced if the settlement was enforced.

This case was digested by Tricia M. Milne, and first published in the LexisNexis® Harper Grey Insurance Law Netletter and the Harper Grey Insurance Law Newsletter. If you would like to discuss this case further, please contact Tricia M. Milne at [email protected].

To stay current with the new case law and emerging legal issues in this area, subscribe here.