Fridays With Rogers Partners

At our weekly meeting, Angie Bellehumeur discussed a case address a dispute over the terms of a release.

In Terranata Winston Churchill Inc. v Teti Transport Ltd., et al., 2020 ONSC 7577, the Court considered a motion for an order under Rule 49.09 enforcing a settlement reached as between the moving parties, collectively known as the Crosslinx Defendants, and the Plaintiff, Terranata Winston Churchill Inc. (“Terranata”). Specifically, the Court considered the implied scope and form of a release pursuant to an agreed Offer to Settle.

Background

Terranata issued a Statement of Claim against the Crosslinx Defendants and other defendants for matters arising out of a construction project. Terranata made claims against all of the defendants pursuant to the Construction Lien Act, (the “Lien Claim”). Terranata also made a claim against the defendant Teti Transport Ltd. for damages relating to soil contamination (“Contaminated Soil Claim”). The Crosslinx Defendants took steps to engage in both the Lien Claim and the Contaminated Soil Claim, despite only being named by Terranata in the Lien Claim.

The Offer to Settle

The Crosslinx Defendants made an Offer to Settle Terranata’s action against them, subject to, “the full release in favour of the Crossclaim Defendants in a form acceptable to counsel for the Crosslinx Defendants, acting reasonably.” The Offer to Settle was silent on the terms of the release, and no draft release was attached to the offer.

Prior to accepting the Offer to Settle, Terranata requested that release be mutual. Terranata also said it would provide a list of specific issues regarding the release to be addressed. However, Terranata’s formal acceptance of the Offer to Settle was not made conditional on any matter and did not reference requirements to sign a full release or that the release terms be mutually satisfactory.

The parties agree that the matter has been settled and that the Offer to Settle sets out complete terms of the settlement. However, the parties disagree with respect to the interpretation of the scope of the full release pursuant to the accepted Offer to Settle.

The Full Release

The CrossLinx Defendants sent their proposed “full release” to Terranata, which included language requiring Terranata to indemnify and hold them harmless in the event they are sued by anyone in relation to the matter of this proceeding, including matters arising out of the Contaminated Soil Claim.

The language also prevented Terranata from litigating against any party or non-party that could contribution and indemnity from the Crosslinx Defendants in relation to this action.

Terranata proposed 12 revisions to this draft release, mostly related to removing the language requiring it to provide contribution and indemnity, eliminating the claims over clause, and restricting the subject matter of the release to the Lien Claim.

The Form of Release

The Court explains that if the parties have agreed that a release will be executed, but the settlement agreement does not address the content of the release, the Court will imply that the agreement was a standard form general release consistent with the settlement.

The Court determined that the language in the accepted Offer to Settle does not expressly narrow the scope of the release to be less than that of a standard general release. Further, the language on its face does not reasonably permit a reading that restricts the scope of the release to only a part of the proceeding.

By agreeing to settle “this proceeding”, the scope of the release includes all matters as between the settling parties arising from the subject matter of the claims released. A general release is broad in scope and is not intended to only release the settling parties from the specific causes of action pled.

The Court provides a caveat that this general proposition is subject to public policy and statutory considerations.

Implied Terms in a Standard Form General Release

The Court then determines that claims over and contribution/indemnity clauses are ‘usual’ terms that will be implied into standard general releases, unless expressly carved out or narrowed by the parties in reaching a settlement. To override these implied terms, the release’s narrowed scope must be specifically negotiated, agreed upon and reflected in the settlement agreement in order.

Nothing in the accepted Offer to Settle suggested any limitation to the scope of the release. There was evidence that the Crosslinx Defendants were aware of their potential exposure to all of Terranata’s claims in this action, and there was no evidence supporting Terranata’s position that the parties knew the release would be limited to the Lien Claim.

The release was a “full” release and therefore is implicitly a release from all claims in connection with the matter raised in the statement of claim, including those that may be brought back into the dispute by another party of a non-party. Any limitation to this scope must be expressly provided.

Order

The Court determined which of Terrnata’s revisions to the release should be rejected and accepted, depending on whether they fell within the scope of a standard general release. The Court ordered that Terranata execute the release in favour of the Crosslinx Defendants in accordance with these determinations.