Test for Binding Settlements

In Lumsden et al v. The Toronto Police Services Board et al, 2019 ONSC 5052, the court addressed the essential features of a binding settlement:

• There has to be a mutual intention to create a legally binding contract.
• The parties must reach an agreement on all the essential terms of the contract.
• The existence of a settlement agreement is measured by an objective reading of the language chosen by the parties to reflect their agreement. It does not depend on an inquiry into the actual state of mind of the parties.
• There is no requirement of formal minutes of settlement. An email exchange can suffice.
• A settlement implies a promise to furnish a release, unless there is an agreement to the contrary. However, no party is bound to execute a complex or unusual form of release.

When a party proves that there is a binding settlement agreement, a party resisting settlement has a heavy onus to demonstrate why the court should not give effect to the agreement.

In order to set aside a settlement on the basis of duress, a party must prove that his or her will was coerced and that the pressure exerted to settle was not legitimate.

In analyzing duress, the court will examine the following factors:

• whether the party protested;
• whether there was an alternative course open to him or her;
• whether he or she was independently advised; and
• whether he or she took steps to avoid the contract after entering into it.

In order to set aside a settlement on the basis of unconscionability, a party must demonstrate:

• there was a grossly unfair and improvident transaction;
• there was a lack of independent legal advice or other suitable advice;
• there was an overwhelming imbalance in bargaining power; and
• the other party knowingly took advantage of a vulnerability.

Justice Schavas noted that the overarching policy consideration is that settlements are to be encouraged.