If you make a deal with somebody, you keep your word. – Mike Ehrmantraut
What recourse exists when a party to a settlement abruptly refuses to execute the settlement materials? As it happens, quite a bit.
For litigants and their counsel, reaching a settlement can be a relief. Depending on the nature of the negotiations and when the settlement was reached (such as after a prolonged in-person mediation), the parties may be inclined to agree that a settlement has been reached in principle and the final materials can wait for another day.
The importance of having settlement materials finalized on the day a settlement is reached cannot be overstated. However, the reality is that this is not always possible and any number of reasons may incentivize the parties to forgo preparing settlement materials on the day a settlement is reached. While this may speed up the end of the day, this creates the potential for one or more of the parties to have a change of heart about the settlement to which they had agreed.
For counsel, this type of situation can create a serious problem. A lawyer’s primary duty is to represent their client to the best of their ability. A major component of this duty is to receive and apply the client’s instructions. Some situations require that counsel recognize their professional duty and act accordingly – potentially to the detriment of the solicitor-client relationship. Ensuring that a settlement is finalized can be one of these.
Conversely, where counsel cannot carry out this duty, and a party to a settlement refuses to execute settlement materials, the other party has recourse in the legal system. Two sets of rules address what happens when a party refuses to finalize a settlement.
The first is set out in the Rules of Professional Conduct (the “Rules”). The Rules govern how a lawyer conducts themself in the course of their practice. The Rules address nearly every situation, from how the solicitor-client relationship is formed to a lawyer’s obligation to maintain confidentiality over a client’s information.
A principle underpinning the Rules and a lawyer’s conduct is the need for a lawyer to observe their duty to the profession of law – a prominent part of this duty is to not bring the profession into disrepute. One of a lawyer’s professional obligations under the Rules is a requirement to act with honesty and candour in interactions with the client. The Rules also require that a lawyer discharge their responsibilities towards their client and other members of the profession with integrity and honesty.
Nothing in the Rules specifically mandates that a lawyer encourage their client to observe the terms of a settlement. However, interpretation of the Rules makes it clear that a lawyer in this situation is not only allowed to take steps to address this situation, they are also required to do so.
The Rules make it clear that a lawyer’s duty is to comport themselves in a manner that ensures the reputation of the profession of law is maintained and not brought into disrepute. This requires that a lawyer act with integrity: put differently, this requires that a lawyer keep their word.
The Rules permit a lawyer to terminate their retainer in very limited circumstances: this can only take place with good cause and on notice to the client. Good cause is not defined in the Rules – but a lawyer may withdraw from representation where there has been a “serious loss of confidence” between the lawyer and client. This can occur where the client “refuses to accept and act upon a lawyer’s advice on a significant point”. It is difficult to imagine a more significant point than finalizing a settlement about which the client has already indicated their acceptance.
Luckily, a lawyer does not have to appeal to a hesitant client’s sense of morals and right in order to compel the client to execute materials. The Rules of Civil Procedure (the “Civil Rules”) provide a process by which a settlement can be enforced, even in the absence of executed materials.
Rule 49.09 of the Civil Rules provides a process for a party to an accepted settlement where the other party is in breach of this settlement to move before a court to have the settlement agreement enforced. Where this occurs the court will review the matter to determine whether a settlement has been reached – and will determine whether to enforce this settlement.
A court may order a settlement be enforced where no formal settlement materials were prepared and the settlement was conveyed via email. For example, in Huma v. Mississauga Hospital, 2020 ONCA 644 the Court of Appeal for Ontario approved the lower court’s enforcement of a settlement that had been conveyed via email.
The court may also award the successful party their costs associated with bringing a motion to enforce a settlement. As such, a party who refuses to execute settlement materials may not only find themselves ordered to observe the terms of the settlement, they may also be required to pay the other party’s legal fees associated with the order for them to observe the settlement.
A lawyer’s duty of candour towards their client extends to advising as to an understanding of the consequences of their actions, including the potential for an order of costs against the client. Put differently, the other side’s availability of legal recourse is the stick to the carrot of the lawyer’s attempt to persuade the client to observe their acceptance of the settlement.
Reputation-wise, a lawyer is only as good as their word. A lawyer who advises the other party that a deal has been reached has given their word that the matter has been resolved. A client that reneges from finalizing any such deal jeopardizes their own interests as well as those of their counsel.
In these circumstances, a lawyer is obliged to not only warn the client of the consequences of their actions but also to take steps towards preserving their own reputation within the Bar: this may include terminating the solicitor-client relationship and leaving the client to their own devices. A client who opts to renege on a deal risks a great deal more than an unwanted change in counsel: the law is clear that a court will enforce a settlement. This is true even where the settlement had not been committed to writing. Further, the court will compel the welching party to pay the legal bill of the opposing party.
In all, Mr. Ehrmantraut’s advice is beneficial to keep in mind: if you make a deal, keep your word.