Enforcing a Settlement Agreement: Naming the Right Parties
As discussed in my previous article, When a Party Breaches a Settlement Agreement: Being Made Whole, settlement agreements are effectively contracts which can be enforced through legal action and replace whatever legal, contractual or equitable rights were involved in the fight that preceded settlement. Like any other contract, privity of contract – a contract being enforceable only as between the parties to it – remains a central concern in the enforcement of a settlement agreement.
In the recent case of Weizmann v Polar Bear Electronics Ltd., 2018 BCSC 1040 (CanLII), Mr. Weizmann entered into a settlement agreement in 2008 for some $150,300.27. The crux of the dispute was that Mr. Weizmann claimed that Polar Bear Electronics Ltd. (“Polar Bear”) was a party to the settlement agreement and that the agreement was enforceable against Polar Bear.
Polar Bear argued that it was not a party to the agreement and, as such, was not a proper defendant to the efforts to enforce the settlement. Piggy-backing onto Polar Bear’s argument was Mr. Jane who argued that, as he guaranteed Polar Bear’s debts and Polar Bear was not a party to the settlement, he was not obliged to guarantee Polar Bear’s alleged debt arising from the settlement.
The Court agreed with Polar Bear. Its analysis began with stating that the settlement agreement was prepared by or on behalf of Mr. Weizmann and, as such, any ambiguities in its interpretation would be resolved against Mr. Weizmann (a legal principle known as contra proferentum).
The Court went on to note that the settlement agreement contained introductory clauses that referred to Polar Bear but went on to state that the settlement was between other parties. There were other clauses that indicated that Polar Bear was not a party to the settlement and the signature blocks did not include any signing block for Polar Bear. Mr. Weizmann also had a history of preparing other agreements in which Polar Bear and its principal had different signing lines which the Court found as indicative that Mr. Weizmann appreciated the legal separation between Polar Bear and its principal.
The Court ultimately concluded that Polar Bear was not a party to the settlement agreement. Further, as Mr. Jane’s obligation as a guarantor was triggered by Polar Bear defaulting on a debt and that no debt existed, Mr. Jane was not obliged guarantee the settlement agreement.
Weizmann is an important reminder that settlement agreements should be carefully drafted so as to ensure that the contractual effects and enforceability of the settlement agreement are as intended. It is unwise to assume that any entity is a party to a settlement where there is an opportunity to explicitly make them a signatory to the settlement and spell out that party’s future obligations in the agreement.