Simon's Megalomaniacal Legal Resources

Contracts - Settlement Releases (2)

. Voreon Inc. v. Matas Management Services Inc.

In Voreon Inc. v. Matas Management Services Inc. (Ont CA, 2023) the Court of Appeal considered three merged related appeals of real estate ventures. In this quote the court addresses the SOR for a 'settlement agreement' (which is of course a contract):

[68] Voreon’s arguments raise issues of the interpretation of the Settlement Agreement. To succeed, the appellant must establish either a palpable and overriding error of fact or an extricable error of law: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 50-55.

. Fehr v. Gribilas ['no claims over' settlements]

In Fehr v. Gribilas (Ont CA, 2023) the Court of Appeal a 'no claims over' provision of a settlement contract. Such provisions are advanced by settlor (A) in an attempt to prohibit settlor (B) from making claims against third parties (C) that in turn might make third-party claims against A. A similar device is that of an 'indemnity', which acts to make B guarantee any judgment-debt which A might be subject to if C sues them. The vast majority of unrepresented parties facing settlements that contain such provisions sign them without knowledge of their effect.

In these quotes, the motion judge - upheld by the Court of Appeal - cited a leading case on 'no claims over' clauses:

[26] The motions judge relied on the leading Ontario case, Sinclair-Cockburn Insurance Brokers Ltd. v. Richards (2002), 2002 CanLII 45031 (ON CA), 61 O.R. (3d) 105 (C.A.), leave to appeal refused, [2002] S.C.C.A. No. 450, in which this court upheld a decision staying an action on the basis of a no-claims-over provision at the behest of a third party beneficiary of a release. He also relied on the analysis in the decision at first instance of Mesbur J., reported at [2001] O.J. No. 3487 (S.C.).

[27] In Sinclair-Cockburn, Richards, an insurance broker, had issued a performance bond through Canadian General Insurance for Wiggins Mechanical Contractors, despite knowing that the contractor was not bondable. The insurer, after honouring the bond, settled with Wiggins Mechanical and Richards’ employer Sinclair-Cockburn. The settlement agreement contained a no-claims-over clause by which Sinclair-Cockburn promised not to make any claim against any other person who might claim contribution from Wiggins Mechanical. Sinclair-Cockburn then commenced an action against Richards, suing for the amounts it had paid in the settlement, as well as losses from other transactions Richards had brokered. Richards defended the claim, counterclaimed, and brought third party proceedings against Wiggins Mechanical for contribution and indemnity. Although Richards did not bring a motion herself, Wiggins Mechanical was successful in obtaining a stay of most of the claims in the main action, as well as the third party claim.

[28] In the present case, the motions judge concluded that the principle in Sinclair-Cockburn applied: it would be an abuse of process to permit the appellants’ action to proceed against the defendant respondents after the appellants had signed the Release containing a no-claims-over clause. He noted that, under the no-claims-over clause in the Release, the appellants agreed not to sue a person who could advance a claim against J+W Foods. They had nevertheless sued Peter and Paul, who in turn had sued (or in the case of Peter intended to sue) J+W Foods in third party proceedings. The motions judge noted that the prospect of suing Peter and Paul was in the minds of the appellants when they signed the Release, but they did not bargain for an exception to the no-claims-over provision, and the run-up correspondence to the settlement made it clear that J+W Foods, William Jr. and Steven sought an end to the appellants’ having any ownership interest or claim against them directly or indirectly. The motions judge stated at para. 102:

... The release was meant to end the litigation and any claim to an interest in J+W Foods Inc. The Fehrs suing Paul and Peter Gribilas was re-litigation of a settled dispute. It was an abuse of process. The court has the abuse of [process] jurisdiction to stay or dismiss the Fehrs’ claim against the Gribilas brothers in the main action, which in turn makes the brothers’ third party proceedings against J+W Foods Inc. moot.

[29] The motions judge, relying on a line of cases cited in Ieradi v. Gordin, 2007 CanLII 48637 (Ont. S.C.), accepted that there were two preconditions for a litigant who is a “stranger” or third party to a release to claim the protection of a no-claims-over clause. First, the litigant must have been sued with respect to the subject matter of the release, and second the litigant must have a viable claim over to trigger the protection of the no-claims-over provision. The motions judge concluded that both conditions were met in this case. The action dealt with the appellants’ shareholding interest in J+W Foods, which was a subject matter of the Release, and, whether or not Paul’s third party claim would be successful, it asserted a viable claim for contribution and indemnity against the third parties: that he relied on the third parties in respect of his information about the shareholdings of J+W Foods.

. Fehr v. Gribilas ['no claims over' settlement]

In Fehr v. Gribilas (Ont CA, 2023) the Court of Appeal considered a 'no claims over' provision of a settlement contract. Such provisions are advanced by settlor (A) in an attempt to prohibit settlor (B) from making claims against third parties (C) that in turn might make third-party claims against A. A similar device is that of an 'indemnity', which acts to make B guarantee any judgment-debt which A might be subject to if C sues them. The vast majority of unrepresented parties facing settlements that contain such provisions sign them without knowledge of their effect.

In these quotes the court considers whether the lower court properly stayed a 'no claims over'-barred action absent a stay motion by the 'new' third party plaintiff:

C. ISSUES

[30] The appellants raise the following issues in their appeal: (1) Did the motions judge err in imposing a stay of the main action in the absence of a motion for a stay by the defendant respondents or a specific claim for a stay under s. 106 of the Courts of Justice Act, R.S.O. 1990, c. C.43 (the “CJA”)? ...

....

Issue One: There was no procedural defect that prevented the motions judge from staying the main action.

[32] The appellants contend that, in the absence of a motion by the defendant respondents for a stay of proceedings, the motions judge did not have the authority to stay the main action. The defendant respondents did not specifically rely on s. 106 of the CJA or otherwise seek a stay of the professional negligence action. Instead, they sought its dismissal. The appellants argue that there was an onus on the moving parties to provide proper notice of the relief they were seeking, and they failed to do so. It was not sufficient that there was a stay motion by the third party J+W Foods. They assert that the defendant respondents should have moved for a stay, and not to dismiss the main action in a summary judgment motion, and that because of this procedural defect, the order staying the main action should be set aside.

[33] This argument can be addressed briefly. The motions judge had the authority to determine whether the action was an abuse of process and to permanently stay or dismiss the action for that reason. An action can be dismissed as an abuse of process, under the inherent jurisdiction of the court, including to prevent re-litigation of the same issue: Toronto (City) v. C.U.P.E., Local 79, 2003 SCC 63, [2003] 3 S.C.R. 77, at para. 37. Typically a motion will be brought under r. 21.01(3)(d), however a dismissal for abuse of process can be sought in a summary judgment motion: see e.g., Winter v. Sherman Estate, 2018 ONCA 703, 42 E.T.R. (4th) 181, leave to appeal refused, [2019] S.C.C.A. No. 438, at paras. 7-8.

[34] The appellants were not taken by surprise by the procedure adopted in this case. The effect of the no-claims-over provision of the Release on the main action was raised squarely as an issue in all of the moving parties’ materials.

[35] The third party J+W Foods moved for an order staying or dismissing the main action, based on the no-claims-over provision in the Release, and filed a factum seeking such relief on the basis of Sinclair-Cockburn. And while the defendant respondents did not request a stay, there is no question that they were seeking to have the main action dismissed both on the basis of the merits of the action and in reliance on the no-claims-over provision in the Release. Paul pleaded the Release, and the appellants’ acknowledgment that they had no further interest in the shares of J+W Foods in his statement of defence. In their notices of motion both defendant respondents specifically referred to the no-claims-over clause in the Release, and in their factums in the court below they addressed the effect of the Release as barring any claim against them, and argued that the professional negligence action was an abuse of process.

[36] Finally, the appellants’ factum at first instance makes it clear that they understood and had the opportunity to fully respond to the submission that the no-claims-over provision in the Release justified a stay or dismissal of the main action. Indeed, most of their factum is devoted to this issue.

[37] As such, I would not give effect to this ground of appeal. Irrespective of the failure to plead s. 106 of the CJA specifically, and of the defendant respondents’ request for dismissal of the professional negligence action rather than a stay, whether the main action constituted an abuse of process and should not be permitted to proceed because of the terms of the Release was squarely and properly before the motions judge.

. Fehr v. Gribilas ['no claims over' settlement clause]

In Fehr v. Gribilas (Ont CA, 2023) the Court of Appeal considered (and dismissed) an appeal of a stay of an action - the action having been commenced in violation of a 'no claims over' settlement clause:

Issue Two: The motions judge did not err in staying the main action.

[38] The appellants contend that the motions judge erred in staying the main action rather than simply staying the third party proceedings. Before considering their main submissions on this ground of appeal, I will address a submission made by the appellants’ counsel in oral argument on the appeal: that, because there is no appeal of that part of the motions judge’s order staying the third party action, the circumstances have changed. They contend that it is no longer necessary for the main action to be stayed because the dismissal of the third party action means that there is no possibility of a viable third party claim. The appellants’ counsel also took the position that J+W Foods had no standing to appear in the appeal because of the ongoing stay of the third party proceedings.

[39] This argument can be addressed briefly. Although no one has joined issue on the question whether the third party action should have been dismissed, if the appellant is successful in setting aside the motions judge’s order, such that the main action will continue, then without question the defendant respondents would be entitled to have the entire action restored, including the third party proceedings. The motions that were before the motions judge all sought a stay or dismissal of the main action and not the third party proceedings. The motions judge stayed both. After staying the main action, he stayed the third party action which he described as moot. The defendant respondents assert that if the appellants succeed in setting aside the stay of the main action, it would follow that the stay of the third party proceedings would also be lifted. I agree, and would not give effect to the appellants’ preliminary argument on this issue.