Can a Mediated Settlement Agreement Be Set Aside?

Mediators and lawyers go to great lengths to protect themselves from parties who agree to settlements at mediation and later have a change of heart. The courts are just as vigilant in preserving the settlement agreements themselves and requiring parties to abide by them. Under what circumstances would a court agree to set aside a mediated settlement agreement? The recent case of Rawlins v. Rawlins provides us with some guidance.

In this case, two brothers were the estate trustees for the estate of their late mother. Disputes arose between them with respect to the administration of the estate. Their lawyers attended a mediation to try to settle those disputes.

Before the mediation, and in accordance with usual practice, the parties and their lawyers signed a mediation agreement that outlined such terms of the role of the parties and the mediator, the ability of the parties to terminate the mediation, and the fees and indemnity issues relating to the mediation.

The mediation was successful. It concluded with the parties and their lawyers signing a settlement agreement. The settlement agreement was clearly intended to resolve all of the disputes between the brothers regarding the estate.

The minutes of settlement involved the appointment of an appraiser to value certain assets. The appraiser was specifically named in the agreement.

Several months after the mediation, one of the parties expressed a concern about the appraiser named in the agreement. Subsequently, and a total of 9 months after the mediation, the same party announced that he had been coerced into signing the agreement by the lawyer who had acted for him at the mediation and by the mediator. As a result of this alleged coercion, he refused to abide by it. He took no action to move to set the agreement aside but the other party brought an application to enforce the agreement.

The applicant’s position was that the agreement had been signed with all parties represented by experienced counsel and with no fraud, mistake, bad faith or coercion. The language in the settlement agreement was clear, concise and unambiguous and it was obvious that the parties intended to create a legally binding agreement resolving their disputes.

The party trying to get out of the deal insisted that he had not understood that he could terminate the mediation at any time. He stated that he felt obliged to remain at the mediation because if he left, a decision could be made in his absence. He complained that the mediator was biased against his interests and aggressive towards him and that he was not given a fair “hearing”. As a result, he signed the settlement agreement under duress because he believed that he had no choice.

As the court observed, a settlement agreement is a contract. The contract will be enforceable if the parties mutually intended to enter into a contract and had agreed on all of the essential terms of the settlement.

The question of agreement on essential terms is not dependent on an inquiry into the actual state of mind of either of the parties or their subsequent evidence as to what they intended on a subjective basis. It is to be measured by an objective reading of the language used in the contract. The law will then impute to each party an intention that corresponds to the reasonable meaning of that language.

The court found that this particular agreement was very detailed and used language that was specific and indicated that there had been extensive negotiations and discussions. Based on that language and the lack of any evidence to support any claim of coercion, the court found that a binding contract had been reached.

There is a basis to say that where a contract is signed under duress, it will not be enforceable. However, not all pressure is recognized as constituting duress. According to the case law, it “must be a pressure which the law does not regard as legitimate and it must be applied to such a degree as to amount to a coercion of the will”. In other words, it “must place the party to whom the pressure is directed in a position where he has no realistic alternative but to submit to it”.

In the result, the court granted judgment enforcing the settlement agreement. The court made it clear that it will set aside settlement agreements only in the clearest of cases and in exceptional circumstances, such as where there was clear evidence of fraud, bad faith or mistaken instructions.

It did not help, of course, that the issue of duress was only raised many months after the agreement was signed and probably as a consequence of the fact that the party raising the issue had changed his mind about the identity of the appraiser agreed upon at the mediation. When his preference for a different appraiser was unacknowledged, that party may have simply come up with a more significant complaint in the hope of avoiding the agreement entirely. Perhaps his ultimate objective was simply to proceed under the terms of the settlement agreement but with a different appraiser. That is only my own speculation, and we will never know for sure, but that may well have been a factor in the judge’s thinking.

There may be the oddball case of a settlement agreement entered into under duress. In that type of case, however, one would expect the complaint to be raised almost immediately after the conclusion of the mediation. A delay of the type seen in this case will almost always extinguish the miniscule possibility of success of such an argument.

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