On May 20, the Court of Appeal released an important decision upholding the setting aside of a settlement agreement originally made in 2000, based on certain misrepresentations by the defendant at the time, as discussed below.

What Happened Here?

The case developed from an allegation of sexual abuse against a Roman Catholic priest and Catholic Diocese of London, Ontario. The claim against the Church was based on two assertions. The first was in negligence and the second was based on vicarious liability.

The second assertion is generally viewed as difficult to successfully make. It imposes “strict liability” on the Church for the actions of its “employee”. Take, for example, a previous case against a taxi company for the actions of its driver in sexually assaulting an intoxicated passenger, which failed. It is  generally considered a plea that is hard to win and for this reason, the case in negligence was seen by the plaintiff as being the best chance of success.

The initial case was settled by a payment of $100,000 in 2000. The usual general releases were part of the agreement.

The Grit of the Case

The above legal issues are important, as the plaintiff needed to focus on the allegations of negligence. The Church maintained that it had no prior knowledge of any sexual abuse claims against the priest. It made this claim in three ways through a general denial in its Statement of Defence, by an assertion to this effect in its mediation brief and by not disclosing any documents showing prior incidents of abuse or allegations of abuse in its Affidavit of Documents.

The plaintiff maintained that she would never have settled the case in 2000 had she known of any prior similar allegations of misconduct, which hence would have created the need for affirmative action by the Church and promoted, in its absence, the merits of the negligence defence.

New Evidence Comes to Light

In 2006, fresh evidence was obtained and sent to the plaintiff’s prior legal counsel, which showed that the Diocese had received police reports claiming the priest in question had assaulted three other girls well before the events of the plaintiff’s case. Various explanations were given as to why this information was not provided to the plaintiff in the first case. The essence of this was that the omission was not deliberate.

The plaintiff then started a second action to set aside the earlier minutes of settlement and sought a higher damage award. Both defendants moved to have this action dismissed on a summary judgment motion. The plaintiff succeeded and the result was then appealed to the Court of Appeal, which upheld the decision unanimously.

The Ratio of the Court of Appeal

The normal default setting, is, of course, that a deal is a deal and that there should be a high bar imposed to set aside a settlement agreement, like any other contract. That being said, a deal can be set aside where there is (1) a material misrepresentation, and (2) the misrepresentation has been relied upon by the receiving party.

The misrepresentation must be relevant in the eyes of a reasonable bystander, but it need not be the sole factor in making the settlement. The misrepresentation need not be fraudulent. An innocently stated representation will suffice.

There are other considerations, including the requirement that the prejudiced person act quickly to overturn the settlement once they become aware of the truth of the events. In addition, no third party rights should be adversely impacted. These issues were not relevant in this case.

The Court of Appeal agreed with the fundamental assertions made by the plaintiff, namely, (1) there was a misrepresentation of fact made during the original case, (2) it was material to the matter at hand, and (3) the plaintiff relied upon this to her detriment. The former plaintiff’s counsel provided affidavit evidence explaining the issues in the case with the argument of vicarious liability and why evidence of such past misconduct would have very much improved that case.

What Does This Mean for Future Cases?

It is hard to imagine any case in which each party does not rely upon the representations made by the other in the course of the litigation. How might either side prepare and defend against such later action to set aside a settlement agreement?

This being said, actions to set aside a settlement agreement are rare. Nonetheless, each party may wish to consider such a general disclaimer or even an “entire agreement” clause, which negates the existence of any other material representations. The latter is more difficult to use as a defence. More on these clauses will follow in a future blog.

Get Advice and Know Your Rights

This case reflects an important concept. Each party should refrain from making false material assertions whenever possible. Deliberately withholding material incriminating evidence would likely be a death knell to the deal, even many years after the fact. In this case, the misrepresentation was innocently made, yet it was enough to set aside the deal.

For advice on this issue and all employment law matters, contact the offices of Toronto employment lawyers Grosman Gale Fletcher Hopkins LLP. We regularly advise workplace parties on a wide range of legal workplace issues. Contact us online or by phone at 416-364-9599 to schedule a consultation.