Legal Blog

No Claims Over – Release

A creditor commences an action against, seemingly, the only entity liable for the debt. It enters into minutes of settlement with that debtor and, as part of the minutes, it is to give a full and final release. The debtor wants a “no claims over” clause, but the creditor does not want to give up its rights to claim against someone else – just in case. The creditor and debtor disagree as to the form of the release. Will the release contain that clause and, if it does, what then? Those questions were answered in Haider v. Rizvi, a 2023 decision of the Ontario Court of Appeal.

Clause Meaning

A “no claims over” clause stipulates that not only will the releasor (creditor) release all its claims against the releasee (debtor), but it will also not commence any action against anyone else who might claim contribution and indemnity against the releasee relating to the same issues.

Accordingly, in our example, assume that the creditor provided a no claims over clause in its release of the debtor, but then realised that there was another party who was liable for the debt and commenced an action against that other party for the portion of its claim that the releasee had not paid. The new party then commences a third party action against the releasee, claiming that, because of the relationship between the new party and the releasee, the releasee should indemnify the new party against the creditor’s claim and should be paying all or part of the amount that the new party may owe to the creditor. As a result of the third party action and the no claims over clause, the debtor would have a right to have the creditor’s action dismissed against the new party.

Minutes of Settlement

In a pre-trial conference in Haider, the plaintiff and defendant settled an action by which, among other things, the defendant was to pay $900,000 to the plaintiff. The minutes of settlement (just a fancy name for a settlement agreement) provided that the plaintiff would provide a full and final release, but the minutes did not specify the terms of the release. That was a mistake and, in our opinion, sloppy drafting.

The minutes also contained an undertaking, attached as a schedule, by which the defendant agreed to indemnify the plaintiff for various listed possible liabilities. One might ask: If the parties managed to put their minds to, and add, a schedule to the minutes dealing with the defendant’s indemnification, why couldn’t they have put their minds to, and add, the release as a schedule?

Of course, the parties were unable to agree upon the terms of the release. The defendant wanted the release to contain a no claims over clause and the plaintiff did not want to give it.

Do Nothing

It seems that once the parties had reached a stalemate over the form of the release, they did nothing further – other than the plaintiff paying the settlement funds. That was also surprising. Who would pay settlement funds without knowing the terms of the release to be received?

Before the parties effected the settlement, and years later, the plaintiff commenced an action against other parties and, surprise, the defendant was third partied in that action. The new action brought everything to a head.

Motion to Strike

The defendant could not point to a no claims over clause contained in the plaintiff’s release – because the parties had not agreed upon the form of the release, resulting in no formal release at all. The defendant brought a motion to dismiss the plaintiff’s claim against the new parties, but instead of relying on the terms of a release, it relied on the terms of the minutes of settlement that referenced a release.

The defendant was successful on the motion and the plaintiff appealed to the Ontario Court of Appeal.

The defendant had brought its motion in the original action. It had never been dismissed; everything had been left in abeyance. Given that the action was still ongoing, the court held that the defendant had every right to bring its motion in that action.

The plaintiff also argued that, by waiting years to act, the defendant lost its right to bring its motion because the limitations period had passed. The court rejected that argument because the defendant was not bringing a new proceeding; it was just asking for relief in the original action.

Context

There was no issue whether the parties had entered into a binding settlement; the only question was whether the anticipated full and final release should have included a no claims over clause. In essence, the court was merely being called upon to interpret a contract, the minutes of settlement.

The court reviewed the minutes of settlement. It noted, from the words contained in it, including the schedule containing the defendant’s undertaking, that the parties intended that, in consideration of the payment of the settlement funds, the matters raised in the action would not be raised again. So far, so good. It was an obvious interpretation. Why else would the minutes reference a release?

More importantly, the court held that just as it was apparent that the plaintiff would not commence fresh proceedings against the defendant, it would necessarily follow that the plaintiff would not sue another party in respect of the same matters by which the defendant would be drawn back into the litigation. The court stated: “a no claims over clause is a natural extension of their agreement and is consistent with the parties’ goal of providing a full and final release.” In the words of other judges in other cases, the defendant was buying peace and if he had to deal with a new action, that would be anything but peaceful.

Drafting

When entering into minutes of settlement, the parties must deal with all aspects of the settlement and set them out clearly in the minutes. For example, do the parties want a confidentiality clause? A non-disparagement clause? A no claims over clause? Do they want the release to be a release of all claims, whether known or unknown, or just a release of known claims.

The parties can either describe the terms that the release will contain or add the form of the release as a schedule to the minutes.

At times, these considerations can be as hotly contested as the amount that a defendant is to pay the plaintiff as part of the settlement. The parties should put their minds to all relevant issues at the time that they are negotiating the settlement, not at some later date. It is far easier for a plaintiff to be hardheaded in the negotiation of a release once it has the settlement monies in hand.

As an aside, we cannot understand why the defendant would have paid the plaintiff $900,000 without first knowing the form of the release he was to receive or, at bare minimum, without ensuring that the plaintiff’s lawyer would hold the settlement money in escrow pending the settlement being fully effected. With the unconditional payment, the defendant gave up most of the leverage he had to effect the settlement and obtain the release he wanted.

 

Image courtesy of ulleo.

Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.