When is a release not a release? The answer to this question depends on which panel of the Ontario Court of Appeal you ask. In each of the cases we will discuss below, there was a standard clause in the release by which the plaintiff agreed to not “make any claim or take any proceedings against any person or corporation or other entity who might claim contribution or indemnity from” the defendant. The releases in each of the two cases were almost identical. The substance of the releases was identical.
In This Corner
The first case was Van Patter v. Tillsonburg District Memorial Hospital (1999), 45 O.R. (3d) 223. The plaintiff was injured in a motor vehicle accident. She settled her claim against the owner and driver of the car in which she was a passenger and gave a release.
She then brought an action against the doctors who treated her injuries, claiming malpractice. The doctors third partied the owner and the driver for contribution and indemnity. The third parties defended the third party action and, as was their right, the main action. Just in case, the third parties also counterclaimed against the plaintiff in contract for breach of the release. The third parties, relying on their release, then moved by way of a summary judgment motion to dismiss the main action.
The plaintiff readily admitted that, should she win against the doctors, she would have no right to any of the monies that the doctors might be awarded against the third parties for contribution. She just wanted that portion of the damages that the doctors would have to pay without contribution.
The doctors did not rely on the release in their statement of defence. How could they? They were not parties to that release. Rule 29.05(1) allows a third party to defend the main action and raise any defence “open to the defendants.” The Court seized on this rule and stated that the third parties’ defence to the main action, based on the release, could not succeed because that defence was not open to the doctors, nor did the doctors attempt to use it. The third parties could not be in a better position than the doctors in their defence to the main action. Accordingly, the Court dismissed the motion for summary judgment and allowed the action to continue.
The Court noted that it would not comment on the costs consequences of the actions. Presumably, the third parties should receive full indemnification for costs because they were dragged, kicking and screaming, to a dance that they thought they had passed up.
In The Other Corner
The next case was Sinclair-Cockburn Insurance Brokers Ltd. v. Richards, an unreported 2002 decision. The plaintiff was an insurance broker. Its employee fraudulently issued a performance bond on a project, binding a surety to pay monies to a general contractor if its mechanical subcontractor was unable to complete its work on the project. The employee knew that the mechanical subcontractor did not meet the surety’s criteria for issuing a bond but did so regardless.
When the broker discovered the fraud, it fired the employee and negotiated a settlement with the mechanical contractor and the surety. The broker and the mechanical contractor each paid $172,500 to the surety and exchanged mutual releases. The broker than sued the employee for the $172,500 it had paid in the settlement. The employee third partied the mechanical contractor for contribution and indemnity, claiming that the mechanical contractor had wrongfully pressured her to issue the bond.
The broker made sure that everyone understood that it wanted nothing from the mechanical contractor. It delivered a reply to the employee’s defence stating that it would reduce its claim against the employee by any amounts for which the employee was entitled to indemnity from the mechanical contractor. It also undertook, directly to the mechanical subcontractor, to do this.
The mechanical contractor did not bother to deliver a statement of defence in the third party action or the main action. It did not bring a motion for summary judgement under Rule 20. Instead, it brought a motion under section 106 of the Courts of Justice Act and under Rules 21.01(3)(b) and (d) to stay, as an abuse of process, the third party claim and the paragraphs in the statement of claim in the main action relating to the bond.
The Court agreed with the motions judge when she stated that the undertaking of the broker was “a transparent attempt to avoid the clear and unambiguous wording of the settlement. Parties should be held to their promises.” The Court stated: “That (the employee) benefits from the stay matters not. That she would benefit must have been reasonably foreseeable to (the broker) when it negotiated the settlement agreement. No question of privity of contract arises because (the employee) has not sought to enforce the stay.”
The Court disregarded the undertaking of the broker. It stated that the mechanical contractor “paid a substantial sum of money to buy peace, not just peace from potential liability for a judgment, but peace from even having to respond to a claim.”
Did the Court in this case refer to the decision in the Tillsonburg Hospital case? Yes it did. It noted that, in that case, the releasee attacked the plaintiff differently, by way of a summary judgment motion. Accordingly, this panel of the Court of Appeal distinguished that case – in only five lines.
The facts are identical in each case. In both cases, a releasor was suing, contrary to the terms of a release, a person who was claiming indemnity against the releasee. In both cases, the releasor undertook that it did not want anything from the releasee. The only aspects differentiating the two cases were the methods of the attack and the composition of the panels of the Court of Appeal hearing the appeal. The Tillsonburg Hospital panel was technically correct but rendered a decision that was, to us, unpalatable.
As a matter of policy, we much prefer the ultimate result in the Sinclair-Cockburn case. If a plaintiff expects to sue someone else who may claim indemnity, the plaintiff should be forced to insist that the usual contribution clause not be inserted or suffer the consequences of its insertion.
During the settlement negotiations, the plaintiff could attempt to remove the contribution clause and to insert a clause that is the equivalent of the undertaking given in both of these cases and, in addition, an indemnification to pay all of the solicitor-client costs of the releasee. If the releasee is fully protected against a subsequent action, it might well agree to the undertaking clause. It is certainly more likely to agree to the undertaking clause before the release is executed than after.
By the way, Justice Borins wrote the Tillsonburg Hospital decision and Justice Laskin wrote the Sinclair-Cockburn decision.