When Can A Lawyer's Representations Repudiate A Binding Settlement Agreement?

Lawyers during litigation at-times provide false or misleading statements. But when do those statements cross the threshold from innocently misleading to fraudulent? The Ontario Court of Appeal recently answered this question in Paulus v. Fleury ("Paulus"),1 therefore shining a light on what is considered to be a notoriously grey area of law. In overturning the motion judge's refusal to enforce a settlement, the Court of Appeal stated that the correct approach to civil fraud in the context of submissions made by counsel is to determine whether the submissions were made (1) on a reasonable basis and (2) in good faith.2

Background

The underlying action arose from a motor vehicle accident. At the pretrial conference, plaintiffs' counsel indicated that they had witnesses, describing them as "good people... independent... solid".3 Believing that the plaintiffs had no connection to these witnesses, the defendants agreed to settle in the amount of $850,000.

Immediately after the pretrial conference, the defence found out that the plaintiffs were acquainted with the subject witnesses. The defence alleged that his clients were fraudulently induced into settling, and repudiated the settlement the following day. Plaintiffs' counsel subsequently moved to enforce the settlement, arguing that their use of the term "independent" signified that the witnesses could provide evidence extrinsic to that of the plaintiffs.

The motion judge refused to enforce the $850,000 settlement. He agreed that the term "independent" likely caused the defendants to think that the witnesses...