Please Release Me, Let Me Go

The recent decision of the Alberta Court of Queen’s Bench in Morrow v. Zhang, in which Alberta’s cap on general damages for defined “minor injuries” was declared unconstitutional, has caused a great deal of concern in Alberta’s insurance industry. A primary concern of insurers has been the uncertainty as to whether existing settlements made — and releases signed on the basis of then-valid legislation — remain valid.

What is a release?

A release functions as a legally enforceable compromise between competing views as to the existence and strength of a legal claim. While Engelbert Humperdinck’s 1967 classic “Release Me” discussed the lack of merit in an opposing viewpoint (“you’d be a fool to cling to me”), it also acknowledged the joint benefits of a release (“to live a lie would bring us pain”). Somewhat less lyrical, a release can be defined as a contract providing parties that have uncertain competing interests with a certain outcome

Necessary elements of a contract

A release is a contract, even though its subject matter is often a claim, such as negligence.

As a contract, a release is simply a binding agreement where one party promises not to pursue a right or claim it has against another party. To be valid, a release must satisfy the three basic requirements for a contract: There must be agreement between the parties; consideration must be given; and the parties must have an intention to create legal relations.

The first requirement –agreement — is generally evaluated by determining whether an offer and acceptance are both present. Where a release is challenged, the courts will consider whether or not the parties, to an objective person, appeared to have agreed to the same terms on the same subject matter. The second requirement — consideration — requires that something of at least nominal value must be gained by each party in the transaction.

In the context of releases, consideration for the promise not to pursue legal action may be provided in the form of settlement funds and/or the compromise of the claim. Finally, in the context of commercial or “arm’s length” transactions, such as settlements and releases, it will not generally be necessary to prove the agreement was intended to create a legal relationship. Rather, the responsibility will rest on the party who claims this intention was not present to prove the lack of intention.

Where problems arise

Complaints about the validity of a release typically arise because of later dissatisfaction with the terms of the settlement. Of course, such complaints on their own do not provide sufficient grounds for invalidating a release. Part of the courts’ function is to enforce contracts, and they are reluctant to declare a release void without a strong basis to set aside a consensual transaction. A party challenging a release must prove the contract is void based on deficiencies in the process by which it was created. Releases have been upheld in circumstances where increased evidence in support of a claim later comes to light, a claimant’s injuries have not yet resolved, or even where a claimant’s injuries worsen at a later date.

Challenging the validity of a release

As with any other contract, a release may be declared void if it violates one of several legal principles. More specifically, lack of capacity, undue influence or duress, mistake of law, mistake of fact, and misrepresentation can all provide a basis for invalidating a release.

Several of these problems can be briefly summarized. Capacity can be summarized as having the ability in law to enter into a contract. Capacity is lacking if a party is a minor, or is because of temporary or permanent causes unable to appreciate the significance of the agreement signed. Undue influence and duress are also well known as potentially voiding a settlement and release. Both of these involve circumstances in which one party has an unfair advantage and uses that advantage to the other party’s detriment. Similarly, misrepresentation occurs when one party induces the other into signing a document based on an incorrect representation. “Mistake of fact” can be either mutual between the parties or by one of the parties (“unilateral”). If one party makes a unilateral mistake, generally, unless another of the other factors is involved as well (e. g. undue influence), the release will not be set aside. Similarly, “mistakes of law” are similarly treated when one-sided.

For both mistakes the issue becomes whether the mistaken party should be relieved of the consequences of his mistake. Different considerations take place when either the mistake of fact or law is mutual. In such circumstances the primary issue becomes whether the mistake is so central to the agreement as to render void the otherwise enforceable basic agreement. The fact that one party may have improperly benefited can also be a consideration.

Minor injury cap legislation

As previously noted, in Morrow v. Zhang the Alberta Court of Queen’s Bench declared the provincial regulation capping the amount payable for minor injury claims unconstitutional on the basis it violated the Canadian Charter of Rights and Freedoms. The court further held this legislation was invalid retroactively (effectively having never been of any force or effect), leading to concerns about the impact of the decision on prior settlements. However, based on existing case law and the principles underlying the law of releases, it appears Morrow v. Zhang will not operate to nullify any releases that had already been executed at the time the decision was rendered.

One of the decisions we found to be very concerning in consideration of this issue comes from the Supreme Court of Canada, specifically the 1989 Air Canada v. British Columbia decision. In that case, a tax had been paid according to a B. C. law that was later held to be unconstitutional. All the taxes paid were ruled to have been paid under a mutual mistake of law, and ordered to be refunded. Important for a possible parallel with settlements in Alberta was the conclusion that the repayment was required due to the unjust enrichment of the government through the “mutual mistake.” If insurers were held to have benefitted from the mutual mistake of the cap on damages, all of the settlements made on that basis could be in jeopardy.

However, in addition to the reluctance of the courts to make such a drastic ruling, we are comforted by the distinguishing feature that, unlike the taxes paid in Air Canada, settlements are new contracts based on compromising positions. Further, a decision prior to Morrow on the minor injury cap and settlements was Cyre (Next Friend of) v. Knol. In Knol it was held that a settlement of a minor’s claim should be confirmed by the court — and that such settlements should be evaluated based on the law as it exists at that time (and most importantly, even with knowledge that the “cap” was being challenged). A last decision on this issue is the Ontario decision Richard v. Worth in which an insurer sought to nullify a release that had been negotiated prior to a change in the law, arguing mutual mistake. The court upheld the existing release, stating the agreement was based on their respective views of the law and implied consideration the law could change. Overall, it appears parties that entered into settlements prior to Morrow will be able to consider their settlements as final.

While there are remedies to set aside releases in the interests of justice, courts will usually demand exceptional circumstances, as they are well aware of the value of finality that comes with settlements and releases. Engelbert Humperdinck was well aware of the benefits of finality, singing, “release me and let me love again.”

Randal Carlson is a partner at the Edmonton office of Field LLP. He specializes in insurance defence litigation. H e wishes to thank Christina McKinnon, student-at-law for her assistance in the preparation of this article. Christina will be joining Field’s Insurance Group upon the completion of her articles.