Industry News

Verbal settlement stands, appeal court rules

By James Langton |

The Court of Appeal for Ontario has rejected an investor's bid to overturn a lower court decision ruling that his verbal agreement to settle a dispute with his broker was a binding deal.

The appeal court rejected an appeal by an aggrieved investor, Payman Hodaie, from a lower court order enforcing an oral settlement agreement.

In November 2011, the Ontario Superior Court of Justice granted a summary judgment to RBC Dominion Securities Inc. and tossed out the suit against the investment dealer, based on finding that prior to bringing the action, a verbal settlement had been reached between the firm and Hodaie.

According to the appeal court decision, that settlement involved the firm agreeing to pay Hodaie a sum of money in exchange for a release.

"The motion judge acknowledged that the parties had not agreed on the form of that release. Nonetheless, he concluded that the parties had agreed on the essential terms of the settlement," the appeal court decision states.

However, Hodaie tried to argue that, absent agreement on the form of release, no binding settlement was agreed upon. He also argued that he didn't understand the "norms of legal dispute resolution" and wasn't represented by counsel when entering the settlement.

"We do not accept his submissions," the appeal court ruled. "The authorities are clear that absent a contractual stipulation to the contrary, a settlement agreement implies a promise to furnish a release." And, it states, in this case, Hodaie knew he was required to supply a release.

Additionally, now that the case has proceeded through the courts no formal release is required, the decision notes, and the settlement funds will be paid. Therefore, the appeal is dismissed.

The earlier superior court decision came in response to a motion for summary judgment brought by RBC DS, arguing that the complaint was settled before the action was commenced; and, that the limitation period expired before the action was commenced.

According to that decision, Hodaie had a margin trading account with RBC, and he claimed that the firm erroneously calculated the margin in his account. Efforts to resolve the complaint internally failed. Hodaie advanced his complaint to the RBC Ombudsman, and then to the Ombudsman for Banking Services and Investments (OBSI). Ultimately, the superior court decision states he accepted a settlement offer from the firm over the phone.

Later, the superior court decision notes, counsel for Hodaie wrote to the firm repeating his complaints, and asserting that no binding settlement was ever reached between them because he hadn't agreed to the terms of a release provided by the firm. "I have no doubt whatsoever that the plaintiff had finally decided to accept the settlement offered to him, and did so, on May 6, 2009, and that he subsequently regretted his decision and attempted to resile from it," the superior court said.

"It is true, as the plaintiff points out, that the release sent to him went beyond what was necessary, and that he was not obliged to sign it as drafted. But this did not entitle him to avoid the agreement. He ought to have expressed any dissatisfaction he had with it, and demanded a revised release. Although he consulted counsel, he still never asked that the release be revised," the superior court said. As a result, it concluded that the complaint was settled before the action was commenced, and the firm is entitled to summary judgment.

While the superior court ruled in favour of RBC DS on the question of whether the complaint was already settled, on the issue of whether the limitation period had expired before the claim was made, it found against the firm. The court noted that, in this case, if the two-year limitation period... ran without interruption, the claim was out of time when it was commenced. But if it was interrupted while the case was considered by the ombudservice, then the action was started in time.

According to the superior court decision, the RBC DS argues that the provision that ordinarily suspends the limitation period while independent third party resolution is being attempted did not apply in this case because, in order to make use of the RBC Ombudsman's services, the plaintiff entered into an agreement that provided that the ombudsman service does not "provide a stay, or extension or waiver of any formal proceedings or limitation periods …"

"In my view, this argument is wholly without merit," the superior court said. The purpose of staying the limitation period is obvious, it added. "It is intended to encourage efforts to settle by providing that there is no limitation period penalty for plaintiffs who agree to enter into third party resolution processes. There is nothing... that suggests that the suspension of the limitation period can be contracted out of. Otherwise, small plaintiffs might be unwittingly deprived of their actions by unscrupulous defendants," the superior court said.

Nevertheless, the superior court granted summary judgment to the firm, and dismissed the investor's action. The appeal court has upheld that ruling.