The devil is in the details…except when it comes to the conditions for having a binding agreement

THEDEVILISINTHEDETAILS…EXCEPTWHENITCOMESTOTHECONDITIONS
FORHAVINGABINDINGAGREEMENT

CAMILLEAUBINANDAMÉLIECÔTÉ*
ROBIC,LLP
LAWYERS,PATENTANDTRADEMARKAGENTS

Byofferingandacceptingthetermsofanagreementwithoutseeingthefinaldraftagreement,you
mightwellbesealingthedealwithoutkeepingcontroloverthedetails.TheFederalCourtof
Canadarecentlyremindedbothdeal-makersandlitigantsofthedangersofnegotiatinga
settlementagreementwithoutvigilance.TheCourtprovidedaclearoverviewofkeyelementsin
determiningwhetherornotanagreementhasbeenreached,whicharecrucialtoavoidthe
precipitousconclusionofanagreementbeforeitisintended.

FACTS

InJanuary2013,MaozBetser-Zilevitch(“Betser”)filedanactionagainstNexenInc.andCNOOC
CanadaInc.(collectively,“Nexen”)forinfringementofitsCanadianpatentwhichcovered
equipmentusedtoinjectsteamandextractoilfromoilsands†.Thepartiesnegotiatedasettlement
agreementoverelevenmonths‡.OnFebruary2017,NexenfinallyacceptedoneofBetser’soffers
“inprinciple”.BetserthensentalettertotheFederalCourtadvisingthata“settlementhadbeen
reached,subjecttoformalization,reviewandexecutionbythepartiesofaformalsettlement
agreementӤ.

Unfortunately,thepartiesneveragreeduponaformalwrittensettlementagreementafterthe
exchangeofseveraldrafts.InJune2017,BetseradvisedNexenthattherewasnoagreement,that
allpriorofferswerewithdrawn,andthatalloffersmadebyNexenwererefused.ThisledtoNexen
filingamotionforadeclarationthatasettlementhadbeenreachedandtoidentifythetermsofthe
settlement**.

DECISION

TheFederalCourtdeterminedthatabindingsettlementagreementhad,infact,beenconcluded.
TheCourtremindedtheconsiderationsinCommonLawrelatingtofindingabindingsettlement
agreementassetoutinApotexInc.v.Allergan,Inc.††:theremustbe(1)anobjective,mutual
intentiontocreatelegalrelations,(2)considerationflowinginreturnforapromise‡‡,(3)objectively
andsufficientlycertainsettlementtermsand(4)amatchingofferandacceptanceonallterms
essentialtotheagreement.Inapplyingthistest,theCourtdecidedthat“anhonest,sensible

©CIPS,2018.*CamilleAubinisalawyerandAmélieCôtéisanarticlingstudentworkingforROBIC,LLP,afirmof
lawyers,patentandtrademarkagents.†MaozBetser-ZilevitchvNexenInc.andCNOOCCanadaInc.2018FC735,para3-4.‡Id.,para.7.§Id.,para.8.**Id.,para.12.††2016FCA155(“Allergan”).‡‡ItisimportanttonotethatconsiderationisacriteriainCommonLaw,butisnotunderQuebec’sCivilLaw.

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businesspersonwouldunderstandthattherewasanintentiontocreatelegalrelationsanda
contractintheformofabindingsettlementagreement”§§,andthatendingthelitigationconstituted
consideration.

Intheirattempttoprovethatnosettlementagreementhadbeenreached,Betserclaimedthatan
acceptance“inprinciple”doesnotamounttoanacceptancesinceitwasconditionaluponthe
preparation,reviewandsignatureofaformalagreement,whichwouldincludeadditionaltermsand
conditions.Nonetheless,theCourtremindedthepartiesthat“requiringadditionaldocumentation
toformalizeasettlementisnotanimpedimenttofindingthatawrittenexchangeconstitutesa
bindingcontract”***.Inthiscase,themereacceptanceofanofferonallessentialtermsofa
contract,evenifitwassolely“inprinciple”,constitutedavalidofferandacceptance,andtherefore
ledtotheconclusionthattherewasavalidbindingagreement.Thepost-settlementconductof
confirmingtheagreementwiththeFederalCourtbyletterconstitutedconvincingproofthatan
agreementwasreached.

TheCourtalsoconcludedthattherewasanagreementonallessentialtermsofthecontract.
Betserheldthatongoingnegotiationsonvarioustermsandconditions,notablyontheextentofthe
negotiatedlicenceandrelease,demonstratedthattherewasanabsenceofagreementonthe
essentialterms.However,theCourtdecidedthattheoffermadebyBetserandacceptedbyNexen
wascomplete.ThejudgeheldthattheothertermsandconditionsraisedbyBetserwereeithernot
intheoffermadebyBetserandagreedtobyNexen,werenon-essentialtotheagreementorwere
notimpliedfromtheagreement.TheCourtalsowarnedthepartiesthat“attemptingtogetmore
thanwaspreviouslyagreeddoesnotconstituteevidencethattherewasnoagreementoreven
disagreementatthetimethesettlementagreementwasconcluded”†††.

Whenappliedtothespecificcovenantsdiscussedbytheparties,thedecisionhadasubstantial
impactonthescopeofthelicenceandreleasenegotiatedbytheparties.Forexample,thelicence
andreleasewereconsideredbytheCourtascoveringbothCanadianandU.S.corresponding
patents,althoughBetserwasarguingthattheU.S.patentwasintendedtobeexcludedfromthe
agreement.Ontheotherhand,thelicencewaslimitedtotherightstomake,constructanduse
thepatentedinvention.TheCourtruledthattherighttosell,whichwasnotmentionedintheoffer,
wasnotincludedinthelicenceagreementgrantedtoNexen.Also,theCourtdeemedthatthe
releaseappliedonlytoclaimsthatwereassertedintheinitialBetser’sStatementofClaim,andnot
claimsthatwereassertable,aswasarguedbyNexen.Thesesconclusionswerealldrawnfrom
thespecifictermsoftheofferthatweredraftedbyBetserandagreedtobyNexen.Notably,the
partiesneverarguedthatthetermsoftheofferweretheresultofinattention,orthatitsacceptance
resultedfromamisreadingoftheterms.

ANIMPORTANTREMINDER

TheCourt’sdecisioninthiscaseremindspartiestobewaryoftheircommunicationsduringthe
negotiationoftheiragreements.Assoonasitcanbeobjectivelydeterminedthatthereisan
agreementontheessentialtermsofacontract,itcouldpossiblybedeemedtobelegallybinding
ontheparties,evenifonepartysubjectivelyintendsotherwise.

Inordertoavoidtheunintendedconclusionofanagreement,theCourtremindeditsprevious
commentsinAllergan:“Ifapartydoesnotwanttobebounduntilithasagreedtoalltermsit
§§MaozBetser-ZilevitchvNexenInc.andCNOOCCanadaInc.préc.Note1,para.30.***Id.,para.32.†††Id.,para.64.

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subjectivelyconsidersessentialtothedeal,ineveryofferitcommunicatesitmustmakethatwish
objectivelyclear”‡‡‡.Indoingso,partiescanrestassuredthatcontractsarenotprematurely
concludedwiththeomissionofimportanttermsandconditionswhichcouldhavedire
consequencesonallpartiesinvolved.

FurthercommentsandnegotiationsbetweenpartiesmightfollowinthenextmonthsasaNotice
ofAppealofthedecisionoftheFederalCourtwasfiledonSeptember12,2018.Tobecontinued…!

‡‡‡Prec.,note5,atpara53.