Bound by your words (and your lawyer's) – Hartslief v Terra Nova Royalty, 2013 BCCA 417 

publication 

November 2013

Litigation Bulletin

Earlier this Fall, the British Columbia Court of Appeal confirmed two important legal principles in Hartslief v Terra Nova Royalty.1 Namely:

1. the execution of a formal written document is not always necessary for the formation of a binding contract; and

2. "unless a solicitor clearly communicates the contrary to those with whom he or she is negotiating, a solicitor is the agent of his or her client and thus may bind the client to an agreement".2

facts

The facts in the Hartslief, by most accounts, are ordinary. Mr. Hartslief had been terminated by his employer, Terra Nova Royalty ("Terra Nova"). Mr. Hartslief sought compensation with respect to his termination. Both Mr. Hartslief and Terra Nova retained solicitors, and the solicitors entered into settlement negotiations. Notably, the trial judge concluded that neither solicitor communicated to the other that a settlement agreement required formal documentation, or a signature, to be binding. Nor did either solicitor communicate to the other that acceptance of a settlement agreement would be conditional until formally approved by their respective clients. The Court of Appeal upheld both of these conclusions. During the settlement negotiations, the solicitor for Mr. Hartslief proposed a settlement offer. The solicitor for Terra Nova accepted the settlement offer on behalf of his client without obtaining express instructions to accept or executing a formal document. Terra Nova then attempted to recant on the agreement.

In both the BC Supreme Court and the Court of Appeal, Terra Nova argued that a formal document would have to be signed, and signed by the client not the solicitor, before a binding agreement came into existence. Both the BC Supreme Court and the Court of Appeal rejected Terra Nova's argument.

agreements are not necessarily formally signed documents

The Court of Appeal rejected Terra Nova's argument that a formal document would have to be signed before a binding agreement came into force. The trial judge had found that Terra Nova's argument departed from the "usual rule for contract formation that acceptance can be communicated through any conduct that a reasonable bystander would interpret as acceptance", which finding the Court of Appeal confirmed as a correct statement of the law.3

solicitors can bind clients to agreements

The Court of Appeal also rejected Terra Nova's argument that the agreement was conditional upon approval of the respective clients. Citing Sekhon v Khangura,4 the Court of Appeal confirmed that it is settled law, both in British Columbia and Ontario, that "a solicitor acting for a party in settlement negotiations is acting as the agent of the client" and there is "no obligation on other parties to make enquiries regarding a solicitor's authority to settle a matter on a client's behalf".5

takeaways

The British Columbia Court of Appeal has once again reminded us that signing a formal written document is not always necessary for the formation of a binding contract, and that unless the contrary intention is communicated, lawyers can bind their clients to an agreement without the signing of a formal written document by either client or lawyer.

by Jamieson Virgin

1 2013 BCCA 417 ("Hartslief")
2 Ibid at para 22
3 Ibid at paras 12 and 18
4 2009 BCSC 670 ("Sekhon") 
5 Ibid at para. 14.

a cautionary note

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2013