Settlements have many benefits. More cases settle than go to trial for many reasons. However, there are risks, including the risk that a dispute arises about the settlement or its implementation afterward. In such disputes, one side will typically argue that the settlement was different than how it has worked out, and the other side will argue that all is as intended, simply the consequences were not expected or negotiated as favourably as the parties later desire. This is demonstrated in the case of Petrochemical Commercial Company International Ltd v. Nexus Management Group SDN BHD, 2023 ONCA 308 (CanLII), in which a father and son likely came to realize at the end of an appeal that they should have confirmed that what they were asking for in the settlement was realistic and legally possible, especially since they were dealing with very complex international proceedings.
Background
In what sounds like a tired movie plot, a father and son (the appellants) were accused of committing a massive fraud against three corporations (the respondents) engaged in the business of buying and selling petrochemical products in Malaysia and Iran.
The father-son duo passed themselves off as intermediaries and were able to skirt around US sanctions to sell the respondents’ embargoed Iranian petroleum products to various countries. They allegedly embezzled more than $70 million USD from the sale of petroleum products to various international buyers.
Because of the international nature of the petroleum sales, the respondent companies commenced lawsuits in a number of jurisdictions, including Singapore, Canada, Malaysia, and Portugal, and obtained a worldwide Mareva injunction in the Ontario Superior Court of Justice, freezing the father’s and son’s assets. When criminal proceedings were commenced against the father and son in Iran, Red Notices were issued by Interpol for their arrest.
Akin to an international arrest warrant, a Red Notice is a request to global law enforcement agencies to provisionally arrest an individual pending extradition, surrender, or other legal action.
Surprisingly, the parties agreed to settle all of the lawsuits across all jurisdictions. A “Mutual Agreement” and Minutes of Settlement were prepared to be filed with courts in the many jurisdictions where legal proceedings had been commenced. The father and son returned significant assets to the respondents, as promised, but grew upset when the Red Notices were not withdrawn and the criminal proceedings in Iran were not discontinued. They brought a motion for an order compelling the respondent companies to (somehow) force the hands of Interpol and the Iranian prosecution service or void the settlement agreement.
The motion judge found that the Mutual Agreement and Minutes of Settlement only obligated the respondent companies to request that the Iranian prosecutor withdraw charges. The motion judge commented that the respondent companies had no power to affect a withdrawal of the Red Notices or put an end to the criminal proceedings, nor did they undertake that they would be able to do so. Failing to do so was not considered by the judge to be an act of bad faith, stating:
I find that the parties to the Agreement could not have intended to impose on the applicants a result beyond their capability. I find that the Agreement requires the applicants to make a request to the Iranian Prosecutor to withdraw the criminal proceedings in Iran commenced by him, and to make a request to Interpol to remove the Red Notices…[t]he Agreement also requires the applicants to cooperate fully in the withdrawal of the criminal proceedings and the removal of those Interpol Red Notices, but it does not compel them to take steps beyond their capability, which would include commanding jurisdiction over the affairs and activities of the Iranian Prosecutor and of Interpol.
Appeal
In the appeal of the motion decision, the appellants argued that the motion judge made four errors:
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Failed to interpret the Minutes of Settlement in light of the Mutual Agreement.
The appeal court held that the motion judge properly interpreted the meaning of Minutes of Settlement, though the Mutual Agreement contained some problematic language, referring to the “dismissal of the Interpol case” and the termination of “information disclosed to the public related to Interpol.” The Minutes of Settlement, on the other hand, stated that “a request will be sent to Interpol to remove all information related to this case and to close any files related to this case including and not limited to the Red Notice…” Acknowledging that the two documents contained contradictory language, the Court of Appeal for Ontario found that it was reasonable for the motion judge to have assumed that the Minutes of Settlement superseded the Mutual Agreement.
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Relied on evidence of surrounding circumstances to overwhelm the clear meaning of the Minutes of Settlement.
The appellants argued that the motion judge placed too much weight on the evidence of an Iranian prosecutor who, not surprisingly, testified that the Iranian prosecution service is independent and not obligated to acquiesce to requests made by private corporations. The appellants tried to argue that “the nature of the Iranian prosecution service has no bearing on the clear contractual obligation undertaken by the respondents.” The appeal court disagreed, as it obviously did.
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Failed to find that the respondents acted in bad faith by agreeing to have the criminal prosecution discontinued when they knew they could not.
This was dealt with easily by the Court of Appeal for Ontario, rejecting this argument since the Court had already determined that the motion judge’s interpretation of the Minutes of Settlement was reasonable.
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Misapprehended evidence regarding the independence of the Iranian prosecutor.
The appellants had called Dr. Erfan Lajevardi, who, among other things, offered opinion evidence suggesting that the respondents had breached their obligations. The Court of Appeal for Ontario pointed out that the motion judge was entitled to decide if she found Dr. Lajevardi’s evidence to be persuasive, and she had not. The Court of Appeal for Ontario found no reviewable error.
Takeaways
Ensuring that settlement documents contain clear and consistent language can protect parties from both misunderstandings and protracted litigation or at least minimize their risks in any subsequent challenges if a party becomes dissatisfied with the outcome.
