Court Upholds Minutes of Settlement Calling for Increased Payment Upon Default:

In 1504641 Ontario Inc. v. 2225902 Ontario Inc., 2022 ONCA 175
the Court was faced with an issue involving the enforcement of Minutes of Settlement .

The MOS had a clause which said that the defendants was to pay $40,000 in four equal instalments and, if they defaulted on any payment, they consented to a default judgement in the sum of $120,000 less any payments made.

Surprise, the defendants paid only $30,000 and the Plaintiff’s moved for judgement on the remaining $90,000.

The MOS was enforced, despite the Defendants argument that the payment was a penalty. This is what they said.:

[12]     The appellants also argue that the $90,000 award amounts to a penalty. We do not accept that argument. The parties entered into Minutes of Settlement as a compromise to avoid a trial. As part of that compromise, the respondents agreed to reduce their claim to finally resolve the matter without additional costs if the reduced amount was paid in a timely way. In these circumstances, the amount required to be paid under the consent to judgment in the event that all of the instalment payments were not made is not a penalty.
amount was a penalty

My Comments :

This is a common settlement structure where the defendant needs time to pay. It creates a great incentive to honour a MOS. I am pleased that the Court upheld the deal because to do otherwise would eat away at the vital importance of enforcing settlements.

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