With frequent updates on confirmed cases of COVID-19, government ordered shutdowns, and the stock market, cash flow for many has become tight. Settling parties may not have the anticipated cash flow to make payments under settlement agreements, as previously anticipated. Settlement agreements may provide flexibility in payment terms given this global crisis (aka force majeure clauses). However, many do not. The agreement may be silent on this point, or the force majeure clause may not apply. In such cases, parties are not without reprieve. Parties can rely on civility and agree to indulgences in payment terms. This will often lead to outcomes that are better for both parties. 

The Rules of Professional Conduct govern lawyers’ conduct. Lawyers are required to agree to “reasonable requests concerning trial dates, adjournments, the waiver of procedural formalities, and similar matters that do not prejudice the rights of the client” (emphasis added).¹ Lawyers are also required to be courteous, to be civil, and to act in good faith.²

In a recent case, a party had just finalized a settlement agreement that included a payment plan. The payor had already delivered the post-dated cheques to the payee (as required under the settlement agreement), and the payee had deposited the first cheque. In light of recent events, the payor requested a one-month extension on future payments to free up some capital. The payee agreed to this indulgence. Although the settlement agreement did not include a force majeure clause, the parties acted cooperatively. 

This was in the best interest of both parties: if the payor defaulted, the payee would have to go to court to enforce the settlement. However, the payee’s reasonable enforcement opportunities are currently limited with courts being closed or having suspended operations during the COVID-19 outbreak. 

When dealing with clients managing difficult cash flow, or requests for indulgences from opposing counsel, professionalism dictates that lawyers ask for reasonable indulgences, and that they grant them when there is no material prejudice to clients (which requires that counsel consider the risk of payees becoming insolvent). Refusing to grant indulgences may jeopardize all future payments, as parties may determine that it is more efficient to breach the agreement. In that case, and by virtue of the courts being closed (except for extremely urgent matters), the parties will de facto have deferred payment to an uncertain date. 

Parties in the process of concluding settlement agreements that contemplate payment plans or other go-forward obligations should be mindful to include language that considers COVID-19, its fallout and other such risks. 

1. Ontario Rules of Professional Conduct at 7.2-1.1 ↩
2. ibid 7.2-1. ↩