When two parties to a dispute settle, they enter into a settlement agreement that settles the original dispute, and the parties are expected to abide by the settlement. But what happens when the settlement agreement is not complete or when it is breached? Can the aggrieved party pursue the original dispute or both the original and the settlement agreement?   

The Importance of Settlement Agreements

A settlement agreement is a legally binding contract that resolves a dispute between two or more parties. The agreement outlines the terms of the settlement, which may include the payment of money, the performance of certain actions, or a combination of both. Once the parties have signed a settlement agreement, they are typically bound by its terms. This means that they cannot sue each other over the same dispute.   

What Happens When a Settlement Agreement Is Not Complete?

If a settlement agreement is not complete, it may be void or voidable. A void agreement is an agreement that is not legally binding. This means that it cannot be enforced by either party. A voidable agreement is an agreement that is legally binding, but one or both parties have the option to cancel it. If a settlement agreement is void, the parties are free to pursue their original dispute. If a settlement agreement is voidable, the party who has the option to cancel the agreement can choose to either cancel the agreement or enforce it.   

What Happens When a Settlement Agreement Is Breached?

If a settlement agreement is breached, the aggrieved party may sue the breaching party for breach of contract. The aggrieved party may also be able to pursue the original dispute. Whether the aggrieved party can pursue the original dispute will depend on the terms of the settlement agreement and the nature of the breach.   

The Case of Pacific Gate Development Group Ltd. v. Bui

In the recent case of Pacific Gate Development Group Ltd. v. Bui, 2025 BCCA 12, released on January 22, 2025, the British Columbia Court of Appeal considered a case where a settlement agreement was breached. 

In this case, the parties had entered into a settlement agreement to resolve a dispute over a construction project. 

The settlement agreement provided that the appellants would pay the respondent $250,000 in exchange for a full release of all claims. The appellants paid the respondent $250,000 but then immediately directed the respondent to pay out these funds, resulting in nothing being paid.   

The respondent sued the appellants for breach of contract. The trial judge found that the appellants had breached the settlement agreement and awarded the respondent $100,000 in damages. The appellants appealed, arguing that the trial judge had erred in awarding damages because the respondent had not pleaded a breach of the settlement agreement.   

Winteringham JA, writing for the Court of Appeal, affirmed the reasoning in the trial judge’s decision. The Court held that the trial judge had not erred in awarding damages because the issue of the breach of the settlement agreement was “squarely before the judge.” The Court noted that the appellants had pleaded the settlement agreement and had relied on it in their defence of the claim. The Court also noted that the parties had testified about compliance with the settlement agreement and the payments made pursuant to it. Finally, the Court noted that the parties had addressed the settlement agreement in their closing submissions.   

In a trial decision, Absolute Results Productions Ltd. v. Serpa Automotive, 2021 BCSC 313, our client faced the fact that the defendant-debtor breached a valid settlement agreement and attempted to re-open the original dispute. The defendant not only agreed to the settlement agreement but also agreed to send over the settlement funds on a cheque. Before the cheque was sent out, the defendant reversed course and decided not to pay. 

The trial judge saw through the defendant’s arguments, identified the key facts, applied the law that the Court of Appeal affirmed in Pacific Gate Development Group Ltd. v. Bui, and ordered the debtor to pay our client. 

Lessons Learned

The case of Pacific Gate Development Group Ltd. v. Bui provides several important lessons for construction professionals and homeowners who are building houses.   

First, it is important to ensure that any settlement agreement that you enter into is complete and unambiguous. The agreement should clearly outline the terms of the settlement, including the payment of money, the performance of certain actions, or a combination of both. You should also consider stating that the settlement agreement stands in the place of the original dispute, and when the settlement agreement is executed, and conditions have been fulfilled, neither party is allowed to revive the original dispute.    

Second, if you believe that a settlement agreement has been breached, you should consult with counsel as soon as possible. A lawyer can help you determine whether you have a claim for breach of contract and can advise you on the best course of action.   

Third, if you are suing someone for breach of a settlement agreement, you should plead the breach in your complaint. This will give the defendant notice of your claim and will allow the court to properly consider the issue.   

Additional Tips:

• Be sure to read any settlement agreement carefully before you sign it.
• If you do not understand the terms of a settlement agreement, you should ask counsel to review it with you.
• If you are in doubt about whether or not to sign a settlement agreement, you should consult with counsel.
• Keep a copy of any settlement agreement that you sign in a safe place.

The examples above show that settlement agreements can be an efficient tool for resolving construction disputes. However, it is important to ensure that any settlement agreement that you enter into is complete and unambiguous. If you believe that a settlement agreement has been breached, you should consult with legal counsel as soon as possible.   

Vancouver Construction Lawyer Advising On Settlement Agreements

Facing a construction dispute? Don’t navigate settlement agreements alone. Understanding the nuances of these crucial contracts, as highlighted in cases like Pacific Gate Development Group Ltd. v. Bui, is essential to ensure enforceability and avoid future complications. Roland Luo, a Vancouver construction litigation lawyer serving clients across British Columbia, Canada, and the U.S., provides expert guidance on drafting and enforcing settlement agreements. For a confidential discussion on your situation, contact us online or call 604-800-4628 today.