Executive Summary: Key Legal and Evidentiary Issues

• Dispute over whether the parties’ original arrangement was a month-to-month rental or an informal lease-to-own purchase agreement for the property at 1455 Route 10, Noonan.
• Central question of whether a binding settlement agreement was concluded on 1 August 2024 resolving all disputes about the property and related payments.
• Allegations by the plaintiffs of unconscionability and economic duress in the negotiation and conclusion of the 2024 Settlement Agreement, including claims of unequal bargaining power and threats of eviction.
• Application of the legal test for economic duress (including protest, availability of alternatives, independent legal advice, and steps to avoid the agreement) and whether those elements were met on the evidence.
• Factual controversy about alleged threats, intimidation and a prior physical altercation, and whether such conduct vitiated consent to the Settlement Agreement.
• Consequences of enforcing the Settlement Agreement under Rule 49.08(1), including dismissal of the plaintiffs’ action, revocation of the certificate of pending litigation, forfeiture of deposits and a fixed costs order in favour of the defendants.

Background and parties

The dispute arises from an arrangement between Leonard MacKenzie, through his company IND Forestry Inc., and Miles and Melissa Cleghorn, along with their companies On the Move Diesel Repair Inc. (OMDR) and Cleghorn’s Custom Concrete Ltd., regarding the use and eventual purchase of a rural property at 1455 Route 10, Noonan, New Brunswick. Mr. MacKenzie, as sole director and shareholder of IND Forestry Inc., owned the property, which included a residence and a three-bay garage used in part by OMDR’s diesel repair business. The relationship evolved from an occupancy arrangement into a contested claim over whether the Cleghorns were tenants or purchasers, ultimately giving rise to litigation and a later settlement that one side then sought to enforce.

Competing versions of the initial arrangement

The parties advanced sharply different narratives about their early dealings. Mr. MacKenzie maintained that, beginning around March 2023, he agreed “out of goodwill and generosity” to allow the Cleghorn family to occupy the property temporarily, expecting they would stay three to five months while a new home was being built. He said they entered into a month-to-month rental agreement with rent of $4,595.94 and a $25,000 cash damage/security deposit, which he saw Mr. Cleghorn sign, although no copy of that rental agreement was produced in evidence. In his account, all ongoing monthly payments were simply rent. In contrast, Mr. Cleghorn claimed that, after first approaching MacKenzie about renting in late 2022 and agreeing to rent of $2,500 per month in March 2023, the parties then moved in April 2023 into a verbal “lease to own” type deal. Under that alleged “Initial Purchase Agreement,” the plaintiffs would purchase the property for $400,000, paying a $25,000 cash down payment and making scheduled “lease to own” payments according to an amortization schedule that MacKenzie prepared. On this version, the plaintiffs paid 15 monthly amounts of $3,996.47 plus HST between April 2023 and June 2024 as purchase payments over and above the base rent, and they made capital improvements to the property.

Breakdown of relations and threat of litigation

By early June 2024, the relationship deteriorated. Mr. MacKenzie said he simply told the Cleghorns they had to vacate within 30 days because he wanted to use the property again. The plaintiffs’ position was that MacKenzie repudiated the Initial Purchase Agreement without cause, despite their alleged purchase payments and improvements. Through counsel, the plaintiffs sent a letter on 6 June 2024 asserting that they had purchased the property for $400,000, were making payments under the amortization schedule, and would not vacate; they expressly stated they were prepared to enforce their rights in court. The defendants, for their part, continued to insist that the relationship was purely a landlord–tenant rental arrangement and that any improvements were unauthorized.

Negotiation of the 2024 settlement agreement

In response to the threatened litigation, and according to the court, in a good faith effort to resolve the dispute, MacKenzie instructed his counsel to make a settlement offer in July 2024. The initial defence offer characterized the parties’ dealings as a rental, denied any purchase agreement, asserted that improvements were unapproved, and proposed a sale of the property for $550,000 plus HST with no vendor financing. What followed was about three weeks of back-and-forth negotiation between counsel, involving offers and counteroffers. On 1 August 2024, the parties agreed on key terms and authorized preparation of a formal Agreement of Purchase and Sale (APS). The judge found that by this date they had concluded a binding settlement (the “Settlement Agreement”) setting out the essential terms for a sale designed to resolve all their disputes.

Key terms of the settlement agreement

The court summarized the essential terms of the August 2024 Settlement Agreement as including: (a) sale of the property, garage and specified fixtures to the plaintiffs for $475,000 plus HST; (b) a $40,000 “First Deposit” to be provided by bank draft within five business days of acceptance, applied to the purchase price if the deal closed by 13 September 2024; (c) return by the defendants of the original $25,000 security deposit; (d) a further $10,000 “Second Deposit” to be paid by the plaintiffs within two business days of receiving the returned security deposit; (e) no financing condition and no vendor financing; and (f) a closing date of 13 September 2024, failing which the total $50,000 in deposits would be forfeited to the defendants and the plaintiffs would vacate no later than 30 September 2024. This structure made the $50,000 a non-refundable deposit or liquidated damages if the plaintiffs did not close.

Subsequent events and breakdown of the settlement

Around 7–8 August 2024, the plaintiffs paid the $40,000 First Deposit. The defendants agreed, at the plaintiffs’ request, to postpone the return of the $25,000 cash security deposit until 13 August 2024, but when MacKenzie attended at plaintiffs’ counsel’s office, he was told no plaintiff was available to accept the cash, and the funds could not be left there. As a consequence, the security deposit was not returned and the Second Deposit was not paid. During August and early September 2024, counsel continued to work on finalizing the APS, including disputes about wording, a contentious email on 9 August 2024 in which defence counsel threatened to block access to the property if the APS was not signed by 5:00 p.m., and delays related to obtaining HST numbers for the plaintiffs. On 19 August 2024, the plaintiffs sought an extension of the closing date from 13 September to 30 September 2024, which the defendants accepted on condition that, if the deal did not close, the plaintiffs would vacate by 6 October 2024. The APS was then finalized. On 10 September 2024, the plaintiffs requested a further extension to 25 October 2024, coupled with a later vacate date if the deal failed. The defendants responded on 12 September that they would agree only if the non-refundable deposit was increased from $50,000 to $65,000. On 13 September 2024, plaintiffs’ counsel rejected that condition, stated that his clients were no longer willing to purchase, and demanded return of both the $25,000 security deposit and the $40,000 First Deposit. The plaintiffs then commenced their action on 2 October 2024 and vacated the property on 9 October 2024.

Legal framework for enforcing the settlement

The defendants brought a motion under Rule 49.08(1) of the Rules of Court, which permits a party to an accepted offer to settle to apply either for judgment in the terms of the offer or, where the defaulting party is a plaintiff, to have the proceeding dismissed for failure to comply with the settlement. The court emphasized the strong policy in favour of enforcing valid pre-trial settlements, noting that once a valid settlement is concluded, it must be honoured absent mutual agreement to repudiate it. Applying ordinary contract principles, the judge looked to whether there was a meeting of the minds on essential terms, supported by offer, acceptance and consideration, and whether there had been part performance.

Finding that a binding settlement was concluded

Justice Morrison held that by 1 August 2024 the parties had formed a binding Settlement Agreement, with its essential terms reflected in the later APS and the correspondence between counsel. Although closing dates, possession dates and deposit timing were later adjusted, these were treated as modifications of an existing agreement rather than evidence that no contract yet existed. The payment of the $40,000 First Deposit in early August was also treated as part performance reinforcing the existence of a concluded deal. The judge stressed that both sides were represented throughout by experienced counsel who negotiated and finalized the settlement terms, and there was no suggestion that counsel lacked authority to bind their clients. Importantly, the court found that the very purpose of this settlement was to resolve the original factual controversy over whether the initial relationship was a rental or a rent-to-own purchase, and once the Settlement Agreement was concluded that controversy was rendered moot for the purpose of the enforcement motion.

Allegations of unconscionability and economic duress

The plaintiffs argued that the Settlement Agreement should not be enforced because it was the product of unconscionable conduct and economic duress. They alleged that MacKenzie first repudiated a favourable $400,000 Initial Purchase Agreement after they had made significant payments and improvements, then effectively forced them to negotiate a second, more expensive purchase in 2024 under the continuing threat of eviction from their family home. They contended that these circumstances reflected unequal bargaining power and oppressive pressure. The court reviewed case law on economic duress, focusing on the test from Kawartha Capital Corp. v. 1723766 Ontario Limited, which requires proof that the party had no practical choice but to submit and that the pressure applied was illegitimate. In assessing whether the plaintiffs had “no choice,” the court examined four factors: whether they protested at the time; whether effective alternatives were open to them; whether they received independent legal advice; and whether they took steps to avoid the agreement after entering into it.

Application of the economic duress test

On the evidence, the court concluded that the plaintiffs met none of the four factors under the first branch of the economic duress test. There was no indication in the contemporaneous communications, including the 1 August 2024 email from their own counsel stating “We have a deal,” that they accepted terms under protest or subject to a reservation. They did have effective legal alternatives, such as commencing an action to enforce the alleged Initial Purchase Agreement, seeking a certificate of pending litigation, or applying for injunctive relief to restrain eviction, but there was no evidence that these options were explored or pursued before agreeing to the Settlement Agreement. It was undisputed that they received independent legal advice throughout, all negotiations having been conducted through counsel. Finally, rather than promptly trying to avoid the settlement, the plaintiffs performed it in part by paying the First Deposit, negotiated wording issues, secured an extension of the closing date, and only resiled from the deal in mid-September 2024 when they were seeking yet another extension coupled with a demand not to increase the non-refundable deposit. Having failed to establish economic duress under these factors, the plaintiffs also could not show that any pressure exerted by the defendants was illegitimate in the legal sense.

Assessment of alleged threats and intimidating conduct

The plaintiffs further relied on claims of harassment, intimidation and an earlier physical altercation as evidence of duress. Justice Morrison carefully separated these allegations from the core contractual analysis. There was an admitted altercation on 26 June 2024 between MacKenzie and Mr. Cleghorn’s father-in-law, but the judge noted there was no evidence it was leveraged to force the plaintiffs into the settlement, and none of the plaintiffs were present. An email on 9 August 2024 in which defence counsel threatened to block access to the property unless the APS was signed by 5:00 p.m. was characterized as a non-physical threat that, in any event, post-dated the formation of the Settlement Agreement and was not carried out, as access was not actually blocked and the APS was signed days later. More broadly, the court found that the plaintiffs’ references to “harassing and intimidating behaviour” were too vague and generalized to amount to specific, actionable threats of violence that could vitiate consent. Recognizing that contracts induced by genuine threats of physical harm are unenforceable, the judge nonetheless held that the evidentiary record here fell far short of that threshold.

Handling of factual controversies and procedural objections

The plaintiffs also urged the court to refuse enforcement and instead require a trial or at least a summary judgment hearing because there were “substantial disputes of fact” about the nature of the original arrangement (rental versus purchase), the content of any original agreements, and the alleged threats and intimidation. Justice Morrison acknowledged that there were gaps and inconsistencies in both parties’ accounts of the initial arrangement, with neither the claimed written rental agreement nor the alleged Initial Purchase Agreement in evidence and unresolved questions about compliance with the Residential Tenancies Act. However, he found those issues immaterial to the narrow question of enforcing the later Settlement Agreement: the very function of the settlement was to resolve that underlying factual dispute, and once a valid settlement was formed, disagreement over earlier facts no longer justified refusing to enforce it. As for the alleged intimidation and violence, he concluded that, even taking the plaintiffs’ version at its highest, the conduct described did not meet the legal standard for duress and did not call for a full trial. The court rejected the procedural argument that a Rule 49.08 motion in this context was akin to improper “summary judgment” on materially contested facts.

Result and monetary consequences

In the result, the court granted the defendants’ motion to enforce the Settlement Agreement. It declared that the Settlement Agreement was valid, binding and enforceable against the plaintiffs, ordered the plaintiffs’ action dismissed, and, at the defendants’ request, also dismissed their own counterclaim. The court directed that the certificate of pending litigation registered against the property be revoked. In giving effect to the terms of the settlement, Justice Morrison held that specific performance required the plaintiffs to forfeit a total of $50,000 in deposits to the defendants as liquidated damages for failing to close, while the defendants were obliged to return the original $25,000 cash security deposit to the plaintiffs. The judge left it to counsel to work out the mechanics of these offsetting payments, retaining jurisdiction to give further directions if needed. In addition, he awarded the defendants fixed costs of $4,875. Overall, the successful party was the defendants, IND Forestry Inc. and Leonard MacKenzie, and taking into account the required return of the $25,000 deposit but the forfeiture of $50,000 in deposits plus the $4,875 costs award, the total net monetary outcome ordered in their favour under this decision was $29,875.