In a quadrilogy of recent decisions — Tallman Truck Centre Limited v. K.S.P. Holdings Inc., 2022 ONCA 66 (“Tallman”), Waxman v. Waxman, 2022 ONCA 311 (“Waxman”), Poirier v. Logan, 2022 ONCA 350 (“Poirier”), and CHU de Québec-Université Laval v. Tree of Knowledge International Corp., 2022 ONCA 467 (“Tree”) — the Court of Appeal for Ontario has confirmed that a partial settlement agreement which changes the adversarial orientation of the litigation must immediately be disclosed to the non-settling defendants. The failure to comply with this “well-established rule” is an abuse of process and in Ontario the consequence will be an automatic and permanent stay of the litigation.
The key takeaways from the quadrilogy are as follows:
1. The rule is not limited to Mary Carter and Pierringer agreements. If a settlement agreement changes the litigation landscape so as to alter the adversarial position of the settling parties to one of cooperation, then it must immediately be disclosed to the non-settling defendants. The following settlements were held to engage the requirement for immediate disclosure to the non-settling parties based on the terms involving cooperation between the settling parties concerning the remainder of the litigation:
(a) The defendant agreed to defend the action and issue a third party claim, which the plaintiff would fund. The defendant assigned its interest in the lawsuit to the plaintiff who agreed to indemnify the defendant from any exposure in the litigation (Handley Estate v. DTE Industries Limited, 2018 ONCA 324);
(b) The defendant agreed to provide evidence in support of the plaintiff’s motion for summary judgment in return for the claim against the defendant being dropped (Tallman);
(c) The defendants agreed to provide evidence in private to the plaintiffs in a situation where the settlement would only be operative if the plaintiffs were satisfied with evidence (Waxman);
(d) The defendant agreed to provide an affidavit to the plaintiff, which was vetted by the plaintiff’s counsel, in exchange for the claim against the defendant being dismissed (Poirier); and
(e) The plaintiff and the settling defendants entered into a Pierringer agreement pursuant to which the plaintiff agreed to the dismissal of its claims against the settling defendants and agreed to limit its claims against the non-settling defendants to their proportionate share of liability (if any). The settling defendants agreed to provide their reasonable cooperation to the plaintiff in its ongoing action and enforcement efforts. The settling defendants also assigned to the plaintiff their rights in a claim against the non-settling defendants (Tree).
2. The terms of the partial settlement, such as confidentiality terms, or terms making the partial settlement contingent, do not derogate from the obligation to make immediate disclosure to the non-settling parties.
3. Disclosure means disclosure of the terms that affect the adversarial landscape of the litigation. The amount paid as part of the settlement is privileged and ordinarily will not need to be disclosed.
4. Any failure to comply with the rule of disclosure is an abuse of process and in Ontario litigation will have draconian consequences; namely, the automatic and permanent stay of the litigation.
5. The length of the delay in disclosure (three weeks in Tallman, over four years in Waxman or at best one and a half to two years if the period while the settlement was conditional could be ignored which the court held was not the correct approach, and six months in Poirier) is not relevant to the court’s analysis of the consequence of the delay in Ontario. The requirement is for immediate disclosure, so any delay puts you offside this procedural rule. In Tree, for example (where the stay motion was dismissed), the court was satisfied that disclosure of the “essential terms which revealed the change in the adversarial landscape of the litigation” of a Pierringer Agreement the day after it was signed coupled with advice that a prompt approval motion would be brought on notice to the non-settling defendants bringing the Settlement Agreement before the court, satisfied the requirement for “immediate” disclosure, notwithstanding that full disclosure of all the settlement terms and documents was piecemeal and incremental. In Ontario, the consequence of a breach is a permanent stay of the litigation regardless of the length of the delay.
6. In Ontario it is not necessary that the non-settling defendants suffer prejudice by reason of the delay for the court to impose the consequence of a permanent stay of the litigation. The absence of prejudice does not excuse a breach of the obligation of immediate disclosure.
7. In Ontario, whatever way the stay motion is decided, it is considered a final decision which is appealable as of right to the Court of Appeal. A motion judge’s finding in respect of the change in the litigation landscape is a question of mixed fact and law that will be granted deference on appeal. In the 2022 quadrilogy, the Court of Appeal affirmed the motion judge’s decision in all cases.
8. In Tree the Court of Appeal helpfully summarized the governing principles as follows:
[55] The following principles can be drawn from this court’s decisions on the abuse of process that arises from a failure to immediately disclose an agreement which changes the litigation landscape:
a) There is a “clear and unequivocal” obligation of immediate disclosure of agreements that “change entirely the landscape of the litigation”. They must be produced immediately upon their completion: Handley Estate, at para. 45, citing Aecon Buildings v. Stephenson Engineering Limited, 2010 ONCA 898, 328 D.L.R. (4th) 488 (“Aecon Judgment”), at paras. 13 and 16, leave to appeal refused, [2011] S.C.C.A. No. 84; see also Waxman, at para. 24;
b) The disclosure obligation is not limited to pure Mary Carter or Pierringer agreements. The obligation extends to any agreement between or amongst the parties “that has the effect of changing the adversarial position of the parties into a co-operative one” and thus changes the litigation landscape: Handley Estate, at paras. 39, 41; see also Tallman, at para. 23; Waxman, at paras. 24, 37; Poirier, at para. 47;
c) The obligation is to immediately disclose information about the agreement, not simply to provide notice of the agreement, or “functional disclosure”: Tallman, at paras. 18-20; Waxman, at para. 39;
d) Both the existence of the settlement and the terms of the settlement that change the adversarial orientation of the proceeding must be disclosed: Poirier, at paras. 26, 28, 73;
e) Confidentiality clauses in the agreements in no way derogate from the requirement of immediate disclosure: Waxman, at para. 35;
f) The standard is “immediate”, not “eventually” or “when it is convenient”: Tallman, at para. 26;
g) The absence of prejudice does not excuse a breach of the obligation of immediate disclosure: Handley Estate, at para. 45; Waxman, at para. 24; and
h) Any failure to comply with the obligation of immediate disclosure amounts to an abuse of process and must result in serious consequences: Handley Estate, at para. 45; Waxman, at para. 24; Poirier, at para. 38. The only remedy to redress the abuse of process is to stay the claim brought by the defaulting, non-disclosing party. This remedy is necessary to ensure the court is able to enforce and control its own processes and ensure justice is done between the parties: Handley Estate, at para. 45; Tallman, at para. 28; Waxman, at paras. 24, 45-47; Poirier, at paras. 38-42.
To date, leave to appeal to the Supreme Court of Canada has been sought in the Tallman and Waxman decisions, the first and second cases in the quadrilogy, relying in part on the fact that in other provinces the consequence of a breach of the rule is discretionary, and both the length of the delay and whether the delay prejudiced the non-settling party are relevant factors. Unless and until the Supreme Court of Canada grants leave and gives further guidance on this procedural issue, all civil litigation lawyers need to be very familiar with this procedural law, which has significant errors and omissions implications, particularly in Ontario.
For more information on this topic, please reach out to the authors Barbara L. Grossman and Ara Basmadjian.
