Litigation is anything but simple, but its complexity increases exponentially as more and more parties are pulled into the dispute, creating a spiderweb of adverse interests. These multi-party actions are extremely difficult to settle, but there are instances where adverse parties manage to settle their differences, potentially changing the adversarial orientation of the dispute, which creates an obligation to the disclose the terms of such settlement.
The locus classicus on this principle is the Ontario Court of Appeal’s decision in Handley Estate v. DTE Industries Limited, 2018 ONCA 324 (“Handley”) which sets out the key considerations for determining whether a failure to immediately disclose a partial party settlement alters the adversarial posture of the litigation:
(i) The obligation of immediate disclosure of agreements that “change entirely the landscape of the litigation” is “clear and unequivocal” – they must be produced immediately upon their completion;
(ii) The absence of prejudice does not excuse the late disclosure of such an agreement;
(iii) “Any failure of compliance amounts to abuse of process and must result in consequences of the most serious nature for the defaulting party”; and
(iv) The only remedy to redress the wrong of the abuse of process is to stay the claim asserted by the defaulting, non-disclosing party. Why? Because sound policy reasons support such an approach. Only by imposing consequences of the most serious nature on the defaulting party is the court able to enforce and control its own process and ensure that justice is done between and among the parties. To permit the litigation to proceed without disclosure of agreements such as the one in issue renders the process a sham and amounts to a failure of justice.
The consequence of failure to disclose such an agreement would result in an automatic and permanent stay of the litigation.
In 2022 the Ontario Court of Appeal weighed in on the principles set out in Handley, and they are briefly discussed below:
Tallman Truck Centre Limited v. K.S.P. Holdings Inc., 2022 ONCA 66
Tallman Truck Centre Limited (“Tallman”) appealed an order staying its action on the basis that it failed to immediately disclose the existence of a settlement to one defendant, whereby one defendant reversed its pleaded position and joined cause with Tallman. The agreement was not disclosed until three weeks after it was made.
Counsel for Tallman argued that the motions judge mischaracterized the nature of the dispute between the parties and the degree to which the parties were mutually antagonistic, and that the motion judge consequently erred in finding that the settlement agreement changed the “entire” litigation landscape between the parties.
The effect on the relationship between the parties required a factual determination and the motion judge determined that the settling defendant reversed its position and went from opposing the plaintiff to supporting the plaintiff’s claim, which falls within the application of Handley. The lack of crossclaims between the defendants was not a necessary condition.
Counsel for Tallman submitted that it did make a “functional disclosure” by filing a notice of discontinuance, coupled with the content of the affidavits filed, it should have been clear that there was settlement that altered the litigation landscape. The Court rejected this argument. Even if steps were taken that would lead experienced litigants to infer the existence of a settlement of some kind, that did not constitute “disclosure” of an agreement that changes the litigation landscape as required by Handley.
The Court also rejected the submission that the three-week period between reaching the agreement and its disclosure was negligible and ought not to be caught by the immediate disclosure rule. The Court said that the standard requires “immediate” disclosure; the standard is not “eventually” or “when it is convenient”.
As a result, the Court confirmed the consequences of non-compliance as set out in Handley, “ …the only remedy to redress the wrong of the abuse of process is to stay the claim asserted by the defaulting, non-disclosing party…”
Waxman v. Waxman, 2022 ONCA 311
This was an appeal from the order of the motion judge dismissing the appellants’ motion for summary judgment, and instead granting summary judgment to the respondents dismissing the action as against them, as well as granting the respondents’ motion for a permanent stay of the action as against them.
In considering the appeal, the Court firstly determined that the motion judge’s finding with respect to the change to the litigation landscape was a question of mixed fact and law and therefore entitled to deference.
The appellants sought to distinguish their facts from those in Handley and contended that a contingent settlement agreement was very different from the “litigation agreement” at issue in Handley, as the result of the agreement was the removal of the settling parties from the action, as opposed to remaining in the action and cooperating with the plaintiffs. The appellants focused on the requirement in Handley that the settlement had to change the litigation landscape entirely before there was an obligation to disclose. The Court rejected this position as the settling parties agreed to provide evidence in private to the appellants, in circumstances where the settlement would only be operative if the appellants were satisfied with the evidence. These obligations were also tied to financial incentives, which reinforced the conclusion that there was a change in the adversarial landscape.
The appellants also attempted to hide behind the confidentiality provisions that were included in the relevant settlements. The Court also rejected this argument, stating that while the settling parties were free to agree to any terms they wished, including a private, parallel process to obtaining evidence from the settling defendants, such terms in no way derogate from the requirement of immediate disclosure confirmed in Handley.
The appellants finally argued that an automatic stay is a draconian remedy for abuse of process in a case such as this and that the motion judge should have exercised his discretion. Again, the Court rejected this position by citing Handley and the preceding cases on which it was based. The Court of Appeal described the obligation to disclose as clear and unequivocal and noted that its breach constituted an abuse of process. Only by imposing a stay is the court able to control and enforce its own process to ensure that justice is done.
Poirier v. Logan, 2022 ONCA 350
While discoveries were underway, the plaintiff settled his claim against one of the defendants, but his lawyers did not disclose the settlement to the respondents for six months. The motion judge stayed the action against the respondents, finding that the failure to disclose the settlement immediately was an abuse of process requiring the dismissal of the proceedings.
Despite all the defendants having issued crossclaims against each other, they generally cooperated in their defence strategy, to the extent that they deferred their examinations of each other to avoid providing an advantage to the plaintiff.
The motion judge when considering the arguments recognized that whether a settlement agreement requires disclosure depends on the facts of the particular case.
The appellant seemingly attempted to include an additional prong to the test of whether there was a change in the adversarial landscape, and argued that before disclosure is required, an undisclosed settlement agreement would have to cause the litigation process to become a “sham” and that a thorough review of the respective pleadings would be required. The Court concluded that the obligation to disclose is not contingent on a finding that the settlement has rendered the litigation process a sham, and that the appellant’s argument was simply a slightly more sophisticated version of the submission that this court rejected in Handley.
Lastly, the Court rejected the argument that the motion judge committed palpable and overriding errors. This question represents an invitation to have the court reconsider the motion on its merits and to come to and substitute a different decision from the one the motion judge made. The Court did not accept this invitation and determined that the record showed that the motion judge appreciated the substance of the issues in dispute and that these issues were thoroughly considered, and accordingly he was entitled to a certain amount of deference.
In contrast to the other decisions in this article, in this instance a stay of proceedings was rejected by the motion judge.
The existence of the settlement was disclosed the day after it was executed. Even though the respondents did not provide a copy of the settlement agreement, they disclosed to the non-settling defendants the “key features” of the settlement and indicated that it would be disclosed to the court as soon as possible. The Court determined that this initial disclosure served to convey that the litigation landscape had shifted, and that the agreement would be put before the court so that the court would not be misled about this change in the litigation. The motion judge determined that the immediacy requirement was therefore met, even though a copy of the settlement was not provided.
The Court confirmed that the question whether the respondent failed to immediately disclose the agreement, is a question of mixed fact and law and is entitled to deference, and that immediacy in any given case will be highly “fact-dependent”.
From the outset, the respondent advised the non-settling defendants of the existence of the settlement and committed to put it before the court, and that this aspect distinguished this case from Handley.
The Court in the Tree of Knowledge case helpfully summarized the principles that can be drawn from the recent string of cases that clarified the principles set out in Handley:
- There is a “clear and unequivocal” obligation of immediate disclosure of agreements that “change entirely the landscape of the litigation”.
- 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;
- The obligation is to immediately disclose information about the agreement, not simply to provide notice of the agreement, or “functional disclosure”;
- Both the existence of the settlement and the terms of the settlement that change the adversarial orientation of the proceeding must be disclosed;
- Confidentiality clauses in the agreements in no way derogate from the requirement of immediate disclosure;
- The standard is “immediate”, not “eventually” or “when it is convenient”;
- The absence of prejudice does not excuse a breach of the obligation of immediate disclosure; and
- Any failure to comply with the obligation of immediate disclosure amounts to an abuse of process and must result in serious consequences. 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.
It doesn’t end here - Associate, Matthew DiBerardino concludes this analysis by discussing the Ontario Court of Appeal’s final decision of 2022 that grapples with the principles set out in Handley.