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Settlement Disclosure

. CHU de Québec-Université Laval v. Tree of Knowledge International Corp.

In CHU de Québec-Université Laval v. Tree of Knowledge International Corp. (Ont CA, 2022) the Court of Appeal considered the abuse of process doctrine from Handley Estate that a duty lay on parties in multi-party litigation to advise other parties when the first parties alter the tactical structuring of the litigation:
[49] The rule set out in Handley Estate has been the subject of three recent decisions from this court: Tallman Truck Centre Limited v. K.S.P. Holdings Inc., 2022 ONCA 66, 466 D.L.R. (4th) 324, Waxman v. Waxman, 2022 ONCA 311, and Poirier v. Logan, 2022 ONCA 350.

[50] First, I examine the guiding principles arising from these cases, and second, I apply those principles to this case.

(i) Guiding principles from Handley Estate, Tallman, Waxman and Poirier

[51] In these recent decisions, this court has developed principles relating to the abuse of process that arises from the failure to immediately disclose an agreement which changes the litigation landscape. In Handley Estate, the plaintiff’s insurer (“Aviva”) brought a subrogated claim for damages and entered into litigation agreements with one of the defendants (“H&M”). Under the agreements, H&M agreed to defend the action and commence a third party claim, which Aviva would fund, and H&M assigned all its interest in the lawsuit to Aviva, who indemnified H&M from any exposure in the litigation and undertook to prosecute the third party claim. The agreements were not disclosed immediately to the other defendants. Brown J.A. upheld the motion judge’s finding that the agreements changed the relationship between the two parties from an adversarial one into a co-operative one, and thus changed the litigation landscape, triggering the duty of immediate disclosure: at para. 41. Brown J.A. concluded that a breach of the duty to disclose amounts to an abuse of process and the only remedy to redress the abuse of process is a stay of the claim asserted by the defaulting, non-disclosing party: at paras. 45, 48.

[52] In the first of the recent decisions applying the principles from Handley Estate, Tallman, the plaintiff (“Tallman”) and one defendant (“Secure”) entered into a settlement agreement, pursuant to which Secure reversed its pleaded position and joined cause with Tallman. This court upheld the motion judge’s decision that Tallman’s failure to immediately disclose an agreement that changed the litigation landscape amounted to an abuse of process, warranting a stay of the proceedings. This court rejected Tallman’s submission that it made “functional disclosure” of the agreement, holding that the obligation of immediate disclosure “cannot turn on hints offered by opposing counsel”: at paras. 18-20. Further, this court rejected Tallman’s submission that the three-week delay in disclosure was negligible, as the standard is “immediate” disclosure: at para. 26. This court held that a stay of proceedings was required: at para. 28.

[53] In the second case, Waxman, the plaintiffs entered into settlement agreements with three of the defendants, which provided that the contracting defendants would pay lump sums to the plaintiffs in exchange for being released from any claims in the underlying action and providing evidence. The plaintiffs did not disclose the existence or terms of the agreements to the non-contracting defendants immediately. This court upheld the motion judge’s decision that the agreements altered the adversarial position of the parties to one of cooperation, that disclosure was not immediate, and that an automatic stay was the appropriate remedy: at paras. 37-47.

[54] In the third case, Poirier, the plaintiff settled his claim against one of the defendants but did not disclose the settlement to the non-settling defendant for six months. This court upheld the motion judge’s finding that the settlement agreement changed the adversarial position of the parties to a cooperative one, that failure to disclose the agreement amounted to an abuse of process, and that the appropriate remedy was a stay: at paras. 29-30, 34, 59, 72-73.

[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.
The discussion continues at paras 56-70.

. Poirier v. Logan

In Poirier v. Logan (Ont CA, 2022) the Court of Appeal upheld the ordering of a stay in multi-party civil litigation where a plaintiff settled against some of the defendants but did not advise the other defendants promptly of the settlement, which was done under the abuse of process doctrine in Handley Estate:
[5] While discoveries were underway, Mr. Poirier settled his claim against Mr. Friedberg, but his lawyers did not disclose the settlement to the respondents for six months. As the result of this period of non-disclosure, 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. The motion judge referred to the legal test he applied as the “dismissal principle”, and he relied on multiple authorities, including Handley Estate v. DTE Industries Limited, 2018 ONCA 324, 421 D.L.R. (4th) 636.

....

[34] As I will explain below, I would not allow this appeal. This is not a case of first impression where it is open to us to determine what the relevant law should be. The material rules are settled by decisions of this court that are binding on us, and they impel the dismissal of the claimed errors of law. Those decisions include Handley Estate; Aecon Buildings v. Stephenson Engineering Limited, 2010 ONCA 898, 328 D.L.R. (4th) 488, leave to appeal refused, [2011] S.C.C.A. No. 84; Laudon v. Roberts, 2009 ONCA 383, 308 D.L.R. (4th) 422, leave to appeal refused, [2009] S.C.C.A. No. 304; Tallman Truck Centre Limited v. K.S.P. Holdings Inc., 2022 ONCA 66, 466 D.L.R. (4th) 324; and Waxman v. Waxman, 2022 ONCA 311.

....

[42] In Aecon, MacFarland J.A. explained why a stay is required for any breach of the obligation to disclose a settlement agreement: “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”: at para. 16. As Ferrier J. elaborated in Pettey v. Avis Car Inc. (1993), 1993 CanLII 8669 (ON SC), 13 O.R. (3d) 725 (Gen. Div.), at para. 32, justice between and among the parties requires immediate disclosure:
The [non-settling] defendants must be advised immediately because the agreement may well have an impact on the strategy and line of cross-examination to be pursued and the evidence to be led by them. The [non-settling] parties must also be aware of the agreement so that they can properly assess the steps being taken from that point forward […].
....

[72] There is no question that the decision of the motion judge to stay the actions against the respondents is a serious, arguably even harsh consequence. In Aecon, at para. 16, MacFarland J.A. described the policy reasons supporting the automatic remedy of a stay, and in Handley Estate, at paras. 45-47, Brown J.A. expressed the view that no unfairness is likely to arise because of the ease of compliance with the obligation to disclose, including, if necessary, by seeking directions from a court in cases of uncertainty.[7]
The balance of the case deals with various aspects of the same basic argument.

. Waxman v. Waxman

In Waxman v. Waxman (Ont CA, 2022) the Court of Appeal considered the non-disclosure of the alteration the adversarial position of the litigants as an abuse of process (here, it was the non-disclosure of related settlements in the course of litigation):
[5] In December 2019, the respondents brought a motion to stay the action as against them for the appellants’ failure to disclose the settlements, which were alleged to have changed the landscape of the litigation so as to require immediate disclosure as set out in Handley Estate v. DTE Industries Limited, 2018 ONCA 324, 421 D.L.R. (4th) 636, at paras. 39, 45. In April 2019, the appellants moved for a summary judgment against the respondents. The motions were heard together, at which time the respondents, in turn, also requested a summary judgment against the appellants.

....

[19] The appellants argue that the motion judge erred in interpreting and applying this court’s decision in Handley Estate.

[20] The motion judge’s imposition of a stay of proceedings in relation to the respondents indeed turned on his application of Handley Estate and the requirement that any agreement which changes the landscape of the litigation by altering the adversarial position of the litigants must be disclosed immediately: at paras. 39, 45.

[21] Handley Estate arose from a subrogated claim brought by the plaintiff’s insurer (Aviva) for damages arising from a leaking oil tank at the plaintiff’s home. The statement of claim named four defendants: H&M (which sold and installed the tank), DTE (which manufactured the tank), Williamson (which supplied the fuel) and Ultramar (the fuel wholesaler). The statement of claim alleged negligence and breach of contract and disclosed that H&M had been dissolved. The wholesaler of the tank, Kawartha HVAC, was not named as a defendant. Aviva then transferred the file to another law firm. The firm that assumed carriage learned that Kawartha HVAC had not been named as a defendant, and, by this time, the limitation period for doing so had expired. In light of that, Aviva, H&M, and H&M’s principal prior to its dissolution entered into a litigation funding agreement: Aviva would pay a lump sum to counsel for H&M to commence and prosecute a third-party claim against Kawartha HVAC through discoveries. Aviva agreed to contribute $5,000 to the cost of prosecuting the third-party claim. The former principal of H&M agreed to revive H&M if necessary, and all communications between the plaintiff and H&M pertaining to the prosecution of the third-party claim would be subject to common-interest privilege. This agreement was not disclosed.

[22] The motion judge in Handley Estate had rejected Aviva’s argument that the litigation agreement did not alter the adversarial orientation in the lawsuit between it and H&M. In affirming this finding, Brown J.A. applied the principles set out by this court in the earlier case of Aecon Buildings v. Stephenson Engineering Limited, 2010 ONCA 898, 328 D.L.R. (4th) 488, leave to appeal refused, [2011] S.C.C.A. No. 84.

[23] Importantly, Brown J.A. concluded, at para. 41, that while the agreement at issue in Handley Estate was not a Mary Carter agreement, or otherwise the same as the agreement at issue in Aecon, in both cases, they shared the same “essential element”: they changed the relationship between two parties from an adversarial one into a co-operative one. For this reason, Brown J.A. concluded that the litigation landscape had been changed and the duty of immediate disclosure triggered.

[24] In the course of his analysis in Handley Estate, Brown J.A. set out the key principles of this kind of abuse of process that arises from a failure to disclose an agreement which changes entirely the litigation landscape, at para. 45:
By contrast, Aecon squarely addressed the consequences that should flow from a specific kind of abuse of process – a party’s failure to disclose immediately an agreement that alters the adversarial posture of the litigation. Several clear messages emanate from Aecon:

(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: at paras. 13 and 16;

(ii) The absence of prejudice does not excuse the late disclosure of such an agreement: at para. 16;

(iii) “Any failure of compliance amounts to abuse of process and must result in consequences of the most serious nature for the defaulting party”: at para. 16; 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: at para. 16.
....

[32] The appellants rely on Caroti v. Vuletic, 2021 ONSC 2778, as an example where a settlement agreement was held not to change the litigation landscape sufficiently to warrant the application of Handley Estate. In Caroti, Ricchetti R.S.J. stated, at paras. 53-54, that all settlement agreements change the litigation landscape to some extent, but only those that change the litigation landscape entirely fall within the rule from Handley Estate requiring immediate disclosure. Ricchetti R.S.J. concluded that the settlement agreement before him did not engage the rule in Handley Estate because the settling party agreed only to be a witness and provide truthful evidence in the ongoing litigation. He concluded, at para. 99, “I am not persuaded that when a plaintiff discontinues against a co-defendant and then calls upon that co-defendant to be witness for the plaintiff changes the adversarial landscape.”

[33] In this case, by contrast, the settling defendants did not simply agree to be witnesses for the plaintiffs. Rather, they 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. In my view, this agreement put in place financial incentives for the settling defendants to align themselves with the appellants by providing evidence that the appellants would judge to be helpful in continuing to prosecute the action against the respondents, and in doing so, changed the adversarial landscape. For this reason, Caroti is of little assistance.

[34] The appellants also seek to distinguish this case from Handley Estate as the confidentiality clauses in the settlement agreements themselves precluded the disclosure of the agreements by any parties to it until and unless ordered by a court.

[35] 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 Estate.

[36] In sum, I do not accept the appellants’ submissions distinguishing this case from Handley Estate.

[37] The rule from Handley Estate does not turn on contingencies in an agreement that must be met to fulfill the terms of that agreement or the confidential nature of the agreement. Rather, the key question for the court in applying Handley Estate is whether the agreement, at the time it was entered into, changed the litigation landscape and, in so doing, altered the adversarial position of the parties to one of cooperation. As indicated above, the motion judge found in this case that it did. I see no error in this finding.

[38] Finally, even if the appellants were successful in arguing that the agreements only changed the litigation landscape once all the conditions of the settlement agreements were fulfilled, this would still have left an unacceptable delay in disclosing the agreements to the respondents.

[39] This court made clear in Handley Estate and subsequent cases that the duty to disclose is immediate. That the respondents may have been alive to the settlement agreements at some earlier point – in this case, the appellants allege that a letter dated November 2, 2018, advised the respondents of the settlements – is of no assistance. The obligation is to disclose immediately, not simply to provide notice of the agreement, information about the agreement or what has been referred to as “functional disclosure”: see Tallman Truck Centre Limited v. K.S.P. Holdings Inc., 2022 ONCA 66, at paras. 18-19.



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