When Settlement Terms Are Agreed to Between Two or More Parties Within In a Multiple Party Lawsuit, Do the Remaining Parties Involved Need to Know?

Where Litigation Involves Multiple Parties and a Settlement Agreement Occurs Between Some of the Parties, Disclosure of the Settlement Agreement Must Be Promptly Provided to the Court and to the Parties Remaining Within the Litigation.

Understanding the Requirement to Disclose Settlement Details to All Parties Remaining Within the Litigation

Lawsuit Document In a multiple party litigation, meaning a legal proceeding that involves more than just one Plaintiff and one Defendant, when two or more of the parties settle, the details of the settlement must be disclosed to the parties remaining in the litigation.  This disclosure must be provided promptly and must contain sufficient details.

The Law

The duty to provide disclosure of a partial settlement, meaning a settlement between two parties, or even a few parties, and the deemed abuse of process with remedy of case dismissal for failure to disclose a settlement agreement was well explained within the case of Poirier v. Logan, 2021 ONSC 1633, which was upheld by the Court of Appeal in Poirier v. Logan, 2022 ONCA 350, wherein such decisions it was said:

[45]  When there are co-defendants or co-respondents, and the plaintiff or applicant settles with one or more of them but not all of them, and the settlement changes the adversarial orientation of the proceeding, as for example, when the settling co-defendant agrees to co-operate in the plaintiff’s prosecution of the proceeding, the plaintiff or applicant must immediately disclose to the non-settling defendants or non-settling respondents that (a) there is a settlement and (b) the terms of the settlement that change the adversarial orientation of the proceeding.[4]

[46]  In Pettey v. Avis Car Inc.,[5] Justice Ferrier explained why the settlement terms must be disclosed and how the adversarial orientation of a lawsuit can be changed by a settlement; he stated:

[…] The agreement must be disclosed to the parties and to the court as soon as the agreement is made. The non-contracting [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 evidence to be led by them. The non-contracting parties must also be aware of the agreement so that they can properly assess the steps being taken from that point forward by the plaintiff and the contracting [settling] defendants. In short, procedural fairness requires immediate disclosure. Most importantly, the court must be informed immediately so that it can properly fulfil its role in controlling its process in the interests of fairness and justice to all parties.

[47]  In Moore v. Bertuzzi,[6] at paragraph 76, I discussed the principles elucidated by Justice Ferrier in Pettey v. Avis Car Inc. as follows:

76. The court needs to understand the precise nature of the adversarial orientation of the litigation in order to maintain the integrity of its process, which is based on a genuine not a sham adversarial system and which maintenance of integrity may require the court to have an issue-by-issue understanding of the positions of the parties. The adversarial orientation of a lawsuit is complex because parties may be adverse about some issues and not others. In these regards, it is worth noting from the above passage from Pettey v. Avis Car Inc. that Justice Ferrier explained the need for disclosure of the settlement agreement because of its "impact on the strategy" but he said: "most importantly, the court must be informed immediately so that it can properly fulfil its role in controlling its process in the interests of fairness and justice to all parties."

[48]  Both the existence of the settlement agreement and the terms of it, other than terms that do not affect the adversarial orientation of the lawsuit, must be disclosed.[7] The failure to disclose immediately or the failure to disclose the terms of a settlement that changes the proceeding’s adversarial orientation is an abuse of process for which the only remedy is the dismissal of the proceeding.[8]

[49]  The dismissal principle applies to what are known as Mary Carter agreements[9] and Pierringer agreements,[10] sometimes called a "Proportionate Share Settlement Agreement", and to other settlement agreements that like Mary Carter agreements and Pierringer agreements change the litigation landscape.[11] If there is a failure to promptly and properly disclose, it is no answer that the non-settling defendant or respondent was not prejudiced by the time that it learned of the settlement.[12]

[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]

[73]  I would find that the motion judge identified and applied the law correctly and committed no palpable or overriding errors in doing so.

In Poirier, both at the Motion and upon Appeal, the judges focused upon the prior decision of Handley Estate v. DTE Industries Limited, 2018 ONCA 324, in determining that the appropriate remedy for failure of settlement disclosure is to deem such conduct as an abuse of process and dismiss the claims of the party that failed to disclose.  In Handley, it was specifically stated:

The obligation of immediate disclosure

[35]  Since at least the 1993 decision in Pettey v. Avis Car Inc. (1993), 1993 CanLII 8669 (ON SC), 13 O.R. (3d) 725 (Gen. Div.), the law in Ontario has been clear that Mary Carter-type agreements[1] must be disclosed to the court and to the other parties to the lawsuit as soon as the agreement is made.

[36]  In the 2009 decision in Laudon v. Roberts, 2009 ONCA 383, 249 O.A.C. 72, at para. 39, leave to appeal refused, [2009] S.C.C.A. No. 304, this court repeated the obligation to disclose such an agreement to the court and to the other parties to the lawsuit “as soon as it is concluded”. That disclosure obligation, and its rationale, were explained by this court at para. 39 of its reasons:

The existence of a [Mary Carter agreement] significantly alters the relationship among the parties to the litigation.  Usually the position of the parties will have changed from those set out in their pleadings. It is for this reason that the existence of such an agreement is to be disclosed, as soon as it is concluded, to the court and to the other parties to the litigation.  The reason for this is well stated in [Pettey, at pp. 737-738]:

The answer is obvious. The agreement must be disclosed to the parties and to the court as soon as the agreement is made.  The non-contracting 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 evidence to be led by them.  The non-contracting parties must also be aware of the agreement so that they can properly assess the steps being taken from that point forward by the plaintiff and the contracting defendants. In short, procedural fairness requires immediate disclosure. Most importantly, the court must be informed immediately so that it can properly fulfil its role in controlling its process in the interests of fairness and justice to all parties. [Emphasis added.]

[37]  One year later in Aecon, this court considered an agreement between the plaintiff, Aecon, and the sole defendant, the City of Brampton, that capped the damages for which Brampton might be liable to Aecon. Those parties did not disclose their agreement to the third and fourth parties until several months after its conclusion. This court held that agreements which “change entirely the landscape of the litigation” must be disclosed immediately, stating, at para. 13:

We do not endorse the practice whereby such agreements are concluded between or among various parties to the litigation and are not immediately disclosed.  While it is open to parties to enter into such agreements, the obligation upon entering such an agreement is to immediately inform all other parties to the litigation as well as to the court … The reason for this is obvious. Such agreements change entirely the landscape of the litigation. [Italics in original and underlining added.]

[38]  In Aecon, the failure of the plaintiff and defendant to disclose immediately their litigation agreement led this court to stay the third and fourth party proceedings.

Litigation agreements covered by the obligation of immediate disclosure

[39]  The obligation of immediate disclosure is not limited to pure Mary Carter or Pierringer[2] agreements. The disclosure obligation extends to any agreement between or amongst parties to a lawsuit that has the effect of changing the adversarial position of the parties set out in their pleadings into a co-operative one: Aviaco International Leasing Inc. v. Boeing Canada Inc. (2000), 2000 CanLII 22777 (ON SC), 9 B.L.R. (3d) 99 (Ont. S.C.), at para. 23. To maintain the fairness of the litigation process, the court needs to “know the reality of the adversity between the parties” and whether an agreement changes “the dynamics of the litigation” or the “adversarial orientation”: Moore v. Bertuzzi, 2012 ONSC 3248, 110 O.R. (3d) 611, at paras. 75-79.

[40]  In Aviaco, at para. 23, the court formulated the question to pose to ascertain whether an agreement triggers the immediate disclosure requirement:

Do the terms of the agreement alter the apparent relationships between any parties to the litigation that would otherwise be assumed from the pleadings or expected in the conduct of the litigation?

[41]  In the present case, the motion judge rejected Aviva’s argument that the 2011 Litigation Agreement did not alter the adversarial orientation in the lawsuit between it and H&M. Aviva does not challenge that finding, and properly so. Although the 2011 Litigation Agreement was not a “pureMary Carter agreement, and while the terms of the 2011 and 2016 Litigation Agreements were not identical to those in the agreement at issue in Aecon, nevertheless they shared the same essential element: they changed the relationship between two parties from an adversarial one into a co-operative one. As such, the 2011 and 2016 Litigation Agreements were ones that changed the litigation landscape.

The remedy for failing to disclose immediately an agreement that changes the litigation landscape

[42]  Aviva submits the Aecon decision did not lay down a general rule about the remedy a court should grant where a party’s conduct amounts to an abuse of process because the party failed to disclose immediately an agreement that changed the landscape of the litigation. Aecon, it contends, must be confined to its facts, which differ from those in the present case. Aviva contends that in any case where a court finds that a party has committed an abuse of process, the court must engage in a case-specific proportionality analysis to craft an appropriate remedy, as was done in the Abarca decision. Not to do so, Aviva argues, would ignore the flexible application of the doctrine of abuse of process articulated by cases such as Toronto (City) v. C.U.P.E., Local 79, 2003 SCC 63, [2003] 3 S.C.R. 77.

[43]  I do not accept this submission.

[44]  First, the Abarca case did not involve a litigation agreement and did not discuss the consequences of a failure to disclose immediately such an agreement.

[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.

[46]  Aecon identified the remedy for a specific kind of abuse of process. As a matter of litigation procedural policy, no unfairness is likely to arise from the application of the Aecon principles. At least one party to a litigation agreement usually is an insurer or other sophisticated litigation participant who should be well aware of the Aecon principles. Where such a sophisticated party fails to comply with its clear disclosure obligation, judicial time should not be spent on inquiring into what, if any, prejudice was caused by a breach of the party’s clear obligation (or, as argued by Aviva, whether the undisclosed litigation agreement somehow actually benefited the parties who knew nothing of its existence).

[47]  Moreover, if a party to a litigation agreement is unclear whether the agreement has the effect of changing the adversarial position of the contracting parties, thereby attracting the mandatory disclosure obligation, it is always open to the party to move before the court for directions. In that way, the court can enforce and control its own process and ensure that justice is done between and among the parties.

Conclusion

[48]  I conclude that the motion judge misdirected himself regarding the principles in Aecon. He erred by failing to apply Aecon’s remedy of staying the claim of the party that did not immediately disclose a litigation agreement. Given that misdirection, his discretionary decision is not entitled to deference in the circumstances: Canada (Minister of Citizenship and Immigration) v. Tobiass, 1997 CanLII 322 (SCC), [1997] 3 S.C.R. 391, at para. 87. The motion judge should have applied Aecon and granted the stay Williamson requested.

The decision in Handley Estate, as followed in Poirier, make it clear that a failure to disclose a settlement agreement is an abuse of process remedied by a stay of proceeding or an outright dismissal the claims of an offending party.

"The agreement must be disclosed to the parties and to the court as soon as the agreement is made."
Handley Estate v. DTE Industries Limited, 2018 ONCA 324

Summary Comment

When two or more parties to a litigative proceeding come to a settlement agreement, disclosure of the settlement agreement must be provided to the court and remaining litigants as promptly as possible.  A failure to provide proper disclosure is an abuse of process that may, and likely will, result in a stay of proceedings or dismissal.

Need Help? Let's Get Started Today

ATTENTION: Do not send any confidential information through this web form.  Use this web form only to make an introduction.

United Legal Servicesis an affordable Paralegal in:

For more information, fill out the form below to send a direct inquiry to United Legal Services

ATTENTION: Confidential details about your case must not be sent through this website.  Use of this website does not establish a legal-representative/client relationship.  Do not include confidential details about your case by email or phone.  Use this website only for an introduction with a United Legal Services representative. 
Privacy Policy & Cookies | Terms of Use Your IP Address is: 18.206.14.36
United Legal Services

3621 Highway 7 East, Suite 308
Markham, Ontario,
L3R 0G6

P: (855) 618-5772
E: gmaz@unitedlegal.ca

Hours of Business:

9:00AM – 5:00PM
9:00AM – 5:00PM
9:00AM – 5:00PM
9:00AM – 5:00PM
9:00AM – 5:00PM
Monday:
Tuesday:
Wednesday:
Thursday:
Friday:

By appointment only.  Please call for details.














Sign Up