|
Abuse of Process - Handley Estate (2). Skymark Finance Corporation v. Ontario
In Skymark Finance Corporation v. Ontario (Ont CA, 2023) the Court of Appeal considered a 'Handley Estate' (failure to advise parties immediately of partial settlement in multi-party litigation) abuse of process appeal:(1) The immediate disclosure rule
[46] This court has held, repeatedly, that settlement agreements reached between some parties, but not others, need to be immediately disclosed to non-settling parties if they entirely change the litigation landscape. This litigation obligation may be traced back to this court’s decision in Laudon v. Roberts, 2009 ONCA 383, 308 D.L.R. (4th) 422, leave to appeal refused [2009] S.C.C.A. No. 304, 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, and Handley Estate. It has been restated and refined numerous times, especially in recent years: see Tallman Truck Centre Limited v. K.S.P. Holdings Inc., 2022 ONCA 66, 466 D.L.R. (4th) 324, leave to appeal refused, [2022] S.C.C.A. No. 170, at para. 23; Waxman v. Waxman, 2022 ONCA 311, 471 D.L.R. (4th) 52, leave to appeal refused, [2022] S.C.C.A. No. 188 , at para. 24; Poirier v. Logan, 2022 ONCA 350, leave to appeal refused [2022] S.C.C.A No. 255, at para. 47.
[47] A helpful summary of how this rule operates is found in CHU de Québec–Université Laval v. Tree of Knowledge International Corp., 2022 ONCA 467, in which Sossin J.A. said, at para. 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 at paras. 13 and 16]; 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. [48] I wish to stress an additional point. The immediate disclosure rule is not designed to discourage settlements – far from it. The rule simply compels the immediate disclosure of such agreements when they profoundly impact the litigation. This was clear from inception of this line of authority. In Aecon, MacFarland J.A. said the following, at para. 13: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. [Emphasis in original.] [49] In her reasons the previous year in Laudon, at para. 39, MacFarland J.A. adopted the following rationale for the rule in Pettey v. Avis Car Inc. (1993), 1993 CanLII 8669 (ON SC), 13 O.R. (3d) 725 (Gen. Div.), in which Ferrier J. said, at pp. 737-738: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.] More recently, this passage was endorsed by Brown J.A. in Handley Estate, at para. 36, and by Paciocco J.A. in Poirier, at para. 42.
[50] This case illustrates these concerns. As noted above, the defendants were forced to discover Mr. Slattery without knowing the terms of the Minutes of Settlement and not knowing how Skymark had negotiated Ms. Smith’s cooperation. Similarly, a judge reading the bare pleadings in this case would have no idea of the seismic shift in the litigation caused behind the scenes by the Minutes of Settlement. Ms. Smith’s disclosed affidavit would have gone a long way, but it did not tell the entire story.
(2) The entirety of the litigation landscape
[51] What does the expression, “to change the entirety of the litigation landscape”, mean? That is an often recurring issue in this line of cases. As the cases cited above demonstrate, the determination is fact-specific, based on the configuration of the litigation and the various claims among the parties. On appeal, a motion judge's finding with respect to the change to the litigation landscape is a question of mixed fact and law and, barring an extricable error of law, is entitled to deference on appeal: Waxman, at para. 27; Performance Analytics v. McNeely, 2022 ONCA 731, at para. 3.
[52] This concept – a change to the entire litigation landscape – has been explained in similar, yet not identical ways in this court’s cases. In Laudon, at para. 39, MacFarland J.A. described such an agreement as one that “significantly alters the relationship among the parties to the litigation.” In Aecon Buildings, at para. 13, she referred to agreements that “change entirely the landscape of the litigation”, restated by Brown J.A. in Handley Estate, at para. 37.
[53] More recently, in Crestwood Preparatory College Inc v. Smith, 2022 ONCA 743, at para. 57, Feldman J.A. referred to agreements that have “the effect of changing entirely the landscape of the litigation in a way that significantly alters the dynamics of the litigation” (emphasis added). I would adopt this more specific language.
[54] In this case, Skymark narrows in on the word “entirely” from the formulation in Aecon and Handley. Its basic position is that, unless all parties are impacted by a settlement agreement, the landscape has not been changed entirely. A logical corollary of this proposition is that, if a single, non-settling defendant – no matter how minor – is not impacted by a litigation agreement, the landscape cannot be said to have been changed “entirely”. I would not adopt such a narrow and literal interpretation.
[55] The necessary magnitude of the change to the litigation landscape must be informed by the values that the rule is meant to advance. This court has repeatedly held that the rule is meant to preserve fairness to the parties. It is also designed to preserve the integrity of the court process. That is why the failure to observe the immediate disclosure rule is considered to be an abuse of the court’s process, which can only be remedied by a stay of proceedings: see Handley, at para. 45. In Tallman, this court said, at para. 28: “This remedy is designed to achieve justice between the parties. But it does more than that – it also enables the court to enforce and control its own process by deterring future breaches of this well-established rule.”
[56] In my view, the motion judge did not err in finding that the entirety of the litigation landscape was changed by the Minutes of Settlement. The Minutes significantly altered the dynamics of the litigation. This conclusion was not undermined, as Skymark submits, by the motion judge’s conclusion that Ontario was unaffected by the Minutes. In any event, as I will explain below, I am not convinced that Ontario was left unaffected by the Minutes of Settlement.
[57] I accept Mr. Wardle’s submission, on behalf of the Clement Defendants, that the settlement between Skymark and Ms. Smith had implications for all of the defendants. Ms. Smith (and her husband) were at the epicentre of this litigation. Their alleged conduct affected all other parties to this litigation. When Skymark settled with Ms. Smith in a manner that transformed her into a litigation ally, a friendly participant, it fundamentally changed the litigation landscape because it significantly altered the dynamics of the litigation, even though it did not impact on all the parties in the same way, or to the same extent.
[58] If the scope of this concept were narrowed in the manner suggested by Skymark, it would create perverse incentives. If a plaintiff reaches a settlement with one defendant – including one that is central to the litigation – which has no impact on just one of the other defendants, it would not be required to disclose it to any of the non-settling defendants even though the settlement might have a dramatic impact on one or more of those other defendants. The proceedings could continue with the non-settling defendants being left in the dark and taking litigation decisions and steps in ignorance of the true state of affairs. This might involve examinations for discovery, retaining experts, and the like. Judges called upon to guide the case to completion would also be flying blind.[1] This is precisely what the immediate disclosure rule seeks to prevent.
[59] In an attempt to make its point, counsel for Skymark marched the court through the pleadings between all of the parties in an attempt to show how some things had changed for some defendants, not necessarily in the same way, but not for all. But as Paciocco J.A. explained in Poirier, at paras. 48-49, it is not necessary for a moving party to show that a settlement agreement has altered the relationships reflected in the pleadings, although that will often be the case.
[60] This granular exercise was not helpful to Skymark; it did not obscure the more obvious impact that the Minutes of Settlement had on the litigation as a whole. Again, it had implications for all parties to the litigation.
[61] I agree with the motion judge’s conclusion that the Clement Defendants were seriously impacted by the Minutes of Settlement and Ms. Smith’s affidavit. When the litigation was commenced against them, Skymark alleged negligence. The Clement Defendants defended the action and crossclaimed against the Smiths. As noted above, in their defence to crossclaim, the Smiths merely contended that “The Defendants/Plaintiffs in the Crossclaim acted independently and without coercion from the Smiths. If the Plaintiffs in the Crossclaims acted negligently, the Smiths did not contribute to their negligence”. However, the affidavit that emerged from the Minutes of Settlement, after the close of pleadings, made serious allegations of misconduct against the Clement Defendants. They were not just alleged to be negligent (as per the defence to crossclaim); instead, Ms. Smith claimed that they were a party to a fraudulent enterprise. Things changed dramatically for the Clement Defendants.
[62] It may be that the motion judge overstated the potential negative impact of the Minutes of Settlement on the Korman Defendants, as reproduced at para. 38, above. But, on the other hand, it might be said that, in a significant way, the landscape shifted in a manner that was very favourable to the Korman Defendants. When Ms. Smith pointed the finger at the Clement Defendants, it arguably took the heat off of the Korman Defendants. Ms. Smith’s change of course triggered these corresponding changes to the litigation landscape.
[63] In a more general sense, all of the non-settling defendants were impacted by Ms. Smith’s negotiated testimony. Remember, the focus is on the Minutes of Settlement, not what transpired afterwards. Had Ms. Smith fulfilled her end of the bargain and managed to extricate herself from this litigation (at least insofar as Skymark was concerned), all of the non-settling defendants, including Ontario, were each potentially exposed to liability for the original amount of Skymark’s claim. Of course, this would also be contingent on the success of crossclaims. There was nothing inherently wrong with the deal that was struck and these possible consequences. But because it had such a dramatic effect on the litigation, it had to be disclosed immediately. Instead, it took a long time to pry the Minutes of Settlement loose from Skymark’s counsel, which did not occur until after the discovery of Skymark’s principal.
[64] In conclusion, notwithstanding the motion judge’s views about the impact of the Minutes of Settlement on Ontario’s liability, on the facts of this case, the motion judge did not err in finding that the entirety of litigation landscape had been changed by the Minutes of Settlement. It had to be disclosed immediately. It was not.
[65] I would not give effect to this ground of appeal.
...
[69] This court has reiterated the importance of the immediate disclosure rule in countless decisions. Where a settlement agreement fundamentally changes the litigation landscape because it significantly alters the dynamics of the litigation, it must be immediately disclosed to all the parties. This rule, and the consequences of failing to observe it, could not be any clearer. However, in certain factual scenarios, perhaps where thorny questions of privilege arise, counsel may be unsure of their obligations. In these circumstances, I would commend the approach in Handley, in which Brown J.A. said, at para. 47, that it is always open to a party to move before the court for directions.
[70] In this case, Skymark had two options: (a) disclose the Minutes of Settlement immediately; or (b) seek direction from the court. It did neither. The path chosen amounted to an abuse of process, warranting a stay of proceedings in favour of all the moving parties. . Crestwood Preparatory College Inc. v. Smith
In Crestwood Preparatory College Inc. v. Smith (Ont CA, 2022) the Court of Appeal considered another Handley Estate case, where the issue was whether a partial settlement so alters the nature of the remaining litigation that a stay of the remaining proceedings is required. Here the court undertakes a review of the doctrine to date:[1] It is an abuse of process for a plaintiff to settle with one defendant and not immediately disclose the settlement to the other defendants, “where the settlement agreement changes entirely the landscape of the litigation in a way that significantly alters the adversarial relationship among the parties to the litigation or the ‘dynamics of the litigation’”: Poirier v. Logan, 2022 ONCA 350, at para. 47, leave to appeal requested, [2022] S.C.C.A. No. 255. In Ontario, the sole remedy the court will impose for the failure to disclose is a stay of the proceedings.
[2] This case is one of a number of recent appeals that raises the issue whether the circumstances of a failure to make immediate disclosure of a partial litigation settlement require the drastic remedy of a stay of the proceedings.[1]
....
(a) State of the law
[32] The two seminal cases from this court that identify and describe the parameters of the disclosure obligation are Aecon and Handley Estate. However, since this motion was originally argued there have been a number of further decisions by this court that have reinforced those principles: see Tallman; Waxman; Poirier; Hamilton-Wentworth District School Board v. Zizek, 2022 ONCA 638; CHU de Québec-Université Laval v. Tree of Knowledge International Corp., 2022 ONCA 467.
[33] In Aecon, while Aecon sued the City of Brampton for damages arising out of a construction project, those parties agreed in advance that Brampton would bring a claim against the third and fourth parties and would only be liable to Aecon for the amount recovered from those parties. This agreement was not immediately disclosed to the other parties, although it was ultimately disclosed before they had to plead, and it was conceded that no prejudice therefore resulted.
[34] The court held the fact of no prejudice did not negate the obligation of immediate disclosure because “[s]uch agreements change entirely the landscape of the litigation”: Aecon, at para. 13. The failure to comply results in an abuse of process which requires a very serious deterrent consequence, a permanent stay of the proceedings. The court in Aecon concluded, at para. 16: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. [35] The issue was addressed again in 2018 in Handley Estate. In that case, Aviva brought a subrogated insurance claim that arose out of the insured’s leaky oil tank against the oil tank provider and a fuel delivery company, but neglected to include a third oil tank supplier in a timely manner. It therefore agreed with one of the defendants, H&M, a party which would not be able to pay a judgment for a number of reasons, to bring a timely third-party claim against the third oil tank supplier which claim would essentially be funded by Aviva. The claims proceeded with no disclosure of the litigation agreement. When H&M was ordered to pay security for costs of $20,000, Aviva provided the funds, again without disclosure to the other parties: Handley Estate, at para. 15. In response to the setting of a trial date and other activity in the litigation, Aviva and H&M entered into a second litigation agreement whereby Aviva fully stepped into the shoes of H&M: Handley Estate, at paras. 19-21.
[36] After that, the existence and contents of the settlement agreements were disclosed in piecemeal fashion to the other parties: Handley Estate, at para. 3. Eventually a stay motion was brought. On appeal, the parties acknowledged that both agreements should have been disclosed immediately because they changed the adversarial relationship between Aviva and H&M: Handley Estate, at para. 41. The issue on appeal was whether the remedy of a stay was required.
[37] The court went back to the history of the disclosure obligation of Mary Carter agreements from the cases of Pettey v. Avis Car Inc. (1993), 1993 CanLII 8669 (ON SC), 13 O.R. (3d) 725 (Gen. Div.) and Laudon v. Roberts, 2009 ONCA 383, 308 D.L.R. (4th) 422, leave to appeal refused, [2009] S.C.C.A. No. 304, but went on to state that the obligation arises in both Mary Carter and Pierringer agreements and extends to any agreement “that has the effect of changing the adversarial position of the parties into a co-operative one”: Handley Estate, at para. 39, citing Aviaco International Leasing Inc. v. Boeing Canada Inc. (2000), 2000 CanLII 22777 (ON SC), 9 B.L.R. (3d) 99, 48 C.P.C. (4th) 44 (Ont. S.C.), at para. 23.
[38] Turning to the remedy, the court rejected a discretionary approach that applies proportionality principles. It stated that there would be no unfairness because at least one party to a litigation agreement would normally be an insurer that would be aware of the disclosure obligation. In addition, a party could seek direction from the court where the obligation to disclose may be unclear: Handley Estate, at paras. 46-47. In the result, this court in Handley Estate found that Aecon applied and ordered a stay.
[39] A number of recent cases from this court have restated and reinforced the principles from Handley Estate. Most recently in Hamilton-Wentworth, the court emphasized that the rule from Aecon is intended to be a bright line rule that requires immediate disclosure of a settlement agreement: at para. 11. If there is an issue about whether certain terms of the agreement remain privileged, that issue can be brought to court following the initial disclosure, as occurred in Tree of Knowledge: Hamilton-Wentworth, at para. 8. The court added that the purpose of making the rule so clear is to avoid the type of motion that is being pursued in the recent cases: Hamilton-Wentworth, at para. 11. It emphasized again that whether prejudice has resulted from the non-disclosure is not a factor to be considered Hamilton-Wentworth, at para. 9.
[40] In Poirier, the settlement agreement between one defendant and the plaintiff was made after all pleadings were exchanged, including cross-claims among the defendants, although they had all agreed to co-operate in a defence strategy that involved deferring their examinations of one another to avoid obtaining admissions that would assist the plaintiff: at paras. 8-10. The settlement agreement was not disclosed for six months: Poirier, at para. 21. In his affidavit given to fulfill the settlement obligation, the defendant accountant provided evidence to the plaintiff of financial misfeasance by the other defendants who were involved in the impugned sale of the business to the plaintiff: Poirier, at paras. 15-17.
[41] One of the plaintiff’s submissions on appeal was that the settlement agreement did not result in a change of position from the pleadings, and that making the pleadings into a sham was a requirement of the principle set out in Handley Estate. He argued that otherwise a stay of proceedings amounts to a disproportionate remedy that has the effect of discouraging settlements: Poirier, at paras. 44-46.
[42] The court in Poirier firmly rejected this submission. It is worth quoting the reasons for that rejection, at paras. 47-48:I would reject these arguments. Neither a change in the position of the parties reflected in the pleadings, nor a “sham” inquiry, are essential parts of the disclosure test. As I have indicated, it is settled in this court’s jurisprudence that the obligation to disclose arises where the settlement agreement changes entirely the landscape of the litigation in a way that significantly alters the adversarial relationship among the parties to the litigation or the “dynamics of the litigation”: Aecon, at para. 13; Tallman, at para. 12; Handley Estate, at paras. 12, 29 and 37; Laudon, at para. 39. This is the inquiry that the motion judge identified and applied, and he was correct to do so.
To be sure, it may almost invariably be the case that if this inquiry is satisfied the settling party’s pleadings will no longer fully reflect the post-settlement state of the litigation, but the authorities do not support the proposition that a finding that a settlement agreement has altered the adversarial relationship disclosed in the pleadings is a condition precedent to a determination that an obligation to disclose has arisen. In Laudon, at para. 39, when describing agreements that significantly alter the relationship among the parties to the litigation, MacFarland J.A. said, “Usually the position of the parties will have changed from those set out in their pleadings” (emphasis added). She did not say this must always be so. Similarly, when Nordheimer J. (as he then was) expressed the test in Aviaco International Leasing Inc. v. Boeing Canada Inc. (2000), 2000 CanLII 22777 (ON SC), 48 C.P.C. (4th) 44, at para. 23, in a passage approved by Brown J.A. in Handley Estates, at para. 40, he asked: “Do the terms of the agreement alter the apparent relationships between the parties to the litigation that would otherwise be assumed from the pleadings or expected in the conduct of the litigation?” (emphasis added). [43] The principles that arise from the case law were most recently summarized by this court in Tree of Knowledge, at para. 55. For the purposes of this appeal, the following are the relevant principles:(a) The “clear and unequivocal” obligation of immediate disclosure is triggered where partial settlement agreements “change entirely the landscape of the litigation”: Handley Estate, at para. 45, citing Aecon at paras. 13, 16;
(b) The disclosure obligation applies to Mary Carter, Pierringer and any other settlement agreement that has the effect of changing the pleaded or expected adversarial position of the parties into a co-operative one: Handley Estate, at paras. 39, 41; see also Tallman, at para. 23; Waxman, at paras. 24, 37; Poirier, at para. 47;
(c) Identifying a change in the parties’ pleaded positions is not an essential part of the disclosure test: Poirier, at para. 47.
(d) Parties may bring a motion for directions where the extent of the duty to disclose may be unclear: Handley Estate, at para. 47; see also Hamilton-Wentworth, at para. 8;
(e) The absence of prejudice does not justify late disclosure of such an agreement: Handley Estate, at para. 45, citing Aecon, at para. 16; and
(f) The failure to provide immediate disclosure in these circumstances amounts to an abuse of process where the sole remedy is an automatic stay of proceedings: Handley Estate, at para. 45; Tallman, at para. 28; Waxman, at paras. 24, 45-47; Poirier, at paras. 38-40. . Performance Analytics v. McNeely
In Performance Analytics v. McNeely (Ont CA, 2022) the Court of Appeal applied an exception to doctrine that requires that a related settlement be disclosed to the other side (a Handley Estate abuse of process case):[2] We disagree. The motion judge considered and correctly applied the guiding principles from this court as to whether the settlement agreement between the plaintiffs and Mr. Antonello “change[d] entirely the landscape of the litigation” by altering the relationship among the parties and transforming the settling parties’ adversarial relationship into a cooperative one. See: Handley Estate v. DTE Industries Limited, 2018 ONCA 324, 421 D.L.R. (4th) 636, at paras. 37, 39, 45; Tallman Truck Centre Limited v. K.S.P. Holdings Inc., 2022 ONCA 66, 466 D.L.R. (4th) 324, leave to appeal to S.C.C. refused, 40118 (October 20, 2022), at para. 23; Waxman v. Waxman, 2022 ONCA 311, 471 D.L.R. (4th) 52, leave to appeal to S.C.C. refused, 40208 (October 20, 2022), at para. 24; Poirier v. Logan, 2022 ONCA 350, at para. 47; Chu de Québec-Université Laval v. Tree of Knowledge International Corp., 2022 ONCA 467, at para. 55. He determined that it did not.
[3] The motion judge’s determination that the settlement agreement resulted in no significant change to the litigation landscape and therefore need not be disclosed immediately is a question of mixed fact and law and entitled to deference: Waxman, at para. 27. ...
|
