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Abuse of Process - Handley Estate (3). Kingdom Construction Limited v. Perma Pipe Inc.
In Kingdom Construction Limited v. Perma Pipe Inc. (Ont CA, 2024) the Ontario Court of Appeal dismissed an appeal of a stay motion denial, here grounded in the Handley abuse of process doctrine and focussing on the presence of a Pierringer agreement in the settlement:ii. The Use of the Term Pierringer Agreement Does Not Undermine the Motion Judge’s Conclusion
[49] The Minutes contemplated York, Durham, and Kingdom entering into a “Pierringer Agreement”. The appellants argue that this means immediate disclosure was required in this case. They point to the following statement in Handley Estate, at para. 39:The obligation of immediate disclosure is not limited to pure Mary Carter or Pierringer 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 cooperative one. [50] I do not read Handley Estate, which was not a case about a Pierringer agreement, as authority for the proposition that the mere use of the words “Pierringer agreement” is determinative on whether a settlement requires immediate disclosure, without considering whether the substance of what the parties agreed to involved changing an adversarial position into a cooperative one.
[51] When Handley Estate mentioned Pierringer agreements, it referred to their generally understood content, one aspect of which is a provision requiring the settling defendants “to co-operate with the plaintiff by making documents and witnesses available for the action against the non-settling defendants”: Handley Estate, at para. 39, footnote 2; see also Endean v. St. Joseph’s General Hospital, 2019 ONCA 181, 54 C.C.L.T. (4th) 183, at para. 52.[5] The importance of that kind of term to the analysis of whether a settlement requires immediate disclosure is underscored by the fact that Handley Estate’s reference to a Pierringer agreement was immediately followed by: “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 cooperative one”: Handley Estate, at para. 39.
[52] As described above, the settlement here in issue did not include, either in the Minutes or in the more complete documents that implemented the settlement, any provision whereby York and Durham agreed to cooperate with Kingdom (or Catlin) in the pursuit of claims against the appellants, by providing witnesses or documents, or in any other way. In the absence of such a provision, the use of the word “Pierringer”, or even the presence in the settlement of other terms commonly found in Pierringer agreements was not determinative.
[53] The motion judge’s conclusion, based on the substance of what the parties actually agreed to, is not undermined by the presence of the term “Pierringer Agreement” in the Minutes. . Kingdom Construction Limited v. Perma Pipe Inc.
In Kingdom Construction Limited v. Perma Pipe Inc. (Ont CA, 2024) the Ontario Court of Appeal dismissed an appeal of a stay motion denial, here grounded in the Handley abuse of process doctrine (and including an SOR analysis) on the issue of "entirely chang(ing) the landscape of the litigation":[1] Settling parties must immediately disclose a partial settlement – a settlement between a plaintiff and some, but not all, defendants – if the settlement changes entirely the landscape of the litigation in a way that significantly alters the dynamics of the litigation. The failure to do so is an abuse of process, the remedy for which is a stay of the action against the non-settling defendants: Aecon Buildings v. Stephenson Engineering Limited, 2010 ONCA 898, 328 D.L.R. (4th) 488, at paras. 13, 15-16; Skymark Finance Corporation v. Ontario, 2023 ONCA 234, 166 O.R. (3d) 131, at paras. 46-47, 53.
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(1) The Standard of Review
[35] The threshold issue on appeal concerns whether Kingdom’s settlement with Catlin, York, and Durham changed the entirety of the litigation landscape in a way that significantly altered the dynamics of the litigation, bringing about an obligation of immediate disclosure, with the mandatory consequence of a permanent stay for non-compliance. As Trotter J.A. explained in Skymark, at para. 51, in the absence of an extricable error of law, that issue attracts a deferential standard of review:[T]he 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.
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i. The Motion Judge Did not Make a Reversible Error in His Appreciation of the Effect of the Settlement
[40] In order to determine whether a settlement has changed entirely the landscape of the litigation in a way that significantly alters its dynamics, the pre- and post-settlement configuration of the litigation and the claims in it must be compared. This is exactly what the motion judge did. He carefully analysed Kingdom’s claims against the appellants on the one hand, and against Catlin, York, and Durham on the other. He concluded that they were fundamentally distinct.
[41] The appellants have not identified an error in this conclusion, which was an important plank supporting the motion judge’s view that the settlement of those fundamentally distinct claims did not change the entirety of the litigation landscape in a way that significantly altered its dynamics. The appellants have not identified how the settlement could possibly affect their strategy, or the evidence they may lead or will be faced with, in litigating the claims against them now that fundamentally distinct claims against others have been settled. These kind of potential effects of a settlement can be important markers that the litigation has changed in a significant way and therefore must be disclosed to avoid parties, and the court, “flying blind”: see Laudon v. Roberts, 2009 ONCA 383, 308 D.L.R. (4th) 422, at para. 39; Skymark, at paras. 58, 61, 63. Their absence points the other way.
[42] As the motion judge noted, the appellants had little, if any, pre-settlement interest in the issue of whether Kingdom was entitled to payment by Catlin under the Policy. They did not participate in Kingdom’s motion for summary judgment on that issue. Nor did the settlement of that issue have a significant effect on the claims that the appellants would face post-settlement. Kingdom’s pre-settlement claims would be pursued post-settlement by Catlin but in the name of Kingdom under the doctrine of subrogation. There was no change in whose claims the appellants were facing. Nor did the settlement terms requiring Kingdom to assist Catlin in the pursuit of those claims change in any way the evidence that would be marshalled against the appellants in support of those claims, or their amount, compared to what the appellants were facing pre-settlement.[4]
[43] The appellants point to the position that Kingdom took on the summary judgment motion (but not in the statement of claim) that the appellants are also insureds under the Policy. They submit that since they will now be facing a subrogated claim, they have, and must raise, a new defence – namely, that they are additional insureds under the Policy and are immune to a subrogated claim by the insurer. I do not see this as a significant alteration of the dynamics of the litigation. Pre-settlement, the appellants were asserting, or could have asserted, a crossclaim against Catlin for coverage as additional insureds. As the motion judge noted, it remains open to them to raise that issue post-settlement – nothing in the settlement restricts them from doing so. Raising it as a defence rather than as a crossclaim is not, in these circumstances, a significant alteration in the dynamics of the litigation.
[44] The appellants also rely on the term of the settlement that requires Catlin to pay Kingdom any amount it recovers from the appellants in excess of the settlement payment Catlin made to Kingdom. But this term of the settlement does not alter the dynamics of the litigation. How Catlin and Kingdom will share recoveries does not change the quantum of the claims against the appellants – Catlin, standing in the shoes of Kingdom on a subrogated basis, can pursue the appellants only for the amounts for which Kingdom could sue them: Douglas v. Stan Fergusson Fuels Ltd., 2015 ONSC 65, 124 O.R. (3d) 715, at para. 8.
[45] The appellants submit that the settlement took York and Durham out of the category of adverse parties. The motion judge was alive to this. He concluded that since the claims against York and Durham were fundamentally distinct from those against the appellant, no significant alteration in the dynamics of the litigation flowed from the terms of the settlement that required dismissal of the claims against York and Durham. The appellants were not, pre-settlement, involved in or affected by the contractual and quasi-contractual issues on which adversity between Kingdom, York, and Durham had existed. Accordingly, the appellants were not affected by the resolution of those issues, which had no significant effect on how the claims against the appellants would continue post-settlement. Although the settlement required crossclaims against York and Durham to be dismissed, Kingdom’s claims against the appellants are, post settlement, only for their several liability, obviating the need for those crossclaims.
[46] A settlement will entirely change the landscape of the litigation when it involves a party switching sides from its pleaded position, changing the adversarial position of parties set out in pleadings into a cooperative one: Tallman Truck Centre Limited v. KSP Holdings Ltd., 2021 ONSC 984, 60 C.P.C. (8th) 258, at para. 46, aff’d 2022 ONCA 66; Handley Estate, at paras. 39-41.
[47] The settlement with York and Durham had no such effect. It did not provide for any cooperation by York or Durham with Kingdom (or Catlin) or involve any switching of sides on any issue of concern to the appellants. . Halton Standard Condominium Corporation No. 550 v. Del Ridge (Appleby) Inc.
In Halton Standard Condominium Corporation No. 550 v. Del Ridge (Appleby) Inc. (Ont CA, 2024) the Ontario Court of Appeal considered the abuse of process principle (Handley) that the other parties to litigation must be advised promptly of any settlements between parties:[4] Second, the appellants argue that the motion judge erred by failing to dismiss the respondent’s action because of its failure to disclose a settlement agreement in a timely manner.
[5] We do not accept this argument.
[6] As this court reiterated in Skymark Finance Corporation v. Ontario, 2023 ONCA 234, 166 O.R. (3d) 131, at para. 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. [Citations omitted.] [7] In essence, the appellants challenge the motion judge’s factual findings. We see no reversible error here.
[8] The motion judge was not persuaded that the settlement agreement entered into between the respondent, the defendant City of Burlington and two third parties was a Pierringer agreement or an agreement that needed to be disclosed. The motion judge found that the settlement agreement released the City with respect to some, but not all claims and that it did not change “entirely the landscape of the litigation in a way that significantly alters the dynamics of the litigation”: Skymark, at para. 53. As the motion judge found, there was no provision requiring co-operation and no unfairness to the appellants. . Bennington Financial Corp. v. Medcap Real Estate Holdings Inc.
In Bennington Financial Corp. v. Medcap Real Estate Holdings Inc. (Ont CA, 2023) the Court of Appeal considered an exception to the Handley (abuse of process) doctrine, that doctrine being that all litigation parties need to be advised immediately of any settlements between any of them:[10] After canvassing the applicable case law, the motion judge found that the agreement did not need to be immediately disclosed. He emphasized that there was no adversarial orientation between Bennington, Heffner, and the third party which was altered by their oral agreement. He concluded that, “[t]he Agreement did not entirely change the landscape of the litigation in a way that significantly altered the adversarial relationship among the parties or the dynamics of the litigation.”
[11] Additionally, the motion judge found that the agreement did not require the respondents to cooperate or assist each other beyond what would have occurred in the ordinary course of the litigation. The motion judge found that on the facts, it was not unfair for Medcap to have to negotiate with the creditors together, rather than individually, and that this did not impact the integrity of the court process or mislead the court as to the adversity of the parties.
[12] The sole issue before the court on this appeal is: Did the motion judge err in finding that the agreement between the respondents did not need to be disclosed under the immediate disclosure rule?
[13] The disclosure rule has applied 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.). In Pettey, the impugned Mary Carter agreement had to be disclosed because it significantly shifted the litigation landscape: at pp. 737-38. Specifically, the contracting defendant guaranteed the plaintiff a certain monetary recovery and the exposure of that defendant was “capped” at that amount; the contracting defendant remained in the lawsuit; and the contracting defendant's liability was decreased in direct proportion to the increase in the non-contracting defendant's liability: Pettey, at pp. 730-32; see also Handley Estate v. DTE Industries Limited, 2018 ONCA 324, 421 D.L.R. (4th) 636, at n. 1.
[14] Disclosure is required when an agreement has the effect of changing the adversarial position of the parties to litigation into a co-operative one. In such circumstances, as this court stated in Handley, at para. 39, disclosure is required to “maintain the fairness of the litigation process”: citing Moore v. Bertuzzi, 2012 ONSC 3248, 110 O.R. (3d) 611, at paras. 75-79.
[15] Rather than requiring disclosure of agreements that fundamentally or entirely change the litigation landscape, the appellant argues that “agreements that fetter, clog, or frustrate, settlement must be disclosed.” Expanding the rule to settlement contexts of the kind at issue in this litigation would represent a dramatic and unwarranted expansion of the properly narrow rule. As the motion judge put it: “In short, Medcap wants to settle the claims its way and it wants the court to take its side. In my view, it is not appropriate to tread on the discretionary and strategic decisions that parties may make toward settling their litigation.”
[16] The motion judge reviewed the principles underlying the immediate disclosure rule as set out in CHU de Québec-Université Laval v. Tree of Knowledge International Corp., 2022 ONCA 467, 162 O.R. (3d) 514, at para. 55, and Skymark Finance Corporation v. Ontario, 2023 ONCA 234, 166 O.R. (3d) 131, at para. 46. The motion judge relied on the statement of the threshold by Feldman J.A. in Crestwood Preparatory College Inc. v. Smith, 2022 ONCA 743, at para. 57, that in order to trigger the rule, an agreement must have had the effect of “changing entirely the landscape of the litigation in a way that significantly alters the dynamics of the litigation.” As earlier noted, the motion judge found that it did not.
[17] The motion judge found that the shared strategy adopted by the respondents constituted an oral agreement. Given the subsequent findings of the motion judge, it is not necessary to consider the correctness of that characterization and we expressly refrain from doing so. Those subsequent findings include that the agreement did not alter the litigation landscape because the agreement did not require the respondents to support one another in their respective proceedings, the respondents were not adverse to one another, and the agreement did not change the litigation between the respondents and the appellant. These findings are entitled to deference, and we see no palpable and overriding error which would warrant appellate intervention.
[18] In summary, we see no error in the motion judge’s formulation of the rule, or in his application of the rule in light of his findings.
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