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Abuse of Process - Handley Estate (3). 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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