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Judges - Conflict. Ly Innovative Group Inc. v. Facilitate Settlement Corporation
In Ly Innovative Group Inc. v. Facilitate Settlement Corporation (Ont CA, 2025) the Ontario Court of Appeal dismissed an appeal, here from "a judgment terminating a residential tenancy and awarding the respondent landlords rental arrears of over $300,000 along with $100,000 in punitive damages".
Here the court considered whether a judge should have recused themselves after being engaged in open court settlement efforts between the parties, and then - when those efforts collapsed - continuing to adjudicate the merits of the matter:(2) The motion judge was not required to recuse himself because of his awareness of the parties’ prior settlement
[37] The appellants argue that there is a long-held principle of civil practice that, where a judge has knowledge of exchanged offers to settle or proposed settlement terms, that judge ought not to thereafter decide the merits of the issues in dispute.
[38] Nevertheless, neither party raised a concern over the appropriateness of the motion judge adjudicating the matter despite his knowledge of the earlier settlement. In most cases, the failure to object at trial is fatal to a later complaint on appeal: Marshall v. Watson Wyatt & Co. (2002), 2002 CanLII 13354 (ON CA), 57 O.R. (3d) 813 (C.A.), at paras. 14-15. This is not a case in which the interests of justice require the court to relieve against the failure to object.
[39] In any event, I see no merit to the appellants’ argument that the motion judge should have recused himself. They rely on r. 50.10 of the Civil Rules, which provides that a judge who conducts a pre-trial conference shall not preside at the trial of an action or the hearing of an application, except with the written consent of all parties.
[40] In Royal Bank of Canada v. Hussain, 2016 ONCA 637, 133 O.R. (3d) 355, at para. 12, leave to appeal refused, [2018] S.C.C.A. No. 68, this court explained that the rationale for r. 50.10 is to protect the integrity and usefulness of the pre-trial conference system, in which the court attempts to actively persuade litigants to reach reasonable settlements, and litigants are encouraged to speak freely, negotiate openly, and consider recommendations from the judge without prejudice to their positions in the litigation.
[41] The motion judge in this case did not conduct a pre-trial conference. However, he was made aware of the fact that the appellants were agreeable to vacating the premises and making a payment on account of rental arrears in order to settle the dispute over the lease. The appellants argue that, in these circumstances, their position on the motion was prejudiced since they were arguing that they did not have to leave the premises and were entitled to damages, contrary to what they agreed to in the settlement agreement.
[42] While I accept that there may be circumstances in which a judge who has knowledge of a settlement ought to be precluded from subsequently adjudicating the matter, no such circumstances are present in this case.
[43] Although the motion judge was aware the appellants had been prepared to compromise the position originally set out in their defence and counterclaim, the same could be said of the respondents. The motion judge knew that the respondents had been willing to settle the matter without receiving the full amount of rental arrears, whereas they were arguing on the motion that they were entitled to the entirety of the arrears. Thus, the appellants suffered no greater prejudice than the respondents, since the motion judge was aware that both parties had been prepared to compromise their claims in order to settle the dispute.
[44] In any event, both the Civil Rules and the Law Society of Ontario’s Rules of Professional Conduct encourage parties and their counsel to compromise or settle a dispute wherever reasonably possible, in order to reduce costs and delay and facilitate the early and fair resolution of disputes: see Carinci v. Carinci-Serrao, 2024 ONSC 2955, at para. 11. It cannot be suggested that mere knowledge on the part of the motion judge that the appellants had been prepared to compromise their claim gives rise to prejudice or bias on his part.
[45] It should also be pointed out that, whereas r. 50.10 expressly prohibits a judge who has conducted a pre-trial from then presiding at the trial, no such prohibition is included in r. 49.06, which merely prohibits parties from disclosing offers to settle in advance of the determination of the issues in dispute. Rule 49.06 applies to individuals who may communicate information to the court, as opposed to establishing a prohibition on the court: Montague v. Bank of Nova Scotia (2004), 2004 CanLII 27211 (ON CA), 69 O.R. (3d) 87 (C.A.), at para. 35, leave to appeal refused, [2004] S.C.C.A. No. 79. This reflects the quite different judicial role in these different contexts.
[46] In a pre-trial conference, the judge takes an active role in attempting to foster a settlement, including making recommendations and engaging the parties in negotiations. The parties must be free to speak openly and accept or reject such recommendations, without fear that this will later compromise their position in the litigation. In contrast, the mere fact that a judge may become aware of the terms of an offer to settle does not necessarily compromise the judge’s required appearance of objectivity and impartiality and their jurisdiction to proceed to adjudicate the matter.
[47] Thus, in Richardson v. Richardson, 2019 ONCA 983, 463 D.L.R. (4th) 74, during the course of a trial the parties negotiated a settlement which, if accepted by the court, would have resolved the dispute. The trial judge refused to accept the proposed settlement and went on to complete the trial. This court found that the trial judge’s awareness of the settlement did not compromise his ability to continue with the trial, since that knowledge did not in itself compromise his ability to decide the matter impartially: at paras. 35, 43-44.[3] Likewise, in Montague, the trial judge was not precluded from changing her costs order before entering her judgment after becoming aware of the terms of a settlement agreement: at paras. 37-40.
[48] In this case, unlike in the case of a pre-trial conference, the motion judge did not participate in the settlement discussions. While the motion judge knew the proposed settlement contemplated the appellants vacating the premises, he also understood that the respondents had been prepared to accept a payment that was less than their full claim for rental arrears.[4]
[49] In short, during the argument on the merits, both parties were in the same position, in that they were both arguing for a result which differed from the compromise positions they had been prepared to accept under the settlement. It is thus hardly surprising that neither party raised any concern over the appropriateness of the motion judge adjudicating the matter.
[50] Accordingly, this ground of appeal is dismissed.
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