While litigants with potentially meritorious claims are rarely stopped in their tracks, the Ontario Court of Appeal has confirmed that this is precisely what will happen if a party fails to immediately disclose a critical settlement agreement.
In seven recent decisions, the Court of Appeal has reiterated that failure to comply strictly with this disclosure requirement is an abuse of process for which the only appropriate remedy is a stay of proceedings1.
The question with which litigants continue to grapple is, which agreements require immediate disclosure? Although each case will depend on its facts, the recent case law provides guidance on the factors that courts will consider when assessing whether immediate disclosure is required. Settling parties should pay careful attention to this guidance to avoid the serious consequences that may otherwise ensue.
The immediate disclosure obligation first arose in the context of Mary Carter and Pierringer agreements, which are types of agreements that enable a plaintiff to settle its claim with some but not all defendants2. The obligation was developed by courts to guard against the risk of abuse of process. The abuse, in this context, is the risk of misleading the court and the parties about the true nature of the adversarial relationships in the litigation, particularly given the impact of those relationships on the strategy and steps to be taken by the non-settling defendants. Thus, at its core, the purpose of the rule is to maintain the fairness of the litigation process, and to ensure that a court can maintain the integrity of its own process3.
More recently, the disclosure obligation has been extended to any agreement between a plaintiff and one or multiple defendants that has the effect of changing the position of the parties to the agreement from an adversarial one into a cooperative one. This, the Court has held, changes the litigation landscape4. If a party fails to immediately disclose an agreement that meets this threshold, it automatically follows that an abuse of process has occurred, and the action must be stayed5.
There is no single test to determine whether an agreement has “changed the litigation landscape”. However, recent case law provides insight on the factors that courts may consider.
In two recent decisions, the Court of Appeal provided clarity on the role of the pleadings when assessing disclosure obligations. Unlike earlier decisions—which focused on the effect of the agreement on the parties’ positions “as set out in their pleadings”—the Court clarified that a change to the parties’ pleaded positions is not required for the immediate disclosure obligation to be engaged6.
A party’s pleaded position still remains an “essential starting point” in determining whether there has been a significant change in the adversarial relationship but is not necessarily determinative7. However, the obligation to make immediate disclosure can also arise even before the settling defendants have served their statements of defence8. As the Court recently held: “To hold otherwise could defeat the intent of the disclosure obligation which is to ensure that when parties take steps in the litigation, and when the court makes rulings, the parties and the court are not being actively misled as to the consequences of those steps or rulings”9.
The impact of the agreement, if any, on the evidence in the proceeding and the “reality of the adversity” between the parties is also relevant. There are several elements of an agreement that courts may consider, including whether the agreement requires a party to:
The presence or absence of prejudice to a non-settling party is not relevant when determining whether immediate disclosure is required. Nor will courts consider the conduct or intention of the parties, which can lead to some potentially draconian results. In characterizing the principle as a “bright line”, the Court of Appeal reiterated that the immediate disclosure requirement means exactly what it says: it “is not a matter of discretion, nor is it a matter of ‘context’, nor of factual analysis”16.
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