ONTARIO – Settlement – Settling parties must immediately disclose a partial settlement if the settlement changes entirely the litigation landscape in a way that significantly alters the dynamics of the litigation. Failure to do so is an abuse of process for which a stay of the action against the non-settling defendants is the remedy.

ONTARIO – Settlement – Partial Settlement – When assessing whether a partial settlement changes the litigation landscape, the court must focus on the substantive terms and effect of the settlement considering the parties’ positions in the litigation. It is the actual terms of the settlement that matter in this analysis, not the fact that the settling parties used the term “Pierringer Agreement”).

Kingdom Construction Limited v. Perma Pipe Inc.
2024 ONCA 593 (July 30, 2024)
Ontario Court of Appeal (Zarnett, Coroza and Favreau JJ.A.)

This appeal involved an analysis of the test for when a partial settlement requires immediate disclosure. The Court of Appeal started its analysis by reiterating the following principles from Aecon Buildings v. Stephenson Engineering Limited, 2010 ONCA 898, 328 D.L.R. (4th) 488, at and Skymark Finance Corporation v. Ontario, 2023 ONCA 234:

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. (para. 1)

Six of the defendants appealed from the motions judge’s rejection of their motion to permanently stay the action against them. The appellants alleged that the plaintiff and three other defendants had failed to immediately disclose the settlement among them when it was required to be disclosed. The motions judge had dismissed the motion on the basis that:1) the settlement did not sufficiently change the litigation landscape to the degree that required immediate disclosure; and 2) when considered “purposively”, disclosure of the general settlement terms 27 days after the settlement was reached did qualify as immediate disclosure. (paras. 2-3)

The appellants argued that the motions judge made reversible errors in: 1) failing to “appreciate the depth, nature, and effect of the changes to the litigation brought about by the settlement, emphasizing that an aspect of the settlement was to be documented by a Pierringer Agreement;” and 2) wrongly considering that disclosure 27 days after the settlement was “immediate” in timing and adequate in content. (para. 4)

The threshold issue was whether the settlement entirely changed “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.” The standard of review that applied was deferential absent extricable legal error. (para. 35)

The Court held that the appellants did not show a reversible error in concluding that the settlement did not require immediate disclosure. It was proper for the motions judge to focus on the substantive terms and effect of the settlement, considering the parties’ positions in the litigation. The Court held that the motions judge’s finding that there was little or no effect of the settlement on the appellants was reasonable. The parties’ use of the term “Pierringer Agreement” to describe one of the documents they contemplated did not “fatally undermine this conclusion” given the actual terms upon which the settling parties agreed. (para. 7)

Given those findings, the Court held that it was not necessary for it to consider the question of whether the disclosure was immediate and adequate. (para. 8)

Analysis

In assessing whether a settlement has changed entirely the litigation landscape in a way that significantly alters its dynamics, the Court must compare the pre- and post-settlement configuration of the litigation and the claims in it. The Court of Appeal found that the motion judge did just that – he carefully analyzed the claims against the appellants and those against the settling defendants and found that there were “fundamentally distinct”. (para. 40)

The Court held that the appellants did not identify an error in the motions judge’s conclusion on this issue, nor did they identify how the settlement could affect their strategy or the evidence that they may lead or be faced with in litigating the claims against them that were fundamentally distinct claims from those against the settling defendants. The Court held that “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.” (para. 41)

The Court noted that prior to the settlement:

1. The appellants had little if any interest in whether the plaintiff was entitled to payment by a non-settling defendant under the Policy;
2. The appellants did not participate in the summary judgment motion on that issue;
3. The settlement of that issue did not have a significant effect on the claims the appellants would face after the settlement;
4. The plaintiff’s pre-settlement claims would be purposed after the settlement by the defendant Catlin under the doctrine of subrogation, not under the plaintiff’s name;
5. There was no change in whose claims the appellants would face; and
6. The term of the settlement that required the plaintiff to assist Catlin to pursue the subrogation claims did not change the evidence that the appellants would face at trial. (para. 42)

The Court also found that an issue that the appellants would now raise as a defence instead of a crossclaim was not, in the circumstances, a significant alteration in the dynamics of the litigation. (para. 43)

How a defendant remaining in the litigation would share recoveries with the plaintiff was not something that would change the quantum of the claims against the appellants. The Court held that this also did not change the dynamics of the litigation. (para. 44)

Finally, the Court held that because the claims against two defendants that the settlement removed from the category of adverse parties were “fundamentally distinct from those against the appellant”, there was no significant alteration of the dynamics of the litigation flowing from the settlement term that required dismissal of the claims against them. This meant that the appellants were not affected by the resolution of those issue, which “had no significant effect on how the claims against the appellants would continue post-settlement”. (para. 45)

Citing its prior decision in Tallman Truck Centre Limited v. KSP Holdings Ltd., 2022 ONCA 66, the Court held that: “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.” It found that the settlement with the York and Durham defendants had no such effect as it did not provide for any cooperation of those parties with the plaintiff or Caitlin or involve any side switching on any issue of concern to the appellants. (paras. 46 and 47)

On the use of the term “Pierringer Agreement”, the Court rejected the appellants’ argument that this meant that immediate disclosure was required in this case. The mere use of the words “Pierringer Agreement” is not determinative of whether a settlement must be immediately disclosed without consideration of “whether the substance of what the parties agreed to involved changing an adversarial position into a cooperative one”. (paras. 49 and 50)

The Court held that: “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.” (para. 52)

The motions judge’s conclusion was therefore not undermined by the use of the word “Pierringer Agreement” in the Minutes of Settlement. The Court dismissed this ground of appeal. (paras. 53-53)

The appeal was therefore dismissed with costs fixed in the agreed upon sum of $15,000. (paras. 55-56)