Disclosure of Partial Settlement Agreement Terms in Multi-Party Litigation

Duty to Disclose

When a plaintiff settles an action against some, but not all, of the defendants, the plaintiff must immediately disclose all the terms of such settlement agreement (save for the dollar amounts, if any) to the non-settling parties.^[1] A failure to do so will result in a stay of the plaintiff’s claim, even in the absence of prejudice from delay in disclosure.^[2]

Practically, this duty to disclose will be satisfied by sending the non-settling parties copies of all the settlement documents, with any dollar amounts redacted, within one calendar day of the acceptance of an offer to settle. However, a shortened disclosure timeline may be required depending on urgency.

Unsuccessful attempts to avoid the mandatory stay

The duty to disclose the partial settlement of an action is as follows: “the obligation to disclose arises where the settlement agreement changes entirely the landscape of the litigation in a way that significantly alters the adversarial relationship among the parties to the litigation or the “dynamics of the litigation”.”^[3]

At the Ontario Court of Appeal, many unsuccessful attempts have been made to avoid the mandatory stay of a plaintiff’s claim where immediate disclosure of the non-financial terms of a settlement agreement was not made. The basis of such arguments is that the delay in disclosure did not alter the landscape nor dynamics of the litigation. Among others, such unsuccessful positions include:

(i) that the delay in disclosure did not prejudice the non-settling parties;^[4]

(ii) that the settlement agreement did not result in any party taking a different position than what was set out in the pleadings;^[5]

(iii) that there was an absence of deception or bad faith;^[6] and

(iv) that “functional disclosure” had been made through discontinuing the action against the settling defendants, such that disclosure of the specifics of the settlement to the non-settling defendants was unnecessary.^[7]

The most recent attempt: Crestwood Preparatory College Inc. v. Smith

In the recent Court of Appeal decision, Crestwood Preparatory College Inc. v. Smith,^[8] the plaintiff unsuccessfully argued that the obligation to immediately disclose a partial settlement agreement did not arise since, at the time the settlement was executed, no defendant had yet delivered a Statement of Defence and, accordingly, it would be impossible to know whether the settlement agreement changed the dynamics of the litigation.

In rejecting this argument, Justice Feldman stated that “the court is not limited to an examination of the pleadings in order to discern whether the settlement agreement significantly altered the adversarial relationship among the parties”.^[9] Citing to Handley and Poirier, Justice Feldman opined that the relevant case law is clear that the duty to disclose arises where the “apparent relationships” between the parties are changed, including changes to the apparent relationships assumed from the pleadings or expected in the conduct of litigation.^[10]

Notably, the plaintiff also sought to rely on the Superior Court decision of Caroti v. Vuletic,^[11] in which Justice Ricchetti held that “only where the settlement agreement “entirely changes” the adversarial relationship between the litigants (or adversarial landscape), […] the settlement agreement must be immediately disclosed.” Specifically, the decision in Caroti was supported by a finding that the co-defendants had adverse interests in the action, as evinced by their pleadings, and that such “adversity did not change with the Settlement Agreement.”^[12] In distinguishing Caroti, Justice Feldman found no error in the motion judge’s finding that, as a result of the settlement agreement at issue, “there was a change in the relationship between the plaintiffs and the settling defendants from an adversarial one to a co-operative one.”^[13]

Conclusion

The Crestwood decision adds to the line of decisions discussed by Gary Brummer in his article in which the Ontario Court of Appeal has declined to make an express exception to the requirement for immediate disclosure of the terms of a settlement agreement where a plaintiff settles an action against some, but not all, of the defendants. The fact that no Statements of Defence have been delivered in action does not preclude such duty from arising. To avoid the risk of a stay of the plaintiff’s claim, immediate disclosure of the terms of any settlement agreement should be made to all non-settling parties, save for the disclosure of any monetary amounts.