Why Failing to Immediately Disclose a Litigation Agreement in Multi-Party Litigation is Dangerous and Costly

Written by and on January 21, 2019.

Summary

Litigation agreements in multi-party litigation are required to be immediately disclosed to the other parties in the litigation (“Other Parties”). A litigation agreement is broadly defined as an agreement that has the effect of changing the adversarial position of the parties set out in their pleadings into a co-operative one.[1] Failure to immediately disclose a litigation agreement introduces risk that the action against some/all of the Other Parties could be permanently stayed as against the non-disclosing party with some/all of the Other Parties being entitled to costs relating to the action. This remedy is not discretionary, even where the Other Parties suffer no prejudice, because the failure to disclose the litigation agreement is viewed as a very serious abuse of process.

What the Disclosure Obligation Is

The Ontario Court of Appeal in Handley Estate v. DTE Industries Limited[2] recently affirmed its earlier decision, Aecon Buildings v. Stephenson Engineering Limited,[3] by citing the principles relating to the immediate disclosure of litigation agreements in multi-party litigation that has the effect of changing the adversarial position of the parties set out in their pleadings into a co-operative one (i.e. changing the litigation landscape), as follows:[4]

  • The obligation of immediate disclosure of agreements that “change entirely the landscape of the litigation” is “clear and unequivocal” – they must be produced immediately upon their completion;
  • The absence of prejudice does not excuse the late disclosure of such an agreement;
  • “Any failure of compliance amounts to abuse of process and must result in consequences of the most serious nature for the defaulting party”; and
  • The only remedy to redress the wrong of the abuse of process is to stay the claim asserted by the defaulting, non-disclosing party. Why? Because sound policy reasons support such an approach – Only by imposing consequences of the most serious nature on the defaulting party is the court able to enforce and control its own process and ensure that justice is done between and among the parties.

While the non-financial terms of a litigation agreement must be immediately disclosed, the amount of the settlement likely does not need to be disclosed because it is protected by settlement privilege.[5]

Practical Application

In Handley Estate v. DTE Industries Limited, non-disclosure of the plaintiff and defendant’s litigation agreement resulted in the plaintiff’s claim against a non-settling defendant to be permanently stayed.[6]

Similarly, in Aecon Buildings v. Stephenson Engineering Limited, the third and fourth party proceedings were permanently stayed.[7]

In both above cases costs were awarded against the non-disclosing party who failed to disclose the litigation agreement.

These agreements are further scrutinized to determine whether the adversarial process has been ultimately converted to a cooperative arrangement as between the settling parties. This determination could be as a result of any funding agreements between the settling parties or if there is an assumption by one of the settling parties of the other’s rights in the litigation going forward.

The Main Point

Parties should be very aware of the timely disclosure obligations surrounding litigation agreements. Failure to immediately disclose a litigation agreement could raise lawyer negligence issues and cause the Other Parties in the litigation to bring a motion to have the action against them permanently stayed.

Daniel MacKeigan is a partner and Cole Vegso is an associate of the Siskinds’ Commercial Litigation Law Group. They both have a broad civil litigation practice that covers commercial related disputes. If you have any questions about this article or require informed, timely, and cost-effective legal advice, please contact Daniel at 519-660-7852 or dan.mackeigan@siskinds.com or Cole at 519-660-7755 or cole.vegso@siskinds.com.

This article does not constitute legal advice. The reader should seek the advice of a qualified lawyer.

[1] Handley Estate v. DTE Industries Limited, 2018 ONCA 324, para 39.

[2] 2018 ONCA 324.

[3] 2010 ONCA 898, leave to appeal to the Supreme Court of Canada was refused.

[4] Handley Estate v. DTE Industries Limited, 2018 ONCA 324, para 45.

[5] See Sable Offshore Energy Inc. v. Ameron International Corp., 2013 SCC 37, at case summary, where the Supreme Court of Canada held: The non-settling defendants have received all the non-financial terms of the Pierringer Agreements. They have access to all the relevant documents and other evidence that was in the settling defendants’ possession. They also have the assurance that they will not be held liable for more than their share of damages. As for any concern that the non-settling defendants will be required to pay more than their share of damages, it is inherent in Pierringer Agreements that non-settling defendants can only be held liable for their share of the damages and are severally, and not jointly, liable with the settling defendants. The defendants remain fully aware of the claims they must defend themselves against and of the overall amount that Sable is seeking. There is therefore no tangible prejudice created by withholding the amounts of the settlements which can be said to outweigh the public interest in promoting settlements.

[6] Para 49. The third party claim had already settled.

[7] Para 17.

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