Court File and Parties

Court of Appeal for Ontario Date: 2022-06-16 Docket: C70010

Before: Strathy C.J.O., Sossin and Favreau JJ.A.

Between: CHU de Québec-Université Laval Plaintiff (Respondent)

And: Tree of Knowledge International Corp., Tree of Knowledge Inc., Michael Caridi, Blu Stella Consulting Group Inc. and Fabio Gesufatto Defendants (Appellant)

Counsel: Robert Stellick, for the appellant Sean Dewart and Brett Hughes, for the respondent

Heard: May 17, 2022

On appeal from the order of Justice Bernadette Dietrich of the Superior Court of Justice, dated October 13, 2021, with reasons reported at 2021 ONSC 5946.

Sossin J.A.:

[1] This appeal raises the issue of the scope and application of the rule from Handley Estate v. DTE Industries Limited, 2018 ONCA 324, 421 D.L.R. (4th) 636, that parties entering into agreements which entirely change the adversarial landscape of the litigation must immediately disclose those agreements to the non-contracting parties.

[2] The appeal is from the order of the motion judge dismissing the motion of the appellant, Michael Caridi (“Caridi”), and the motion of Blu Stella Consulting Group Inc. (“Blu Stella”) and Fabio Gesufatto (“Gesufatto”) (collectively, “the Blu Stella defendants”), to stay or dismiss the action of the respondent, CHU de Québec-Université Laval, based on the respondent’s failure to immediately disclose the terms of a Pierringer agreement (“the Settlement Agreement”) between it and two other defendants in this action, Tree of Knowledge International Corp. (“TOKI”), and Tree of Knowledge Inc. (“TOK US”).

[3] The respondent opposed the motion for a stay or dismissal of the action, and brought its own motion for an order approving the Settlement Agreement in the form of a Pierringer agreement between it and TOKI and TOK US, and for leave to amend its pleading, which the motion judge granted.

[4] In this case, I see no error in the motion judge’s conclusion that the essential terms of the agreement were disclosed immediately. Further, because any delay in disclosure occurred within the context of a motion before the court to approve the Settlement Agreement itself, and amend the pleadings accordingly, the rationale underlying the rule that failure to disclose is an abuse of process was not engaged. In these circumstances, the motion judge did not err in dismissing the motions for a stay or dismissal of the action on this basis.

A. Overview

[5] The plaintiff in the action and respondent on appeal, CHU de Québec-Université Laval, is the largest hospital network in the Province of Quebec.

[6] TOKI is a federally incorporated, publicly-traded Canadian corporation which operates medical clinics and distributes and sells cannabidiol products through its wholly-owned US subsidiary, TOK US.

[7] Caridi was an officer and one of four directors of TOKI and the sole directing mind of TOK US.

[8] The dispute leading to the action arises out of a contract between the respondent and TOKI and/or TOK US, dated March 26, 2020, for the supply of three million certified N95 masks at a cost of US $13,693,122.50. The contract was facilitated by Gesufatto and his company Blu Stella, although they were not parties to the contract. Blu Stella had entered into a consulting and professional services agreement with TOKI and any subsidiary, affiliate or related company.

[9] The respondent advanced the full amount to TOK US, per wire instructions from Caridi, for “certified N95 masks for medical use.” These masks were never delivered, although lesser quantities of non-certified masks for non-medical use were delivered to the respondent.

[10] On August 6, 2020, the respondent commenced the within action against all the defendants to recover the funds it advanced, alleging fraudulent or negligent misrepresentation against all of the defendants. All of the defendants retained the same law firm and defended the proceeding jointly.

[11] On December 16, 2020, Koehnen J. of the Superior Court granted a Mareva injunction against Caridi, TOKI and TOK US, and appointed Grant Thornton as investigative receiver. In granting the injunction, Koehnen J. found that the respondent had made out a strong prima facie case for fraudulent misrepresentation. In this proceeding, Caridi conceded that TOKI and TOK US never had the ability to deliver the N95 masks.

[12] On January 25, 2021, the law firm representing all the defendants brought a motion to be removed as lawyers of record. Former counsel to the defendants filed a motion record advising the court that “previously aligned interests [between the defendants] have diverged.” Former counsel were removed by order dated January 26, 2021. The defendants then hired new, separate lawyers.

[13] While the Blu Stella defendants filed crossclaims against TOKI and TOK US, the joint statement of defence on behalf of all of the defendants was not amended.

[14] On May 26, 2021, the respondent signed the Settlement Agreement, a Pierringer agreement, with TOKI and TOK US. The Settlement Agreement was dated “as of this 25th day of May, 2021”. The Settlement Agreement provides that the respondent’s claims against TOKI and TOK US are dismissed without costs. The Settlement Agreement also limits the respondent’s claims against Caridi and the Blu Stella defendants (collectively, “the non-settling defendants”) to damages, costs and interest that are attributable solely to the non-settling defendants’ respective shares of liability proven at trial, so as to exclude any potential claim against TOKI or TOK US for contribution and indemnity at common law.

[15] The Settlement Agreement also provides that TOKI and TOK US agree to provide their reasonable cooperation to the respondent in its action and enforcement efforts, including by requiring its directors and officers to provide witness statements and be available to testify at trial (“the cooperation term”). Further, the Settlement Agreement provides that TOKI and TOK US assign to the respondent their rights, title and interest in a claim against Caridi and others. The Settlement Agreement provides that TOKI and TOK US deliver an affidavit of documents and produce documents. The Settlement Agreement also provides that, within 10 days of signing the agreement, the parties will execute a full and final release, to be held in escrow until payment of the settlement amounts. Finally, the Settlement Agreement provides for a consent judgment against TOK US.

[16] On May 27, 2021, the day after it was signed, and two days after it became effective, the respondent’s counsel advised the respective counsel for the non-settling defendants of the existence of the Settlement Agreement in an email, which stated, in part:

Pierringer Settlement

CHU, Tree of Knowledge International and Tree of Knowledge have agreed to settle the lawsuit as between them while CHU will continue the lawsuit against all non-settling defendants. The terms of the settlement are confidential as you would expect and CHU will bring a motion to approve certain aspects of the settlement. We plan to serve our motion record by June 2nd and propose to have the motion heard the weeks of June 21 or 28, subject to the availability of counsel and the court. Please let us know if there any [sic] dates that you are not available.

Motion to Amend Pleadings

CHU will move at the same time to amend the pleadings to add Daniel and Jill Caridi. We will also be moving to add Tree of Knowledge’s claims against Blu Stella that have been assigned to CHU pursuant to the settlement. We trust counsel for Blu Stella/Gesufatto will confirm if consent is provided for that amendment once you have reviewed the proposed amended pleading.

[17] On June 1, 2021, the respective counsel for the non-settling defendants requested the terms of the Settlement Agreement.

[18] On June 2, 2021, the respondent’s counsel sent a draft order to implement the Settlement Agreement and a draft order to amend its amended statement of claim to the non-settling defendants. The draft Settlement Agreement approval order sets out the following terms:

a) CHU’s claims against TOKI would be dismissed without costs.

b) All crossclaims for contribution and indemnity by and against TOKI would be dismissed without costs.

c) No defendant may crossclaim or make any third party claim against TOKI arising from the issues in this action for contribution and indemnity.

d) Any defendant other than TOKI would not be jointly and severally liable to CHU for any several share of liability found to be attributable to TOKI.

e) TOKI would deliver its affidavit of documents.

[19] The draft approval order did not specifically disclose that TOKI had agreed to cooperate with the respondent in pursuing its claim.

[20] Counsel to the respondent responded to the non-settling defendants’ requests for the terms of the Settlement Agreement by saying that he was seeking instructions from TOKI and that the law on Pierringer settlements did not entitle them to see a copy of the Settlement Agreement, but that he would follow up on the point.

[21] On June 4, 2021, in response to a demand by counsel to the Blu Stella defendants for a copy of the Settlement Agreement and the assignment agreement mentioned in the amended claim, counsel to the respondent provided a copy of the assignment agreement between TOKI and the respondent to the non-settling defendants. Counsel to the respondent confirmed that his instructions were to not provide a copy of the Settlement Agreement to the non-settling defendants.

[22] The assignment agreement provided that TOKI had agreed to assign to the respondent its claims against Caridi and his son, Daniel Caridi, by virtue of their employment and in their capacity as director and officer; its claims against the Blu Stella defendants; and its claims against a number of third parties.

[23] On June 11, 2021, the respondent served its motion record to approve the Settlement Agreement and amend its pleadings. The motion was scheduled for September 1, 2021.

[24] The motion record included an affidavit from a legal assistant at the respondent’s counsel’s law firm, who deposed that the respondent and TOKI/TOK US had entered into the Settlement Agreement, the terms of which included reasonable cooperation by TOKI and TOK US in the respondent’s action and enforcement efforts, including that TOKI shall require its directors and officers to provide witness statements setting out their evidence regarding the non-settling defendants and to testify at trial.

[25] On June 14, 2021, counsel for the appellant advised that he would seek a stay of the action on the grounds that the respondent had not immediately disclosed the terms of the Settlement Agreement.

[26] On June 29, 2021, counsel for the respondent agreed to disclose the entire Settlement Agreement, redacted with regard to the financial terms only, subject to the non-settling defendants entering into a confidentiality agreement. The respondent entered into a confidentiality agreement with the appellant on July 8, 2021 and provided the redacted Settlement Agreement to the appellant on July 9, 2021.

[27] In addition to the terms already disclosed, the redacted Settlement Agreement provided that the parties would sign a release within 10 days of signing the Settlement Agreement, which would be held in escrow, pending payment of the settlement amounts.

[28] The Blu Stella defendants did not agree to maintain confidentiality respecting the Settlement Agreement. Therefore, they did not receive a copy of the redacted Settlement Agreement until July 19, 2021, when Koehnen J. directed the respondent to deliver the redacted Settlement Agreement on the same terms respecting confidentiality that the appellant had agreed to.

[29] The appellant and the Blu Stella defendants brought motions to stay the action for the respondent’s failure to immediately disclose the terms of the Settlement Agreement.

The motion judge’s decision

[30] The motion judge addressed the key question of whether the respondent immediately disclosed the Settlement Agreement to the non-settling defendants.

[31] The motion judge summarized her conclusion as follows, at para. 51:

For the reasons that follow, I find that disclosure of the existence of the Settlement Agreement, made the day after it was executed, was immediate. I also find that, in the context of the factual dynamics of this case, the essential terms of the Settlement Agreement, which revealed the change in the adversarial landscape of the litigation, were also disclosed immediately, and that it was not required that the entire Settlement Agreement be disclosed immediately. The disclosure made, as it was, did not result in an abuse of the court’s process or a failure of justice in this case. Accordingly, this is not a case in which the plaintiff’s action should be stayed or dismissed.

[32] The motion judge explained that, in the email of May 27, 2021, the respondent disclosed to the non-settling defendants the “key features” of the Settlement Agreement and indicated that the Settlement Agreement would be disclosed to the court as soon as possible. The disclosure in that initial email included that the respondent had settled with TOKI and TOK US, that the respondent would continue its lawsuit against the non-settling defendants, and that the respondent intended to bring a motion for approval of certain aspects of the settlement, in respect of which it planned to serve its motion materials within a week. The email also disclosed that TOKI had assigned its rights against the Blu Stella defendants to the respondent and that its statement of claim would be amended accordingly.

[33] The initial disclosure, in other words, both conveyed that the litigation landscape had shifted due to the Settlement Agreement and that the agreement would be put before the court so that the court would not be misled about this change in the litigation landscape.

[34] The motion judge concluded that the relevant consideration with respect to “immediate” disclosure is not the date on which the entire agreement was disclosed but, rather, the date of the settlement and the disclosure of the terms that altered the litigation landscape. She explained, at para. 64:

I disagree that in order for the disclosure to be immediate, an entire partial settlement agreement must be disclosed. In Poirier v. Logan, 2021 ONSC 163, at para. 48, Justice Perell states that “… the existence of the settlement agreement and the terms of it, other than terms that do not affect the adversarial orientation of the lawsuit” must be disclosed (emphasis added). In Tallman Truck Centre Limited v. K.S.P. Holdings Inc., 2021 ONSC 984, at paras. 53 and 61 (Tallman Truck (2021)), Justice Myers stated, with reference to Sable Offshore Energy Inc. v. Ameron International Corp., 2013 SCC 37, [2013] 2 S.C.R. 623, that there is an exception to the disclosure rule for settlement terms that are not relevant to the risks associated with a party switching sides. Similarly, in Stamatopoulos v. Harris, 2014 ONSC 6313, 123 O.R. (3d) 234 (Div. Ct.), the Divisional Court affirmed Sable, in which it was held that not every term of such agreements must be disclosed, and that as long as the terms in the agreement that affect the litigation landscape are disclosed, other terms may be withheld.

[35] The motion judge found that cooperation by the settling defendant is an inherent feature of a Pierringer agreement. Therefore, based on the May 27, 2021 disclosure, “a reasonably experienced civil litigation lawyer would have known that the adversarial orientation of the landscape had changed”. On this basis, the motion judge found no abuse of process.

B. Analysis

Issues

[36] The appellant raises one central ground of appeal. The appellant argues that the motion judge erred in dismissing the motions to stay or dismiss the action on the basis that the respondent complied with the Handley Estate requirement of immediate disclosure. The appellant argues that the motion judge erred in finding that the disclosure of the fact of a Pierringer settlement constituted disclosure of the essential terms of the Settlement Agreement, as the essential terms of the Settlement Agreement could be inferred from the terms disclosed, including the description of the settlement as a Pierringer agreement. The appellant submits that this was wrong in law because Ontario courts have held that cooperation clauses are not necessary features of Pierringer agreements, and the disclosure regime does not require parties to guess at changes to the litigation landscape. The appellant further submits that the motion judge erred in considering prejudice and erred in finding that the respondent intended to place the Settlement Agreement before the court, as the respondent did not put the agreement before the court when it filed its motion record, but only after the appellant brought his stay motion.

[37] The respondent raises an issue with respect to the jurisdiction of this court to hear the appeal. The respondent argues that a decision to deny a motion to stay or dismiss an action is interlocutory, and therefore any appeal lies, with leave, to the Divisional Court.

(1) This court has jurisdiction over this appeal

[38] I will deal with the jurisdictional issue first.

[39] Sections 6(1)(b) and 19(1)(b) of the Courts of Justice Act, R.S.O. 1990, c. C.43, make clear that only final orders are appealable to this court, while interlocutory orders are appealable to the Divisional Court, with leave. A final order is one which determines the real matter in dispute between the parties, the very subject matter of the litigation, or any substantive right to relief of a plaintiff or substantive right of a defendant, while an interlocutory order is one which does not: Drywall Acoustic Lathing Insulation Local 675 Pension Fund v. SNC-Lavalin Group Inc., 2020 ONCA 375, at para. 16; Johnson v. Ontario, 2021 ONCA 650, 158 O.R. (3d) 266, at paras. 11-12.

[40] The respondent submits that a decision granting a stay or dismissal is final, but a decision denying such relief is interlocutory, relying on McClintock v. Karam, 2017 ONCA 277, at para. 1; Ontario v. Nanji, 2020 ONCA 591, at para. 8. Typically, in cases where a motion for a stay or dismissal is denied, the real matter of the dispute is not dealt with and the action continues. Indeed, the relief the respondent received on this motion was the ability to continue its litigation and amend its pleading to reflect the change to the litigation landscape as a result of the Settlement Agreement.

[41] However, this court has held that an order denying a stay of an action on the basis of an abuse of process, because it was based on a champertous agreement and the agreement was not disclosed as soon as it was completed, was final. In Aecon Buildings v. Brampton (City), 2010 ONCA 773 (the “Aecon Endorsement”), this court dismissed a motion to quash an appeal of an order denying a stay on the basis that the order was interlocutory. This court stated:

In our view, the issue is whether the decision below finally determines a claim in the proceedings and forecloses further reference to it in the action. That is the case here. The question of whether the action can be stayed as an abuse of process because it is based on a champertous agreement was finally decided by Klowak J. That issue, although not a defence on the merits, is one that could finally determine the result of the action in favour of [the appellant].

[42] This court’s decision with respect to jurisdiction in Aecon Endorsement was not appealed. In Handley Estate, this court also heard an appeal of a dismissal of a motion to stay a proceeding based on non-disclosure of a settlement agreement, although this court did not expressly address the issue of jurisdiction.

[43] The respondent argues that this court’s decision in Aecon Endorsement has been superseded by this court’s decision in Drywall Acoustic, in which this court held that an order dismissing a motion to stay an action as an abuse of process was interlocutory. However, Drywall Acoustic did not refer to Aecon Endorsement.

[44] In Drywall Acoustic, there were two proposed class actions commenced, one in Ontario and one in Quebec, against the same defendants. Certain parties moved in Ontario to stay the Ontario action in light of the Quebec action, arguing it was duplicative and served no legitimate purpose. The motion was dismissed and the parties appealed. This court concluded that the order dismissing the motion to stay the Ontario action was an interlocutory order, as the order only engaged procedural rights, and did not determine the subject matter of the Ontario action nor determine any substantive rights to relief or substantive defence: at paras. 20-21. In Drywall Acoustic, this court distinguished the order from that in a separate case, Ontario v. Lipsitz, 2011 ONCA 466, 334 D.L.R. (4th) 606, leave to appeal refused, [2011] S.C.C.A. No. 407, where this court concluded that a dismissal of a motion to stay based on the principle of collateral attack was a final order, because the collateral attack argument was a substantive response to the merits of the plaintiff’s claim: at para. 26. In Drywall Acoustic, this court held that, in contrast to Lipsitz, the order at issue did not raise for determination any of the defendants’ substantive responses to the merits of the claim: at paras. 26-27. Rather, it only affected the Quebec plaintiff’s procedural rights, because a determination of which of two competing actions should proceed as a class action affects procedural rights: at paras. 21, 27.

[45] Given this court’s decision in Aecon Endorsement, I am satisfied that this court has jurisdiction over the dispute. Drywall Acoustic did not address the non-disclosure of an agreement affecting whether the litigation could continue or not, whereas Aecon Endorsement did. In my view, it is reasonable to treat the order under appeal as a final order for determining appeal rights.

(2) The motion judge did not err in interpreting and applying the rule from Handley Estate

[46] I turn now to whether the motion judge properly interpreted and applied the rule from Handley Estate.

[47] The motion judge’s finding with respect to whether the respondent failed to immediately disclose the Settlement Agreement, constituting an abuse of process, is a question of mixed fact and law and is entitled to deference: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, at paras. 36-37.

[48] The appellants argue that the motion judge erred in interpreting and applying this court’s decision in Handley Estate in relation to whether there was an abuse of process in this case.

[49] The rule set out in Handley Estate has been the subject of three recent decisions from this court: Tallman Truck Centre Limited v. K.S.P. Holdings Inc., 2022 ONCA 66, 466 D.L.R. (4th) 324, Waxman v. Waxman, 2022 ONCA 311, and Poirier v. Logan, 2022 ONCA 350.

[50] First, I examine the guiding principles arising from these cases, and second, I apply those principles to this case.

(i) Guiding principles from Handley Estate, Tallman, Waxman and Poirier

[51] In these recent decisions, this court has developed principles relating to the abuse of process that arises from the failure to immediately disclose an agreement which changes the litigation landscape. In Handley Estate, the plaintiff’s insurer (“Aviva”) brought a subrogated claim for damages and entered into litigation agreements with one of the defendants (“H&M”). Under the agreements, H&M agreed to defend the action and commence a third party claim, which Aviva would fund, and H&M assigned all its interest in the lawsuit to Aviva, who indemnified H&M from any exposure in the litigation and undertook to prosecute the third party claim. The agreements were not disclosed immediately to the other defendants. Brown J.A. upheld the motion judge’s finding that the agreements changed the relationship between the two parties from an adversarial one into a co-operative one, and thus changed the litigation landscape, triggering the duty of immediate disclosure: at para. 41. Brown J.A. concluded that a breach of the duty to disclose amounts to an abuse of process and the only remedy to redress the abuse of process is a stay of the claim asserted by the defaulting, non-disclosing party: at paras. 45, 48.

[52] In the first of the recent decisions applying the principles from Handley Estate, Tallman, the plaintiff (“Tallman”) and one defendant (“Secure”) entered into a settlement agreement, pursuant to which Secure reversed its pleaded position and joined cause with Tallman. This court upheld the motion judge’s decision that Tallman’s failure to immediately disclose an agreement that changed the litigation landscape amounted to an abuse of process, warranting a stay of the proceedings. This court rejected Tallman’s submission that it made “functional disclosure” of the agreement, holding that the obligation of immediate disclosure “cannot turn on hints offered by opposing counsel”: at paras. 18-20. Further, this court rejected Tallman’s submission that the three-week delay in disclosure was negligible, as the standard is “immediate” disclosure: at para. 26. This court held that a stay of proceedings was required: at para. 28.

[53] In the second case, Waxman, the plaintiffs entered into settlement agreements with three of the defendants, which provided that the contracting defendants would pay lump sums to the plaintiffs in exchange for being released from any claims in the underlying action and providing evidence. The plaintiffs did not disclose the existence or terms of the agreements to the non-contracting defendants immediately. This court upheld the motion judge’s decision that the agreements altered the adversarial position of the parties to one of cooperation, that disclosure was not immediate, and that an automatic stay was the appropriate remedy: at paras. 37-47.

[54] In the third case, Poirier, the plaintiff settled his claim against one of the defendants but did not disclose the settlement to the non-settling defendant for six months. This court upheld the motion judge’s finding that the settlement agreement changed the adversarial position of the parties to a cooperative one, that failure to disclose the agreement amounted to an abuse of process, and that the appropriate remedy was a stay: at paras. 29-30, 34, 59, 72-73.

[55] The following principles can be drawn from this court’s decisions on the abuse of process that arises from a failure to immediately disclose an agreement which changes the litigation landscape:

a) There is a “clear and unequivocal” obligation of immediate disclosure of agreements that “change entirely the landscape of the litigation”. They must be produced immediately upon their completion: Handley Estate, at para. 45, citing Aecon Buildings v. Stephenson Engineering Limited, 2010 ONCA 898, 328 D.L.R. (4th) 488 (“Aecon Judgment”), at paras. 13 and 16, leave to appeal refused, [2011] S.C.C.A. No. 84; see also Waxman, at para. 24;

b) The disclosure obligation is not limited to pure Mary Carter or Pierringer agreements. The obligation extends to any agreement between or amongst the parties “that has the effect of changing the adversarial position of the parties into a co-operative one” and thus changes the litigation landscape: Handley Estate, at paras. 39, 41; see also Tallman, at para. 23; Waxman, at paras. 24, 37; Poirier, at para. 47;

c) The obligation is to immediately disclose information about the agreement, not simply to provide notice of the agreement, or “functional disclosure”: Tallman, at paras. 18-20; Waxman, at para. 39;

d) Both the existence of the settlement and the terms of the settlement that change the adversarial orientation of the proceeding must be disclosed: Poirier, at paras. 26, 28, 73;

e) Confidentiality clauses in the agreements in no way derogate from the requirement of immediate disclosure: Waxman, at para. 35;

f) The standard is “immediate”, not “eventually” or “when it is convenient”: Tallman, at para. 26;

g) The absence of prejudice does not excuse a breach of the obligation of immediate disclosure: Handley Estate, at para. 45; Waxman, at para. 24; and

h) Any failure to comply with the obligation of immediate disclosure amounts to an abuse of process and must result in serious consequences: Handley Estate, at para. 45; Waxman, at para. 24; Poirier, at para. 38. The only remedy to redress the abuse of process is to stay the claim brought by the defaulting, non-disclosing party. This remedy is necessary to ensure the court is able to enforce and control its own processes and ensure justice is done between the parties: Handley Estate, at para. 45; Tallman, at para. 28; Waxman, at paras. 24, 45-47; Poirier, at paras. 38-42.

(ii) The principles applied in this case

[56] The parties agree that the Settlement Agreement changed entirely the landscape of the litigation. The dispute in this case primarily involves the piecemeal nature of the disclosure by the respondent.

[57] On May 27, 2021, the day after the parties signed the Settlement Agreement, the respondent notified the non-settling defendants that a Pierringer agreement had been entered into, that the respondent had settled with TOKI and TOK US and the respondent would continue its lawsuit against the non-settling defendants, and that TOKI had assigned its rights against the Blu Stella defendants to the respondent. On July 9, 2021, a copy of the Settlement Agreement with the financial terms redacted was disclosed to the appellant. Between these dates, counsel for the respondent first indicated that the terms of the Settlement Agreement did not have to be disclosed, but in response to repeated demands from the non-settling defendants, provided a steady stream of additional detail, including a draft order for court approval of the Settlement Agreement, which included some of its terms; an assignment agreement; and the motion record to approve the Settlement Agreement and amend its pleadings, which included an affidavit stating further terms contained in the Settlement Agreement. Ultimately, a redacted form of the Settlement Agreement was provided to the appellant on July 9, 2021.

[58] The motion judge was satisfied that, in the context of the factual dynamics of this case, the respondent’s disclosure of the “essential terms” of the Settlement Agreement was “immediate”.

[59] The motion judge correctly found that not all terms of the agreement had to be disclosed.

[60] The Supreme Court of Canada’s decision in Sable Offshore Energy Inc. v. Ameron International Corp., 2013 SCC 37, [2013] 2 S.C.R. 623, suggests that not every term of a settlement agreement must be disclosed. The Ontario Superior Court has held, relying on Sable, that both the existence of the settlement agreement and its terms must be disclosed, except for terms that do not affect the litigation landscape: Stamatopoulos v. Regional Municipality of Durham, 2014 ONSC 6313, 123 O.R. (3d) 234 (Div. Ct.), at paras. 19-20; K.J. v. The Regional Municipality of Halton, 2022 ONSC 2199, at paras. 62, 71; see also Poirier, at paras. 26, 28, 73.

[61] It is clear that disclosure must go beyond the “functional disclosure” cautioned against in Tallman, at paras. 18-19; see also Waxman, at para. 39. In other words, it is not enough simply to notify the affected parties and the court that an agreement affecting the litigation landscape has been reached. However, in this case, the respondent did not merely provide functional disclosure. On May 27, 2021, the respondent advised that a Pierringer settlement had been entered into, that the respondent had settled with TOKI and TOK US and the respondent would continue its lawsuit against the non-settling defendants, and that TOKI had assigned its rights against the Blu Stella defendants to the respondent. In other words, the respondent immediately disclosed those aspects of the Settlement Agreement that changed the litigation landscape. Additionally, counsel for the respondent advised the non-settling defendants that aspects of the Settlement Agreement would be put before the court for approval, together with a motion to amend the pleadings to reflect the new litigation landscape.

[62] Accordingly, following receipt of the May 27, 2021 email, the non-settling defendants were aware that TOKI and TOK US had been released from the action due to the Settlement Agreement, and that the respondent was moving to bring the Settlement Agreement before the court. As the motion judge put it: “Based on the evidentiary record, the [respondent] took no step to mislead the Non-Settling Defendants or the court with respect to the true nature of the relationships among the parties as a consequence of the Settlement Agreement.”

[63] In considering the factual dynamics, the motion judge found that the appellant and TOKI/TOK US were not aligned in interest at the time the Settlement Agreement was executed. Following the order of Koehnen J. granting the Mareva injunction in December 2020, TOKI/TOK US disassociated themselves from the appellant, and counsel for all the defendants withdrew as lawyers of record due to conflicts between defendants. The motion judge also found that after the appellant resigned as a director of TOK US, he assured TOKI’s board that he would arrange to post security for the full amount of the respondent’s claim, which supported the conclusion that the appellant was aware he was not standing in common with TOKI and TOK US.

[64] Further, although the cooperation term was not disclosed on May 27, 2021, the motion judge held that an essential term of a Pierringer agreement is that the settling defendant agrees to cooperate with the plaintiff, relying on this court’s decision in Endean v. St. Joseph’s General Hospital, 2019 ONCA 181, 54 C.C.L.T. (4th) 183, at para. 52, citing Handley Estate, at para. 39, and Paul M. Perell & John W. Morden, The Law of Civil Procedure in Ontario, 3d ed. (Toronto: LexisNexis Canada Inc., 2017), at p. 762. The motion judge found that based on the May 27, 2021 disclosure of the existence of a Pierringer agreement, and the fact that cooperation is an inherent feature of Pierringer agreements, “a reasonably experienced civil litigation lawyer would have known that the adversarial orientation of the litigation had changed, that parties that had been co-defendants were no longer co-defendants, and were no longer aligned with the other defendants.”

[65] Whether or not cooperation is an inherent feature of Pierringer agreements, the cooperation in this case was disclosed soon after the initial disclosure and formed part of the factual dynamics leading to the approval motion. Therefore, in this case, the failure to disclose the cooperation immediately was not fatal.

[66] The application of the term “immediate disclosure” in a particular case, pursuant to the rule in Handley Estate, will be “fact-dependent”: Aecon Buildings v. Stephenson Engineering Ltd., 2011 SCC 33, [2011] 2 S.C.R. 560, at para. 5. Given the factual dynamics in this case, I see no error in the motion judge’s conclusion that the essential terms of the Settlement Agreement were immediately disclosed. The facts of this case are unlike the situation in Tallman, where this court rejected the plaintiff’s argument that it made “functional disclosure” of the agreement when it served its notice of discontinuance and the settling defendant served an affidavit on the non-settling defendant, without disclosing the existence of the settlement or the relevant terms. In this case, the non-settling defendants were informed immediately of the Pierringer agreement, that the respondent had settled with TOKI and TOK US and that TOKI would assign some of its rights to the respondent.

[67] Further, in my view, the most important aspect of this case is that the motion judge found that the respondent intended to put the entire Settlement Agreement before the court, which is supported by the record. In the May 27, 2021 email, counsel for the respondent advised that the respondent would bring a motion to approve certain aspects of the settlement. In his affidavit evidence, counsel for the respondent stated in relation to the disclosure of the Pierringer agreement to counsel for the non-settling defendants, that “my expectation was that the entire Pierringer Settlement would be provided to the Court on the motion for approval of it.”

[68] After the initial disclosure by counsel for the respondent on the day after the Settlement Agreement was signed, in response to the non-settling defendants’ requests for the terms of the Settlement Agreement, counsel for the respondent provided further information about the terms of the Settlement Agreement in the draft order to approve the Settlement Agreement, in an assignment agreement, in an affidavit in the motion record, and ultimately the Settlement Agreement itself. This incremental disclosure of the terms of the Settlement Agreement all formed part of an ongoing process of putting that agreement before the court.

[69] In short, the rationale for the abuse of process doctrine, as developed in Pettey v. Avis Car Inc. (1993), 13 O.R. (3d) 725 (Gen. Div.), and adopted in Laudon v. Roberts, 2009 ONCA 383, 308 D.L.R. (4th) 422, at para. 39, leave to appeal refused, [2009] S.C.C.A. No. 304, and Handley Estate, at para. 36, did not arise in this case. In Laudon, this court explained the rationale for the disclosure obligation as follows, at para. 39:

The existence of a [Mary Carter agreement] significantly alters the relationship among the parties to the litigation. Usually the position of the parties will have changed from those set out in their pleadings. It is for this reason that the existence of such an agreement is to be disclosed, as soon as it is concluded, to the court and to the other parties to the litigation. The reason for this is well stated in Pettey, supra, at 737-738:

The answer is obvious. The agreement must be disclosed to the parties and to the court as soon as the agreement is made. The non-contracting defendants must be advised immediately because the agreement may well have an impact on the strategy and line of cross-examination to be pursued and evidence to be led by them. The non-contracting parties must also be aware of the agreement so that they can properly assess the steps being taken from that point forward by the plaintiff and the contracting defendants. In short, procedural fairness requires immediate disclosure. Most importantly, the court must be informed immediately so that it can properly fulfil its role in controlling its process in the interests of fairness and justice to all parties.

[70] From the outset, the respondent advised the non-settling defendants of the existence of the Settlement Agreement and committed to put the Settlement Agreement before the court. This aspect of the factual dynamics distinguishes this case from Handley Estate, Tallman, Waxman, and Poirier, and fails to give rise to the rationale underlying the rule that failure to disclose is an abuse of process.

C. Disposition

[71] For these reasons, I would dismiss the appeal.

[72] As the parties have agreed on the quantum of costs, I would award $15,000, all-inclusive, to the respondent.

Released: June 16, 2022 “G.R.S.” “L. Sossin J.A.” “I agree. G.R. Strathy C.J.O.” “I agree. L. Favreau J.A.”