Court File and Parties

Court of Appeal for Ontario Date: 2022-09-08 Docket: C70087

Before: Miller, Nordheimer and Sossin JJ.A.

Between:

Hamilton-Wentworth District School Board Plaintiff (Respondent)

And

Casey Zizek, Frank John Erzar, Frank Erzar operating as FJE Contracting and Barbara Ann Erzar Defendants (Appellant)

Counsel: Richard MacGregor, for the appellant Mark J. Zega and Laura J. Freitag, for the respondent, Hamilton-Wentworth District School Board Jennifer Vrancic, for the defendants, Frank John Erzar, Frank Erzar operating as FJE Contracting and Barbara Ann Erzar

Heard: September 2, 2022

On appeal from the order of Justice Kim A. Carpenter-Gunn of the Superior Court of Justice, dated November 8, 2021.

Reasons for Decision

[1] Casey Zizek appeals from the decision of the motion judge who dismissed the appellant’s motion to stay this proceeding.

[2] The underlying action involves a claim by the respondent against the defendants arising out of an alleged fraud committed by the defendants against the respondent. The action was commenced on October 14, 2016. Pleadings were exchanged in 2017. The action then languished until the events that give rise to this motion.

[3] On September 4, 2019, the respondent settled its claim against all of the defendants, save for the appellant. The settlement required, among other things, that the settling defendants provide evidence for the respondent’s claim against the appellant. The respondent was aware that this settlement would impact the litigation, including expanding the scope of the fraud alleged. Among other things that occurred as a result of the settlement agreement, the respondent obtained a large volume of documents from the settling defendants. It also sought to add the appellant’s wife and children as defendants.

[4] The appellant only became aware of this settlement when the respondent served a motion for directions to implement the settlement on December 6, 2019, returnable on December 19, 2019. In response, the appellant brought the motion to stay.

[5] The motion judge dismissed the motion to stay. She concluded that there was no abuse of process involved that would warrant a stay. She also found it would not be just to grant a stay.

[6] In our view, the motion judge misunderstood, and thus failed to apply, the principle enunciated in various decisions of this court regarding the obligations on a party who enters into a settlement agreement, such as a Mary Carter or Pierringer agreement. Those cases require a party to “immediately” advise the other parties of such an agreement. The failure to do so by itself constitutes an abuse of process.

[7] Instead, the motion judge engaged in a detailed and separate analysis of the concept of abuse of process and its origins. None of that was necessary to address the issue that was before her. All that was required was for the motion judge to follow and apply the directions of this court regarding the requirements that flow when these types of agreements are entered into, and the consequences that arise when those requirements are not met. Those consequences are clearly set out in several cases, but especially in Aecon Buildings v. Stephenson Engineering Limited, 2010 ONCA 898, 328 D.L.R. (4th) 488 where MacFarland J.A. said, at para. 13:

We do not endorse the practice whereby such agreements are concluded between or among various parties to the litigation and are not immediately disclosed. While it is open to parties to enter into such agreements, the obligation upon entering such an agreement is to immediately inform all other parties to the litigation as well as to the court. [Emphasis in original.]

[8] As was the case in Aecon, several months passed before the respondent revealed the existence of the settlement agreement. The argument that this delay was justified because the respondent needed to seek directions from the court regarding the implementation of the settlement, which was accepted by the motion judge, does not excuse the respondent’s failure to immediately advise the appellant of the existence of the settlement agreement. Nothing prevented the respondent from immediately advising the appellant of the settlement agreement and then, subsequently, bringing a motion for directions. It is that fact that distinguishes this case from the decision of this court in CHU de Québec-Université Laval v. Tree of Knowledge International Corp., 2022 ONCA 467 on which the respondents attempted to rely. In that case, the day after the settlement agreement was signed, and two days after it became effective, counsel advised the respective counsel for the non-settling defendants of the existence of the settlement agreement, by way of an email. This court found that “the essential terms of the agreement were disclosed immediately” as a result of that email. No such notification was made in this case.

[9] The motion judge also found that it would be “unjust” to the respondent to foreclose its action. That submission is repeated by the respondent before us. We first note that, if there is any failure of justice, it is entirely of the respondent’s own making. As acknowledged by the respondent’s counsel before us, there was nothing that prevented an immediate notification of the type that was made in Tree of Knowledge. In any event, a showing of prejudice is not a requirement in these situations. As MacFarland J.A. said in Aecon, at para. 16:

Here, the absence of prejudice does not excuse the late disclosure of this agreement. The obligation of immediate disclosure is clear and unequivocal. It is not optional. Any failure of compliance amounts to abuse of process and must result in consequences of the most serious nature for the defaulting party.

[10] The principle established by Aecon has been confirmed in a number of subsequent decisions of this court. [1] The principle itself is clear. The requirement that a settlement agreement must be disclosed immediately means exactly what it says. This is not a matter of discretion, nor is it a matter of “context”, nor of factual analysis. More than three months passed before the existence of the settlement agreement was disclosed to the appellant. There was, thus, a clear failure to notify the appellant immediately. The motion judge failed to understand and apply that central principle and, thus, erred in her conclusion not to grant a stay.

[11] Before concluding, we would add that part of the reason for a clear principle, or a “bright line”, is to avoid the very interlocutory proceedings that have occurred in this case which only serve to increase the expense of the litigation for all parties.

[12] The appeal is allowed, the order below is set aside, and, in its place, an order is granted staying the proceeding. The appellant is entitled to his costs of the appeal in the agreed amount of $10,000, inclusive of disbursements and HST. The appellant is also entitled to his costs of the original motion to stay in the agreed amount of $13,000, inclusive of disbursements and HST.

“B.W. Miller J.A.”

“I.V.B. Nordheimer J.A.”

“L. Sossin J.A.”

Footnotes

[1] See, for example, Handley Estate v. DTE Industries Limited, 2018 ONCA 324, 421 D.L.R. (4th) 636, Tallman Truck Centre Limited v. K.S.P. Holdings Inc., 2022 ONCA 66, 466 D.L.R. (4th) 324, Poirier v. Logan, 2022 ONCA 350.