Court File and Parties

COURT FILE NO.: CV-18-00601537-0000 DATE: 20220408 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: K.J. AND: THE REGIONAL MUNICIPALITY OF HALTON and TAD ALBERT NELSON

BEFORE: VERMETTE J.

COUNSEL: Barry L. Yellin and Kayla A. Carr, for the Defendant Tad Albert Nelson Doug Smith, for the Defendant The Regional Municipality of Halton

HEARD: December 21-22, 2021

Endorsement

1The Defendant Tad Nelson moves for an order permanently staying or otherwise dismissing the action as against him for failure to immediately disclose to him a settlement agreement entered into by the Plaintiff and the Defendant Regional Municipality of Halton (“Halton”). Halton brings a cross-motion for summary judgment. The two motions were ordered to be heard together with the stay motion proceeding first and the motion for summary judgment proceeding if the action was not stayed.

2As I was not prepared to rule on the stay motion right after hearing the parties’ arguments, I heard both motions and took them under reserve. Given that, after considering the matter, I conclude as set out below that the proceeding should be stayed as against Mr. Nelson, it is not necessary for me to rule on Halton’s motion for summary judgment.

Factual Background

A. The action

3This action was commenced on July 13, 2018. The Plaintiff claims the following against the Defendants:

a. general damages for pain and suffering in the amount of $350,000.00; b. special damages in the amount of $2 million; c. aggravated damages in the amount of $250,000.00; d. punitive damages in the amount of $250,000.00; and e. costs of the action on a solicitor and client basis pursuant to the Victims’ Bill of Rights, 1995, S.O. 1995, c. 6.

4The action is based on the following allegations. On October 13, 2015, the Plaintiff was a patient in an ambulance operated by Halton’s Paramedic Services. The Plaintiff, who was 22 years old at that time, had attempted suicide by trying to overdose on medications. Mr. Nelson was an attending paramedic in the ambulance.

5While the Plaintiff was being transported to the hospital in an altered state of consciousness, Mr. Nelson took photographs of the Plaintiff, including photographs of her bare breast, underwear and vaginal area. In order for the pictures to be taken, her clothing had to be lifted up to expose the areas of her body.

6A police investigation into Mr. Nelson’s online child pornography led to the discovery of Mr. Nelson’s photographs of the Plaintiff. It is unknown whether Mr. Nelson shared the photographs online or not.

7As a result of his actions, Mr. Nelson was charged with and pleaded guilty to, among other charges, one count of voyeurism related to the photographs that he took of the Plaintiff. While Mr. Nelson was sentenced to a total of 18 months in jail, six months of the sentence were attributed to the voyeurism charge.

8The Plaintiff alleges that once she became aware of Mr. Nelson’s conduct, she felt confused, fearful, shameful, guilty and violated. She also alleges that she has experienced and will continue to experience psychological, physical and mental distress, and that she has suffered loss of income and other damages.

9The causes of action pleaded as against Mr. Nelson are sexual assault, battery, infliction of mental distress, breach of fiduciary duty, invasion of privacy and intrusion upon seclusion. The causes of action pleaded as against Halton are negligence, vicarious liability, breach of duty of care, and breach of non-delegable duty and fiduciary duty.

10Halton was served with the Statement of Claim on July 18, 2018. On the same day, there was an attempt to serve the Statement of Claim on Mr. Nelson, but, at that time, he was not residing at the address where the process server attempted service.

11On July 25, 2018, Halton served a Notice of Intent to Defend.

12On August 10, 2018, there was another attempt to serve the Statement of Claim on Mr. Nelson at the same address as previously, but Mr. Nelson was still not residing at that address. No other attempts to serve Mr. Nelson were made until November 2019.

B. Settlement between the Plaintiff and Halton

13On August 20, 2018, Halton was granted a waiver of defence by the Plaintiff’s counsel and, consequently, it did not serve and file a defence at that time. There was a joint intention on the part of the Plaintiff and Halton to see whether the matter could be resolved quickly.

14On November 8, 2018, Halton conducted an examination for discovery of the Plaintiff in respect of damages only. When asked during her cross-examination whether any attempts were made to involve Mr. Nelson in the process of scheduling the examination for discovery of the Plaintiff, counsel for Halton answered as follows:

No, that was not consistent with our strategy with respect to the claim, which was to resolve the claim, if possible, with K.J. and proceed to take an assignment with respect to her rights against Mr. Nelson.

15After the examination for discovery of the Plaintiff was concluded, counsel for Halton began negotiations with counsel for the Plaintiff in respect of a possible settlement of the Plaintiff’s action. Offers and counter-offers were exchanged between Halton and the Plaintiff.

16On August 1, 2019, the Plaintiff and Halton reached a settlement in the amount of $655,000.00, all inclusive (“Settlement Amount”). The other terms of the settlement were set out in an e-mail from counsel for Halton to counsel for the Plaintiffs (“August 1, 2019 E-Mail”). They were as follows:

a. The Plaintiff will sign a release and confidentiality agreement in favour of Halton, but will be permitted to disclose details of the settlement to immediate family members, lawyers, doctors, and accountants. b. The Plaintiff will assign her claim against Mr. Nelson to Halton. c. The Plaintiff will note Mr. Nelson in default. d. The Plaintiff will not agree to participate in any proceedings by Halton against Mr. Nelson for contribution and indemnity (“Non-Participation Term”), but will consent to her medical records and other productions from these proceedings being used by Halton in such a claim along with the transcript from her examination for discovery. e. If any further proceedings by Halton against Mr. Nelson require a court appearance, Halton will amend the style of cause of the proceeding so as to identify the Plaintiff only by her initials. f. The Plaintiff shall consent to a dismissal of the action against Halton.

17No formal minutes of settlement were signed, but on August 21, 2019, the Plaintiff signed a document entitled “Final Release, Confidentiality and Assignment” (“Release”). The Release provides that in consideration of the payment of $655,000.00 (i.e., the Settlement Amount), the Plaintiff agrees, among other things to completely release and forever discharge Halton and its agents, servants, employees, successors, assigns, members of Council and insurers, save and except Mr. Nelson who was explicitly not released. The Release also provides as follows with respect to the Plaintiff’s assignment of her rights in this action:

AND FOR THE SAID CONSIDERATION the RELEASOR hereby irrevocably grants, assigns, transfers, and sets over unto the RELEASEES, all of their rights, title and interest in the Action as against the Defendant Tad Albert Nelson, together with any and all rights, income, benefits, powers and advantages to be derived therefrom (the “Assignment”) and agrees that the RELEASOR will consent to the use by the RELEASEES of her health records, medical records, tax returns, court documents and transcripts in the prosecution of the Action against Tad Albert Nelson, and agrees to execute any and all ancillary documents required to effect the Assignment.

18Halton paid the Settlement Amount to counsel for the Plaintiff on or about August 16, 2019.

19At the time the settlement was entered into, Mr. Nelson had not been noted in default and, at a minimum, Halton knew that it was possible that he had not been noted in default. [1]

20Halton has not obtained an order to continue under Rule 11.01 of the Rules of Civil Procedure following the assignment of the Plaintiff’s interest in the action as against Mr. Nelson to Halton. Further, Halton has not sought a dismissal of the action as against it pursuant to the settlement because it wishes to pursue its Crossclaim for contribution and indemnity.

C. Steps taken by Halton after the settlement

21On September 6, 2019, Halton served a Statement of Defence and Crossclaim on the Plaintiff, apparently “in order to facilitate recovery from [Mr.] Nelson.” On the last page of the Statement of Defence and Crossclaim, the document indicates that the intended recipients of the pleading (following the words “TO:” and “AND TO:”) are the Plaintiff’s lawyers and Mr. Nelson. The Statement of Defence and Crossclaim does not mention the settlement between Halton and the Plaintiff, nor the assignment of the Plaintiff’s claim against Mr. Nelson to Halton.

22Halton’s Statement of Defence and Crossclaim includes the following paragraphs in the Defence portion:

1. Except as may be hereinafter be [sic] admitted, this defendant denies all of the allegations made against it in the plaintiff's Statement of Claim.
2. Halton denies that it is liable for any of the alleged torts committed by Nelson as referred to in the plaintiff’s Statement of Claim.
3. Halton denies that the plaintiff has suffered the injuries, damage or loss alleged in the Statement of Claim, or at all, and in the alternative pleads that the damages claimed are excessive and too remote and have not been mitigated by the plaintiff.
4. Halton therefore submits that the plaintiff’s action as against this defendant be dismissed with costs.

23The Crossclaim against Mr. Nelson is for contribution and indemnity with respect to the claims of the Plaintiff. Halton pleads the following:

8. In the plaintiff’s Statement of Claim, it is alleged that Nelson sexually assaulted the plaintiff and that Halton is vicariously liable for any damages suffered by the plaintiff as a result thereof.
9. Halton has denied the allegations against it, as appears from its Statement of Defence.
10. Halton pleads that if this defendant is found to be liable for the alleged torts committed by Nelson, then it is entitled to be wholly indemnified by Nelson for any liability found to be owing by Halton to the plaintiff.
11. This defendant pleads and relies upon the provisions of the Negligence Act, R.S.O. 1990, chapter N.1, and the Courts of Justice Act in making its claim for contribution and indemnity against the co-defendant.

24On November 4, 2019, Master Josefo (as he then was) ordered that “the time within which the Regional Municipality of Halton may serve its Statement of Claim on Nelson nunc pro tunc be extended by three months from the date of this Order.” The Notice of Motion before Master Josefo mentioned that the action had been settled as between the Plaintiff and Halton and that Halton had taken an assignment from the Plaintiff of all causes of actions and claims as against Mr. Nelson. It also stated that Halton wished to pursue Mr. Nelson to recover amounts paid by Halton to the Plaintiff by way of the settlement. The supporting affidavit in the Motion Record, which was sworn by a law clerk working with the Plaintiff’s lawyers, states that a settlement was reached between the Plaintiff and Halton on August 1, 2019, and that an assignment to Halton by the Plaintiff was included as part of the terms of the settlement. However, the full terms of the settlement were not included in the affidavit, and the Release was not attached to it.

25Mr. Nelson first learned of this action on November 15, 2019, when he was served with the Statement of Claim, Halton’s Statement of Defence and Crossclaim, and the Order of Master Josefo dated November 4, 2019. Mr. Nelson states in his affidavit that when he was served, he did not understand or realize that this was a separate legal proceeding against him, apart from the criminal proceedings. He further states:

I did not appreciate that I needed to take any steps because I thought it was somehow connected to the criminal proceeding. There was nothing in the documentation that was provided to me by the process server that indicated that the Plaintiff and Halton had settled the Action, that the Plaintiff had assigned her rights in the Action against me to Halton, or that Halton was pursuing me for the amount it had paid to the Plaintiff per the Settlement Agreement.

26On December 10, 2019, Halton filed a Requisition asking that Mr. Nelson be noted in default with respect to the Crossclaim only. He was so noted in default on the same day. Mr. Nelson was noted in default in the main action on December 18, 2019 based on a Requisition filed under the name of counsel for the Plaintiff.

27On June 3, 2020, Mr. Nelson was served with a copy of Halton’s Motion Record in support of a motion for default judgment on Halton’s Crossclaim against Mr. Nelson for $655,000.00, plus interest and costs.

28The cover letter serving Halton’s Motion Record was addressed to both counsel for the Plaintiff and Mr. Nelson. It did not refer to the settlement. However, the Notice of Motion did, and the Motion Record included an affidavit of one of Halton’s counsel which attached a number of exhibits, including the Release. The affidavit referred to the examination for discovery of the Plaintiff and described the settlement between Halton and the Plaintiff as follows:

On August 1, 2019, the Plaintiff and Halton concluded a settlement of the Plaintiff’s action that included the payment by Halton to the Plaintiff [of] the all-inclusive amount of $655,000.00 in satisfaction of all claims for damages, costs and interest (the “Settlement Amount”), and an assignment by the Plaintiff to Halton of all rights of action against Nelson. Attached hereto and marked as Exhibit “D” is a copy of the Release and Assignment Agreement between the Plaintiff and Halton, dated August 21, 2019.

29The receipt of Halton’s Motion Record was the first time that Mr. Nelson learnt that: (a) the Plaintiff and Halton had settled the action for the Settlement Amount; (b) the Plaintiff had assigned her rights in the action to Halton; and (c) the Plaintiff was examined for discovery in his absence before he was served with the pleadings.

D. Setting aside of the noting in default

30After receiving Halton’s Motion Record, Mr. Nelson retained counsel. On June 12, 2020, counsel for Mr. Nelson sent a letter to counsel for Halton advising that they anticipated receiving instructions to move to set aside the noting in default. Counsel for the Plaintiff were copied on this correspondence.

31On June 16, 2020, counsel for Halton and counsel for Mr. Nelson had a video call. During the call, counsel for Mr. Nelson asked if counsel for Halton would produce the Plaintiff’s medical records and examination transcript. Counsel for Halton replied that he could do so pursuant to the settlement agreement between the Plaintiff and Halton.

32On June 23, 2020, counsel for Halton and counsel for Mr. Nelson appeared before Justice Myers for a case conference. On consent, Justice Myers ordered that the title of proceeding be amended so as to identify the Plaintiff only by her initials. He adjourned the case conference to June 30, 2020 for scheduling, and urged counsel to agree on a schedule in the meantime.

33On June 26, 2020, counsel had another video call during which the settlement agreement was referenced. However, there is no evidence before me that the terms of the settlement with the Plaintiff that had not yet been disclosed (e.g., the Non-Participation Term) were disclosed during that call.

34Counsel attended another case conference before Justice Myers on June 30, 2020. In an endorsement dated July 2, 2020, Justice Myers scheduled the oral hearing of both Mr. Nelson’s motion to set aside the noting in default and Halton’s motion for default judgment before a judge on September 15, 2020. He also established a timetable for the motions and directed that Halton provide copies of its productions and the Plaintiff’s productions to Mr. Nelson’s counsel. The endorsement refers to the settlement and states the following:

The plaintiff sued the defendants. She claimed that she was injured by the defendant Nelson and that the municipality is responsible for his wrongdoing.

Mr. Nelson did not defend that plaintiff’s lawsuit and was noted in default.

The plaintiff then settled with the municipality. As part of the settlement, the plaintiff assigned her rights against Mr. Nelson to the municipality. In addition, the municipality has its own crossclaim against him.

The municipality filed a request for a short motion in writing for default judgment on the claim on behalf of the plaintiff and on its own claim against Mr. Nelson for indemnity for the amount the municipality paid to the plaintiff in its settlement with her.

Mr Nelson has been convicted in criminal court concerning the incident that led to the plaintiff’s claim. Accordingly, his liability to the plaintiff is not likely to be in issue. But he might challenge the quantum of the plaintiff’s damages and the reasonableness of the settlement for which the municipality seeks indemnity against him.

35Following the case conference, counsel for Mr. Nelson asked counsel for Halton what terms he would consider for setting aside the noting in default. The following terms were proposed by Halton and subsequently agreed upon by Mr. Nelson:

a. That the noting in default would be set aside to permit Mr. Nelson to litigate the following two issues: (i) the reasonableness of the settlement; and (ii) the apportionment as between himself and Halton; b. That Mr. Nelson not be permitted to defend the action or the crossclaim on the basis that he did not, in fact, commit the sexual assault as alleged; c. That Mr. Nelson not be permitted to conduct further examinations of the Plaintiff; d. That while Mr. Nelson be permitted to litigate the reasonableness of the quantum of Halton’s settlement with the Plaintiff, he not be permitted to litigate the reasonableness of Halton settling the action with the Plaintiff; e. That Mr. Nelson not be permitted to seek to set aside or vary the agreement by which Halton assumed the rights of action from the Plaintiff as against him; and f. That Mr. Nelson pay $2,500.00 in costs.

36Counsel agreed on the terms of a consent order which they sent to Justice Myers. The Order dated July 2, 2020 sets aside the noting in default of Mr. Nelson and also provides the following:

3. THIS COURT ORDERS that the Defendant, Nelson, shall only be permitted to defend the Action on the apportionment of liability as between himself and the Defendant, Halton.
4. THIS COURT ORDERS that the Defendant, Nelson, shall only be permitted to defend the Crossclaim on the reasonableness of the quantum of the settlement between the Plaintiff, K.J., and the Defendant, Halton.
5. THIS COURT ORDERS that the Defendant, Nelson, shall not be permitted to seek to set aside or vary the Settlement Agreement by which the Defendant, Halton, settled with the Plaintiff and assumed the rights of Action from the Plaintiff, K.J., as against him.
6. THIS COURT ORDERS that the Defendant, Nelson, shall not be permitted to conduct further examinations of the Plaintiff, K.J.

E. Steps in the litigation leading to this stay motion

37On August 7, 2020, Mr. Nelson served a Statement of Defence and Crossclaim. He pleads that the Settlement Amount is excessive and unreasonable, and denies that the Plaintiff has suffered financial damages and costs equivalent to the Settlement Amount. He also pleads that Halton breached duties it owed to the Plaintiff and that in the event the Plaintiff suffered damages, Halton is liable for the full extent of the Plaintiff’s damages. In his Crossclaim, Mr. Nelson claims contribution and indemnity against Halton in respect of the settlement between Halton and the Plaintiff.

38On the same day, Mr. Nelson also served a Statement of Defence to the Crossclaim of Halton. He denies all of the allegations in Halton’s Crossclaim, and repeats and relies on the allegations in his Statement of Defence and Crossclaim.

39On August 12, 2020, Halton served an unsworn affidavit of documents on Mr. Nelson. An unsworn affidavit of documents of the Plaintiff was also provided to Mr. Nelson. Halton’s unsworn affidavit of documents did not list any documents related to the settlement with the Plaintiff.

40On September 9, 2020, counsel for Mr. Nelson sent the following e-mail to counsel for Halton:

Dear Counsel:

The Examination for Discovery is currently scheduled for Friday, September 25, 2020. Please advise who from Halton will be attending the Examination and what their role is at Halton.

In addition, we are in receipt of an unsworn Affidavit of Documents of Halton. We ask that you please provide a sworn copy prior to the Examination for Discovery.

We also have an unsworn Affidavit of Documents of the Plaintiff. Please confirm whether you have a sworn copy and if so, please provide us with same.

As you know, there are two primary issues in this litigation: (1) the reasonableness of the settlement as between Halton and K.J., for which Halton seeks indemnity from Mr. Nelson; and (2) the apportionment of liability of Halton and Mr. Nelson.

Upon review of Halton’s unsworn Affidavit of Documents, we discovered that no documents have been produced relating to the settlement negotiations between K.J. and Halton.

Given the nature of the allegations, we ask that the following documents be produced in a sworn Affidavit of Documents in advance of the Examination for Discovery of the Halton Representative:

1. Any and all with and without prejudice communications between Ms. Simona Jellinek and/or her office [Plaintiff’s counsel] and Ms. Rebecca Bush and/or her office [Halton’s counsel];
2. Any and all requests made by Ms. Bush and/or her office for answers to undertakings of the Plaintiff;
3. Any and all formal and/or informal offers to settle exchanged between the Plaintiff and Halton;
4. Any and all notes of Ms. Bush relating to settlement discussions with Ms. Jellinek and/or her office;
5. Any and all docket entries, invoices, disbursement lists, etc. for the Plaintiff’s legal costs and/or any communications by Ms. Bush and/or her office for same;
6. Any and all reports related to the Plaintiff’s alleged injuries and damages received by Ms. Bush and/or her office; and,
7. Any and all other relevant documents relating to settlement discussions between the lawyers for K.J. and Halton.

41On September 11, 2020, Mr. Nelson served his affidavit of documents, which only contained documents in Schedule “C”.

42On September 16, 2020, counsel for Halton sent an e-mail to counsel for Mr. Nelson advising her that the discovery of Halton may have to be rescheduled due to a scheduling conflict. He also stated that his office was gathering some information in response to her request for documents and that he would provide her with their position before the end of the week.

43On October 5, 2020, November 11, 2020, and May 7, 2021, counsel for Mr. Nelson followed up with Halton’s counsel with respect to their request for documents as they had not received anything. Nothing was received. However, the parties had settlement discussions during that period, i.e. in late 2020 and the early months of 2021.

44On May 18, 2021, counsel for Mr. Nelson advised counsel for Halton that Mr. Nelson intended to bring a motion for a permanent stay of the proceeding on the ground that Mr. Nelson was not provided with immediate disclosure of the settlement between the Plaintiff and Halton.

45On July 23, 2021, approximately one week after receiving Mr. Nelson’s Motion Record, Halton sent to counsel for Mr. Nelson a draft Supplementary Affidavit of Documents (unsworn) which lists various correspondence between counsel for Halton and counsel for the Plaintiff, as well as documents received from the Plaintiff, including medical records. This was the first time that the August 1, 2019 E-Mail was provided to Mr. Nelson’s counsel.

The Parties’ Positions

A. Position of Mr. Nelson

46Mr. Nelson’s position is that Halton ought to have disclosed the full terms of the settlement agreement to him and the Court at the time it was reached, i.e. on August 1, 2019. Mr. Nelson argues that the settlement agreement between Halton and the Plaintiff altered the litigation landscape as Halton switched sides from its pleaded position. According to Mr. Nelson, by settling with the Plaintiff and assuming the Plaintiff’s rights in the action against Mr. Nelson, Halton ceased to be adverse in interest with the Plaintiff. Mr. Nelson submits that Halton’s failure to make immediate disclosure amounts to an abuse of process and that, as a result, both the action and Halton’s Crossclaim should be permanently stayed as against Mr. Nelson.

B. Position of Halton

47Halton submits that the settlement agreement in this case did not change the litigation landscape and falls under the routine category of settlements that do not require immediate disclosure. Halton argues that nothing in the settlement changed the relationship between the parties that would otherwise be assumed from the pleadings as Halton was adverse to Mr. Nelson on the day it served its pleading, and remains so today. According to Halton, neither Halton nor the Plaintiff “switched sides” to assist the other. Halton points out that Halton and the Plaintiff are not cooperating in the litigation against Nelson, and that the settlement agreement specifically states that the Plaintiff is not required to participate in the prosecution of Halton’s Crossclaim against Mr. Nelson.

48Halton states that while Mr. Nelson’s counsel argues that the pleadings presented a misleading picture of the litigation, Mr. Nelson placed no reliance on them and may not even have read them before he was served with the default judgment motion materials, which referred to the settlement with the Plaintiff. Halton submits that Mr. Nelson did not suffer any disadvantage as a result of the settlement or the date it was disclosed to him. In Halton’s view, the settlement is a positive development for Mr. Nelson as his liability is capped, he no longer has to contend with the Plaintiff’s active participation against him and he is not exposed to two different sets of costs.

49It is Halton’s position that the cases relied upon by Mr. Nelson can all be distinguished. Halton stresses that there is no precedent for requiring a defendant who has entirely settled a plaintiff’s claim to disclose the details of the settlement to another tortfeasor before continuing a claim for indemnity under section 2 of the Negligence Act, R.S.O. 1990, c. N.1.

50While Halton’s position is that the settlement agreement did not need to be disclosed in this case, it submits that it was disclosed on June 3, 2020, when Mr. Nelson received Halton’s Motion Record in support of its motion for default judgment, and not on July 23, 2021, when the August 1, 2019 E-Mail was disclosed. According to Halton, all the terms that could have affected the adversarial orientation of the lawsuit were disclosed on June 3, 2020, and it went above and beyond what could have been required by disclosing both the Release and the Settlement Amount to Nelson.

51Halton further submits that Mr. Nelson’s motion for a stay is a breach of the agreement reached by Halton and Mr. Nelson regarding the setting aside of the noting in default. In Halton’s view, by arguing that Halton was not entitled to settle with the Plaintiff without immediately informing him, Mr. Nelson is litigating the reasonableness of Halton settling the action with the Plaintiff, which he agreed not to do. Halton also points out that Mr. Nelson did not in any way reserve his rights to bring this motion.

52Finally, Halton argues that Mr. Nelson failed to bring his motion to stay promptly and thereby caused prejudice to Halton. While Mr. Nelson became aware of the relevant terms of the settlement in June 2020, he only advised that he would bring a motion for a stay in May 2021, more than eleven months later. According to Halton, this delay deprived Halton of two methods of resolving this litigation altogether. First, Halton was deprived of its right to contest Mr. Nelson’s motion to set aside the noting in default and to seek default judgment. Second, Halton could have initiated a separate action against Mr. Nelson to seek the Settlement Amount under section 2 of the Negligence Act had Nelson disclosed his intention to move for a stay at any time prior to November 18, 2020 (i.e. when the limitation period to commence such an action ended, according to Halton).

Discussion

53In my view, for the reasons set out below, Halton had the obligation to immediately disclose the settlement agreement that it concluded with the Plaintiff and failed to do so. As a result, this action and Halton’s Crossclaim should be stayed.

A. Principles set out in the Court of Appeal’s decisions in Aecon and Handley Estate

54In Aecon Buildings v. Stephenson Engineering Limited, 2010 ONCA 898 (“Aecon”), the plaintiff, Aecon Buildings, entered into an agreement with the defendant, the City of Brampton, in which Brampton agreed to advance claims against Page + Steele on Aecon’s behalf and Aecon agreed to cap its damage claims against Brampton to any amounts Brampton recovered from Page + Steele and its subconsultants. After becoming aware of the agreement between the plaintiff and Brampton, a Fourth Party brought a motion for an order dismissing the third party claim against Page + Steele, and Page + Steele’s fourth party claim against it. The motion judge’s decision to dismiss the motion was reversed on appeal.

55The Court of Appeal stated the following:

12The Statement of Claim was issued before the agreement between Aecon and Brampton was reduced to writing. The agreement was, however, disclosed to the appellant before it was required to deliver its pleading. The motion judge found on that basis that there was no prejudice caused to anyone from the delay in disclosing the agreement. We agree that there was no prejudice. However, in our view the matter does not end there.

13We 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. As this court said in Laudon v. Roberts (2009), 2009 ONCA 383, 308 D.L.R. (4th) 422, 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 obvious. Such agreements change entirely the landscape of the litigation.

14In this case, the agreement was not voluntarily produced immediately upon its completion. It was only produced several months after its existence was discovered by the appellant and it was specifically requested.

15Other parties to the litigation are not required to make inquiries to seek out such agreements. The obligation is that of the parties who enter such agreements to immediately disclose the fact.

16Here, 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. Where, as here, the failure amounts to abuse of process, the only remedy to redress the wrong is to stay the Third Party proceedings and of course, by necessary implication, the Fourth Party proceedings commenced at the instance of the Third Party. 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. To permit the litigation to proceed without disclosure of agreements such as the one in issue renders the process a sham and amounts to a failure of justice. [Emphasis in the original.]

56The principles set out in Aecon were reaffirmed in Handley Estate v. DTE Industries Limited, 2018 ONCA 324 (“Handley Estate”). In that case, the plaintiff (Aviva) entered into litigation agreements with one of the defendants (H&M) a couple of years after the action was commenced. Under an agreement entered into in 2011, H&M agreed to defend the action and commence a third party claim, which Aviva would fund. Under a second agreement concluded in 2016, 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. Neither Aviva nor H&M disclosed the agreements to the other parties immediately upon their execution. They were disclosed in a piecemeal fashion throughout 2016. The motion judge held that the 2011 and 2016 litigation agreements should have been disclosed, but he refused to stay the action as he concluded that the late disclosure of the agreements had not caused any prejudice to the other defendant.

57The Court of Appeal allowed the appeal and stayed the action. Writing for the Court of Appeal, Brown J.A. described the issue on the appeal as “whether the failure to disclose immediately an agreement between or amongst parties to a lawsuit that converts their adversarial relationship into a co-operative one ordinarily should result in the stay of the non-disclosing party’s claim.”

58Brown J.A. stated the following on the issue of the types of litigation agreements covered by the obligation of immediate disclosure:

39The obligation of immediate disclosure is not limited to pure Mary Carter or Pierringer agreements. The disclosure obligation extends to any agreement between or amongst parties to a lawsuit that has the effect of changing the adversarial position of the parties set out in their pleadings into a co-operative one: Aviaco International Leasing Inc. v. Boeing Canada Inc. (2000), 9 B.L.R. (3d) 99 (Ont. S.C.), at para. 23. To maintain the fairness of the litigation process, the court needs to “know the reality of the adversity between the parties” and whether an agreement changes “the dynamics of the litigation” or the “adversarial orientation”: Moore v. Bertuzzi, 2012 ONSC 3248, 110 O.R. (3d) 611, at paras. 75-79.

40In Aviaco, at para. 23, the court formulated the question to pose to ascertain whether an agreement triggers the immediate disclosure requirement:

Do the terms of the agreement alter the apparent relationships between any parties to the litigation that would otherwise be assumed from the pleadings or expected in the conduct of the litigation?

41In the present case, the motion judge rejected Aviva’s argument that the 2011 Litigation Agreement did not alter the adversarial orientation in the lawsuit between it and H&M. Aviva does not challenge that finding, and properly so. Although the 2011 Litigation Agreement was not a “pure” Mary Carter agreement, and while the terms of the 2011 and 2016 Litigation Agreements were not identical to those in the agreement at issue in Aecon, nevertheless they shared the same essential element: they changed the relationship between two parties from an adversarial one into a co-operative one. As such, the 2011 and 2016 Litigation Agreements were ones that changed the litigation landscape.

59With respect to the issue of remedy, Brown J.A. rejected the submission that the court must engage in a case-specific proportionality analysis to craft an appropriate remedy where there is a finding that a party has committed an abuse of process by failing to disclose immediately an agreement that changed the landscape of the litigation. He confirmed the holding in Aecon that the absence of prejudice did not excuse the late disclosure, and that the only remedy to redress the wrong of the abuse of process was to stay the claim asserted by the defaulting, non-disclosing party. See Handley Estate at paras. 42-46.

60The principles set out in Aecon and Handley Estate were recently confirmed by the Court of Appeal in Tallman Truck Centre Limited v. K.S.P. Holdings Inc., 2022 ONCA 66, affirming 2021 ONSC 984.

B. Subsequent case law

61Aecon and Handley Estate have been applied in a number of cases, including many that were decided in the last year. [2]

62Some additional guidance emerges from these cases:

a. Whether a settlement agreement changes the litigation landscape will ultimately depend on the circumstances of each particular case: see Poirier v. Logan, 2021 ONSC 1633 at paras. 57 and 70 (“Poirier”). b. What must be disclosed are agreements that alter the relationship among the parties from those set out in the pleadings: see Waxman v. Waxman, 2021 ONSC 2180 at para. 29 (“Waxman”). c. The adversarial orientation of a lawsuit is complex because parties may be adverse about some issues and not others. In order to understand the precise nature of the adversarial orientation of the litigation, an issue-by-issue understanding of the positions of the parties may be required. See Poirier at para. 72 and Moore v. Bertuzzi, 2012 ONSC 3248 at para. 76. d. Both the existence of the settlement agreement and its terms, other than terms that do not relate to the change of the litigation landscape, must be disclosed: see Tallman Truck Centre Limited v. K.S.P. Holdings Inc., 2021 ONSC 984 at paras. 8 and 61 (“Tallman”), aff’d 2022 ONCA 66 and Poirier at para. 48. e. Providing timely notice of agreements that change the litigation landscape is important for a number of reasons, including the following (see Waxman at para. 43): i. Timely disclosure enables the remaining defendants to decide whether to bring a cross-claim against the settling defendants. ii. Timely disclosure enables the remaining defendants to bring motions for production from the settling defendants. iii. Timely disclosure enables the remaining defendants to determine whether to examine the settling defendants for discovery or otherwise access and memorialize their evidence. iv. Timely disclosure allows the remaining defendants to assess whether the arrangement affects their strategy, line of cross-examination and evidence to be led by them. f. In addition, the court must be aware of the precise adversarial orientation of the parties in order to maintain the integrity of its own process. The court’s concern is not with safeguarding tactical benefits for litigants, but with procedural fairness, transparency and a level playing field: see Waxman at paras. 43 and 52 and Moore v. Bertuzzi, 2012 ONSC 597 at para. 79. g. As a practice point, there is little reason not to disclose a settlement agreement immediately. Even if the agreement is of the type that does not have to be immediately disclosed, better to be safe than sorry. See Poirier at para. 61.

C. Application to this case

63As stated in Poirier, whether a settlement agreement changes the litigation landscape depends on the circumstances of the particular case. I have concluded that the settlement agreement between Halton and the Plaintiff effected such a change in this case.

64This case is slightly different from the main authorities on the issue of the obligation of immediate disclosure because it is the Plaintiff, not a defendant, who “exited” the action after the settlement, and it is a defendant, i.e. Halton, who is pursuing the litigation. Nevertheless, it is my view that the same principles apply, mutatis mutandis. The reasons underlying the rule requiring immediate disclosure – including maintaining the integrity of the court’s process and ensuring procedural fairness – all apply to the current situation.

65I find that the settlement agreement between the Plaintiff and Halton altered the apparent relationships between the parties to the litigation that would otherwise be assumed from the pleadings or expected in the conduct of the litigation: see Handley Estate at para. 40. Based on the pleadings, the Plaintiff and Halton are adverse in interest. In its Statement of Defence and Crossclaim, which was served after the settlement with the Plaintiff, Halton denies the Plaintiff’s allegations, denies liability, denies that the Plaintiff has suffered damages and asks that the action against it be dismissed with costs. However, after the settlement, not only were the Plaintiff and Halton no longer adverse in interest, but the Plaintiff was out of the action, having assigned its interest in the action to Halton. Having stepped into the Plaintiff’s shoes, the Plaintiff and Halton were one and the same and, consequently, not adverse. Halton was then wearing two litigation hats – Plaintiff and crossclaiming Defendant. This changed the litigation landscape.

66In my view, the fact that (a) an assignment of a party’s interest in an action has the effect of staying the proceeding until an order to continue the proceeding has been obtained (Rule 11.01), and (b) an order to continue needs to be served forthwith on every other party (Rule 11.02), is evidence that an assignment changes the litigation landscape and needs to be disclosed. I also note that one of the agreements in issue in Handley Estate was an agreement under which a party had assigned all its interest in the action to another party.

67A person reading Halton’s Statement of Defence and Crossclaim would not have an accurate understanding of the relationship between the Plaintiff and Halton in the litigation and would not know of the Plaintiff’s assignment to Halton. In my view, Halton’s Statement of Defence and Crossclaim is a sham.

68In addition to the fact that the settlement agreement altered the relationship between the Plaintiff and Halton from those set out in the pleadings, the settlement agreement affected the adversarial orientation and the dynamics of the litigation between Halton and Mr. Nelson. While Halton has crossclaimed against Mr. Nelson and both are adverse with respect to some issues, they were not adverse on all issues before the settlement. As stated above, in order to understand the precise nature of the adversarial orientation of the litigation, an issue-by-issue understanding of the positions of the parties may be required. In this case, Halton and Mr. Nelson were not adverse with respect to the issue of the Plaintiff’s damages: it was in both their interests to have the Plaintiff’s damages assessed as low as possible. Thus, they were both adverse to the Plaintiff on this issue. By reaching an agreement with the Plaintiff on the quantum of damages and seeking to recover the Settlement Amount from Mr. Nelson on the basis that it is reasonable and not excessive, Halton was no longer adverse to the Plaintiff on the issue of damages (in fact, it became the Plaintiff by assignment) and became adverse to Mr. Nelson on that issue.

69In light of the foregoing, the settlement in this case is one to which the obligation of immediate disclosure applies and, therefore, it needed to be immediately disclosed to Mr. Nelson. However, it was not. No attempt was made to communicate with Mr. Nelson between August 1, 2019, the date of the settlement, and November 15, 2019, the date on which Mr. Nelson was served with the pleadings. Further, the communication received by Mr. Nelson on November 15, 2019 did not disclose the settlement between the Plaintiff and Halton. As discussed above, the Statement of Claim and Halton’s Statement of Defence and Crossclaim do not reflect the settlement, and there was no cover letter or anything else disclosing the existence of the settlement and its terms. At that time, Mr. Nelson had not been noted in default, and disclosure was required. [3]

70Disclosure of the existence of the settlement was only made on June 3, 2020, when Mr. Nelson was served with Halton’s Motion Record in support of its motion for default judgment. This was ten months after the settlement was concluded, clearly not immediately after the settlement was concluded. But event then, not all the terms of the settlement were disclosed. To obtain full disclosure of the settlement terms, Mr. Nelson had to wait more than a year, i.e. until July 23, 2021, when Halton sent to Mr. Nelson’s counsel a draft and unsworn Supplementary Affidavit of Documents that contained, among other things, the August 1, 2019 E-Mail.

71As stated above, both the existence of the settlement agreement and its terms must be disclosed, except for terms that do not relate to the change of the litigation landscape: Tallman at paras. 8 and 61. I find that the term that the Plaintiff would not agree to participate in any proceedings by Halton against Mr. Nelson (i.e. the Non-Participation Term) is a term that relates to the change of the litigation landscape which had to be immediately disclosed. A partial disclosure of the settlement terms that did not include the Non-Participation Term constituted an incomplete disclosure of the role of the Plaintiff in the litigation going forward, which could lead to an inaccurate understanding of the new relationship between Halton and the Plaintiff. In my view, procedural fairness required the disclosure of the Non-Participation Term because knowledge of this term could have had an impact on the strategy to be pursued by Mr. Nelson and was necessary so that Mr. Nelson could properly assess the steps being taken after the settlement. See Handley Estate at para. 36

72In my opinion, a party should be careful before parsing a settlement agreement and picking and choosing which terms need to be disclosed and which do not. Partial disclosure can result in an incomplete and/or misleading picture of the parties’ relationships after the settlement. Further, such an exercise can dilute the “clear and unequivocal” obligation of immediate disclosure reiterated by the Court of Appeal (Aecon at para. 16 and Handley Estate at para. 45) and lead to disputes between the parties as to whether a particular term should or should not have been disclosed. I note that neither in Aecon nor in Handley Estate did the Court of Appeal parse the agreements in issue to determine whether certain terms did not have to be disclosed: see, e.g. Handley Estate at paras. 20, 22-26. I agree with the following comments of Justice Koehnen in Waxman at para. 52:

The plaintiffs’ arguments really focus on parsing or slicing and dicing the Handley principle to avoid its overriding principle. I can understand why a party would do that. It presumably wishes to safeguard some strategic or tactical benefit for itself which the simple application of the Handley principle would not allow. The court’s concern is not, however, with safeguarding tactical benefits for litigants. Its concern is with procedural fairness, transparency and a level playing field. In cases of doubt, that would almost always tend towards disclosure.

73While certain terms may not have any impact on the relationship of the parties or the conduct of the litigation going forward (e.g., using a party’s initials instead of their full name in the title of proceeding and, in many cases, the amount paid to settle the matter), if other terms have such an impact, they are likely part of, and related to, the change in the litigation landscape or the dynamics of litigation, and they should be disclosed. This is the case for the Non-Participation Term.

74The fact that Mr. Nelson agreed in the context of the setting aside of the noting in default that he would not conduct further examinations of the Plaintiff is, in my view, irrelevant. Mr. Nelson was entitled to have disclosure of the relevant terms of the settlement agreement before he negotiated the setting aside of the noting in default, and it is possible that knowledge of these terms could have had an impact on his strategy in that context. Further, I note that one of the terms agreed upon with respect to the setting aside of the noting in default was that Mr. Nelson would not seek to set aside or vary the agreement by which Halton assumed the rights of action from the Plaintiff as against Mr. Nelson. However, at the time, not all the terms of that agreement had been disclosed to Mr. Nelson.

75I reject Halton’s arguments about the absence of prejudice to Mr. Nelson. The fact that the failure to disclose may not have caused any prejudice to Mr. Nelson is irrelevant and does not excuse the late disclosure of a settlement agreement: Aecon at paras. 12 and 16 and Poirier at para. 49. [4]

76Further, I see no basis to conclude that the obligation of immediate disclosure does not apply to cases under section 2 of the Negligence Act, as argued by Halton. Halton relies on Pelchat v. Brown, 2016 ONSC 6754 where default judgment was granted to a defendant against a co-defendant under section 2 of the Negligence Act after a settlement with the plaintiff, despite there being no indication that the defendant ever amended his pleadings to reflect the settlement agreement or ever served the co-defendant with a copy of the settlement agreement. In my view, Pelchat v. Brown has no bearing on this case. It does not concern a motion for a stay of proceedings, the issue of the disclosure of the settlement agreement is not addressed one way or the other, and none of the relevant authorities regarding the obligation of immediate disclosure are mentioned. The issue that is before me was not before the court in Pelchat v. Brown.

77I similarly see no basis to conclude that the obligation of immediate disclosure is somehow impacted in cases involving vicarious liability, as was argued by Halton at the hearing of the motion. While it is true that the question of whether a settlement agreement changes the litigation landscape will ultimately depend on the circumstances of each particular case, the settlement agreement in this case did change the litigation landscape for the reasons set out above. The fact that the Plaintiff alleged vicarious liability against Halton does not have any impact on my analysis and conclusion. I also note that this case cannot be looked at only through the liability lens. Damages are a significant issue.

78I disagree with Halton that the bringing of a stay motion constituted a breach of the agreement reached by Halton and Mr. Nelson regarding the setting aside of the noting in default. The stay motion does not relate in any way to the reasonableness of Halton settling the action with the Plaintiff. What is in issue on this motion is not the reasonableness of the settlement, but, rather, whether Halton and the Plaintiff failed to comply with their obligation of disclosure after the settlement was entered into. Further, Mr. Nelson is not seeking to vary the agreement between the Plaintiff and Halton.

79Finally, I also reject Halton’s submission that this motion should be dismissed because it was not brought sufficiently promptly. Halton relies on Rule 21.02 of the Rules of Civil Procedure and the decision of the Court of Appeal in Dosen v. Meloche Monnex Financial Services Inc. (Security National Insurance Company), 2021 ONCA 141 at paras. 68-72 (“Dosen”) which reiterated that delay in bringing a motion under Rule 21.01 can be a sufficient ground to dismiss the motion.

80Given my finding that Halton did not disclose all the terms that it had to disclose until July 23, 2021 (i.e. when it disclosed the August 1, 2019 E-Mail), which was after the motion was brought, there was no delay in bringing the stay motion. I note that counsel for Mr. Nelson made a number of requests for documents between September 2020 and May 2021, but none of the documents requested were produced until July 2021. Parties to the litigation are not required to make inquiries to seek out settlement agreements that change the litigation landscape. The obligation is that of the parties who enter such agreements to immediately disclose the fact. See Aecon at para. 15.

81The delay in this case is not unusual when compared to other cases where disclosure of settlement agreements and settlement terms was made in a piecemeal fashion: see, e.g., Waxman at paras. 23-24 and Handley Estate at paras. 22-27.

82Even if all the required disclosure had taken place on June 3, 2020 (when Mr. Nelson was served with Halton’s Motion Record in support of its motion for default judgment), I would decline to dismiss the motion based on delay. Contrary to the situation in Dosen, the action is still at a very early stage: documentary discovery has not been completed and examinations for discovery have not taken place (as between Halton and Mr. Nelson). Further, nothing of substance happened in the action between September 2020, when counsel for Mr. Nelson made a request for the production of documents related to the settlement negotiations between the Plaintiff and Halton, and May 2021, when counsel for Mr. Nelson advised that a stay motion would be brought. Among other things, the parties had settlement discussions during that period.

83Further, I find that Halton has not established prejudice.

84Halton’s Manager, Risk and Insurance Services affirmed a short affidavit on this motion in which she states that had she been advised prior to July 9, 2020 [i.e. the date on which the parties agreed on terms to set aside the noting in default and sent a consent order to Justice Myers] that a motion to stay this proceeding was being contemplated, she would have instructed Halton’s counsel to resist Mr. Nelson’s motion to set aside the noting in default and to proceed with Halton’s motion for default judgment. However, she admitted in cross-examination that she was not familiar with whether orders to set aside noting in default were routinely granted, and she did not appear to be aware of the factors that one would consider before making the decision to give such instructions. The associate working on this matter for Halton also stated in his affidavit that had counsel for Mr. Nelson given any indication that they intended to bring a motion for a stay of proceedings, he and the partner on the file would have recommended to Halton that it not agree to set aside the noting in default on consent, and instead oppose that motion.

85I give very little weight to this evidence. First, it is self-serving. Second, it ignores the fact that motions to relieve against defaults “are frequently made and are typically granted on an almost routine basis”: see Nobosoft Corporation v. No Borders, Inc., 2007 ONCA 444 at para. 7. I note, in particular, that Mr. Nelson was noted in default less than 40 days after service of the Statement of Claim and the Statement of Defence and Crossclaim (less than 30 days in the case of the Crossclaim), without any warning or follow-up correspondence. Further, his explanation as to why he did not do anything after receiving the pleadings is unchallenged on this motion, and he acted promptly to address the action and his noting in default the next time he received anything related to the action, i.e., after receiving Halton’s Motion Record in support of its motion for default judgment.

86I also reject Halton’s submission that it has been deprived of the opportunity to commence, within the limitation period, a separate action against Mr. Nelson seeking the same relief that Halton is seeking in its Crossclaim. Halton has not referred to any authority that would support the proposition that it could ever be appropriate for a party to commence a second proceeding, between the same parties and seeking the same relief, when the first proceeding is found to be an abuse of process. Halton elected to proceed by way of Crossclaim shortly after the settlement was concluded and approximately nine months before it disclosed the existence of the settlement (but not all the terms) to Mr. Nelson. It made its choice, and it is responsible for most of the delay that took place within the limitation period as its first disclosure to Mr. Nelson was in June 2020.

Conclusion

87In light of the foregoing, I order that the action and Halton’s Crossclaim be permanently stayed as against Mr. Nelson.

88Given this ruling, Halton’s motion for summary judgment is moot.

89If costs cannot be agreed upon, Mr. Nelson shall deliver submissions of not more than three pages (double-spaced), excluding the costs outline, within 14 days of the date of this endorsement. Halton shall deliver its submissions (with the same page limit) within 14 days of its receipt of Mr. Nelson’s submissions.

Vermette J. Date: April 8, 2022

Footnotes

1See qq. 223-225 of the transcript of the cross-examination of Rebecca Bush.

2For a more detailed discussion of the case law, see Crestwood Preparatory College Inc. v. Smith, 2021 ONSC 8036 at paras. 60-75.

3This is not a case where a party cannot be found. There is no evidence that the Plaintiff and Halton attempted to locate Mr. Nelson to advise him of the settlement after August 1, 2019. There does not appear to have been any difficulties in serving Mr. Nelson with the Statement of Claim and the Statement of Defence and Crossclaim in November 2019 after Halton obtained the Order of Master Josefo. Again, no disclosure of the settlement agreement (neither its existence nor its terms) was made at that time.

4This should not be interpreted as an acceptance of the allegation that Mr. Nelson did not suffer any prejudice. Given that this point is irrelevant, I simply do not need to deal with it.