ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 05-CV-283449 PD1
DATE: 2013/07/18
BETWEEN:
STAMATIS (STEVE) STAMATOPOULOS, NIKOLAOS STAMATOPOULOS, CHRISTOTHEA STAMATOPOULOS, KYRIAKOS STAMATOPOULOS and STEPAHNIE CLARKE
Plaintiffs
– and –
RICHARD A. HARRIS and THE REGIONAL MUNICIPALITY OF DURHAM and HER MAJESTY THE QUEEN IN RIGHT OF THE PROVINCE OF ONTARIO represented by THE MINISTER OF TRANSPORTATION FOR THE PROVINCE OF ONTARIO and STATE FARM INSURANCE
Defendants
George A. Bougadis and Boris Goryayev, for the Appellants/Plaintiffs
Sachin Persaud, for the Respondent/Defendant, The Regional Municipality of Durham
HEARD: March 28, 2013
CAROLE J. BROWN j.:
REASONS FOR DECISION
Overview
[1] This is an appeal from the Order of Master Dash dated September 14, 2012 which ordered an immediate disclosure of the subject Mary Carter Agreement (“MCA”), partially redacted, to the non-settling defendant, the Regional Municipality of Durham (“Durham”). This appeal raises the question of whether and to what extent the MCA should be disclosed, beyond the fact that it exists.
[2] The Appellants submit that the MCA is subject to settlement privilege, that MCAs further the public policy of promoting settlement disputes and that production of MCAs to non-settling parties would have a significant “chilling effect” on efforts of parties engaged in litigation to arrive at settlement or partial settlement of the litigation. They argue that such disclosure would have a negative effect on the overriding public interest in favour of settlement and that settlement privilege should be paramount. They argue that Master Dash erred in law in concluding that MCAs are an exception to settlement privilege; that he erred in applying the law regarding MCAs, confidentiality and non-disclosure to this case; and that he erred in concluding that the Partial Judgment does not adequately disclose the adversarial orientation as between the plaintiffs and the defendant, Richard Harris (“Harris”). They argue that the Partial Judgment disclosed to the non-settling parties contained all of the information that the defendant, Durham, requires for Rule 49 purposes and that the MCA contains provisions that are confidential, privileged and/or not relevant. They argue that disclosure of the MCA will significantly prejudice the plaintiffs and will remove the consideration they bargained for, and that the prejudice the plaintiffs will suffer from disclosure far outweighs any probative value. They have not, in their materials, included details of any prejudice. They argue that they complied with the law as it existed at the time, and would not have entered into the agreement had they believed it would be disclosed to the other side. I note, in that regard, that there was no evidence adduced to support this.
[3] They further argue that the motion for disclosure before the Master was an attempt to vary or set aside the Partial Judgment of Wilkins J., which is beyond the jurisdiction of the Master.
[4] The respondents argue that the Master properly applied the caselaw with respect to MCAs and disclosure, as it has developed in Ontario jurisprudence over the last 20 years. They argue that the appellant has failed to establish that the Master erred in law or in fact in ordering that the Partial Judgment did not adequately disclose the true adversarial orientation of the plaintiff and defendant, Harris, and in ordering production of the partially redacted copy of the MCA to the respondent.
The Facts
[5] This action arises from a single motor vehicle accident, which occurred on November 5, 2004 on Regional Road Number 39 in the Regional Municipality of Durham, in which the plaintiff, Steve Stamatopoulos, was the front seat passenger in a vehicle operated by the defendant, Harris. They were travelling from Harris’ home to Casino Rama. En route there, Harris lost control of his vehicle, which left the road and entered a roadside ditch. As a result, Stamatopoulos sustained serious personal injuries.
[6] Stamatopoulos and members of his family commenced this action for $11 million in damages plus interest and costs against Harris (the driver), Durham (the entity with jurisdiction over the road), State Farm Insurance (Stamatopoulos’ accident group benefits provider), and Her Majesty the Queen in Right of the Province of Ontario (“HMQ”). The action as against HMQ was dismissed on October 12, 2005.
[7] On May 7, 2010, the plaintiffs and the defendant, Harris, entered into a MCA with respect to this action. By way of the MCA, the action was partially settled as against the defendants, Harris and State Farm Insurance, leaving only Durham as the defendant. A Partial Judgment, specifying the settlement amounts and other terms and conditions regarding the structuring of the settlement, was rendered by Wilkins J. on May 18, 2010. The Partial Judgment set forth the settlement amounts including $1,378,000 all-inclusive as against Harris and $1.1 million all-inclusive as against State Farm Insurance. The Partial Judgment also ordered that the cross-claim of the defendant, Harris, be continued as against his co-defendant, Durham, subject to the executed and sealed agreement between the plaintiffs and Harris, dated May 7, 2010. On May 20, 2010, the plaintiffs’ counsel served all of the defendants in this action, including Durham, with a copy of the Partial Judgment, dated May 18, 2010, which clearly disclosed the amount of payment by Harris and State Farm Insurance.
[8] On September 14, 2012, the defendant, Durham, brought a motion before Master Dash for an Order compelling the plaintiffs and/or the defendant, Harris, to disclose a copy of the MCA.
The Order of Master Dash
[9] Master Dash granted the motion, in part, and ordered that the MCA be produced, partially redacted, with the complete MCA to be produced at the opening of trial.
[10] In reaching his decision, Master Dash held that (1) MCAs were an exception to settlement privilege; (2) production of the Partial Judgment did not adequately disclose the adversarial orientation or change of landscape resulting from the MCA; (3) there was no specific evidence supporting the plaintiffs’ position that they would not have signed the MCA had they considered the ramifications of the law regarding disclosure of MCAs, as developed; and (4) there was no merit to the plaintiffs’ argument that Master Dash did not have jurisdiction to make his Order regarding the disclosure of the MCA, as there was nothing in the Partial Judgment that dealt with such disclosure. The Master was provided with a sealed copy of the MCA for his review, which was not filed. In his decision, he referred only to the numbers of the provisions in the MCA, to preserve confidentiality for the purposes of an appeal.
[11] In his decision, the Master reviewed the relevant caselaw regarding MCAs, confidentiality and disclosure or production of the MCAs. The issue, as he framed it, was whether production of the Partial Judgment effectively disclosed the changes to the adversarial orientation among the settling parties in order for the Court to maintain the fairness and integrity of the process and to do justice to the non-settling defendant to ensure that it was given a fair opportunity to meet the real case against it by the plaintiffs and by the settling cross-claiming defendant, Harris, such as might affect its strategy at trial and preparation for trial, including what evidence it will need to call, and its ability to realistically settle the claims against it. He found, based on the caselaw, that where settlement agreements, such as the MCA, change the adversarial orientation or landscape of the action as among the parties, production of some or all of the agreement, which is in the Court’s discretion, is appropriate in order that the non-settling parties are given a fair opportunity to meet the real case against them. He found that the Partial Judgment, which set forth the amounts of the settlement as among the settling defendants and the plaintiff, did not adequately describe or disclose the true adversarial orientation as between the plaintiffs and Harris. Accordingly, he ordered disclosure to the non-settling defendant, Durham, of certain portions of the MCA. In doing so, he relied on the cases of Lauden, Aecon, Noonan and Bertuzzi, all cited and reviewed below. He further acknowledged the appellant/defendants’ argument that they complied with the law as it existed at that time, and intended, at the time it was entered into, that it would remain confidential. The Master observed that had the plaintiffs considered the ramifications of the law, as it had developed in Ontario, they may well not have signed the MCA as drafted, but that there was no specific evidence to that effect before him.
The Standard of Review
[12] The parties are in agreement with respect to the applicable standard of review.
[13] A Master’s decision should not be interfered with unless the Master made an error of law, exercised his or her discretion on the wrong principles, or misapprehended evidence such that there was a palpable and overriding error: Zeitoun v. Economical Insurance Group (2008), 2008 20996 (ON SCDC), 91 O.R. (3d) 131 (Div. Ct.) at para. 40; aff’d 2009 ONCA 415, 96 O.R. (3d) 639.
[14] Where the Master has erred in law, the standard of review is correctness: Zeitoun v. Economical Insurance Group supra, at para. 41. Where there is an error of fact or in the exercise of discretion, it must be established that the discretion was based on a wrong principle or that there was a palpable or overriding error in the assessment: Hough v. Amer Sports Canada Inc., 2012 ONSC 4281, [2012] O.J. No. 3543 at paras. 5-6.
Issue
[15] The issue in this appeal is whether, in ordering partial disclosure of the MCA, the Master erred in law, exercised his discretion on the wrong principles, or misapprehended evidence such that there was a palpable and overriding error.
The Relevant Caselaw
[16] Settlement communications have generally been categorized as subject to “class” or “categorical” privilege rather than “case-by-case” privilege. The doctrinal nature of settlement privilege as regards settlement agreements that change the adversarial orientation of the lawsuit, such as MCAs, has been recently analyzed and commented on by Perell J. in the decision of Moore v. Bertuzzi, 2012 ONSC 3248, 110 O.R. (3d) 611. MCAs are an exception to settlement privilege.
[17] Ontario courts have recognized MCAs as attracting settlement privilege with limitations, including the obligation to disclose the existence of the MCA, and the requirement to disclose additional terms, as required, in order to ensure that fairness and justice prevail among parties. This recognizes that the existence of a MCA significantly alters the relationship among the parties to the litigation and that the positions of the parties will have changed from those set forth in the pleading.
[18] MCAs have been in existence and recognized as valid by courts in North America for many years. In the United States, their treatment differs from state to state. In some states, such agreements are prohibited, in others, permitted. In some states, MCAs are permitted to remain confidential while in others, they must be disclosed.
[19] In Ontario, the law has evolved over the last 20 years with respect to MCAs, the obligations and responsibilities regarding MCAs in the context of litigation, requirements for disclosure, and the extent of disclosure that may be required. The courts must balance the public policy interest in the confidentiality of settlement agreements, which fosters and encourages settlement, with the need to ensure that justice and fairness prevail among the parties to the litigation and the court’s ability to control its process and ensure the fairness and integrity of the litigation process with full knowledge of all relevant circumstances. A history of the evolution of these agreements is found in Pettey v. Avis Car Inc. (1993), 1993 8669 (ON SC), 13 O.R. (3d) 725 (Sup. Ct.).
[20] There is an obligation on the parties who enter into a settlement agreement, such as a MCA, to immediately inform the other parties and the court of the agreement. The immediate disclosure is clear, unequivocal and not optional: Aecon Buildings, a Division of Aecon Construction Group Inc. v. Brampton, 2010 ONCA 898, [2010] O.J. No. 5630 at para. 16. The reason for this is set forth in the case of Laudon v. Roberts, 2009 ONCA 383, [2009] O.J. No 1824 at para. 39, as follows:
The existence of a MCA 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:
32. 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 fulfill its role in controlling its process in the interests of fairness and justice to all parties.
[21] It is clear, based on the authority in Pettey, supra and Laudon, supra, that the MCA must be disclosed to the court and to the non-settling parties as soon as the agreement is concluded. It cannot be postponed to the commencement of trial.
[22] The disclosure of the settlement amounts is in the discretion of the court. The court must ensure that there is no double recovery by the plaintiff occasioned by the MCA. The principle against double recovery must be respected.
[23] I note, in the present case, that whether the existence of the MCA should be disclosed is not in issue, nor is the matter of when the settlement amounts should be disclosed. Based on Laudon, supra, the appellant/plaintiff produced the Partial Judgment immediately after it was obtained, which set forth the settlement amounts and also the fact that the cross-claim of Harris as against Durham would continue. The only issue here is whether further disclosure is necessary in the interest of justice and fairness to all parties.
[24] Since those decisions, which set forth the foundational principles of and reasons for balancing between the privilege normally accorded to settlement agreements and the requirements regarding disclosure of the existence of MCAs and, in certain circumstances, disclosure or limited disclosure of the terms of those agreements, there has been greater focus in the courts on the extent of disclosure required in order to ensure that the parties remain on a level playing field where adversarial orientations in the litigation may have changed due to the MCA, and in order that the non-settling party properly understands the case to be met.
[25] These decisions are reviewed with approval by Perell J. in Moore v. Bertuzzi, supra, at paras. 80-100. In Noonan v. Alpha-Vico, 2010 ONSC 2720, [2010] O.J. No. 2807 (Master), the Master ordered that Minutes of Settlement and an approval Order arrived at in one of two cases arising from the same factual matrix be produced in the companion action. The Master made his determination on the basis of first principles, considering the issue of disclosure and withholding of information in civil proceedings based on the two competing principles of relevance and privilege, and taking into consideration the importance and necessity that all parties know who is adverse in interest in order that the adversarial system functions fairly and justly. He recognized as fundamental to ensuring the fairness and integrity recognized by Ferrier J. in Pettey, supra, the following considerations: whether the settling defendant is no longer in the action, but will be providing key evidence at trial; whether the position of the defendant that remains in the action may be significantly changed from that set forth in the pleadings; whether the settling defendant retains a financial or other interest in the outcome of the litigation; and how the settlement may affect the position taken by the plaintiff and the plaintiff’s witnesses at trial.
[26] Referring to Noonan, supra, Perell J. set forth several reasons for disclosing such agreements at paras. 87-89, including that (1) the amounts received by the plaintiffs are relevant to the quantification of the plaintiff’s damages, to whether or not the plaintiff had mitigated or reduced its loss, and to avoiding the possibility of double recovery; (2) the non-settling defendant needs to be informed of the settlement between the plaintiff and the settling defendant in order to update its litigation plan and strategy, including whether to make its own offer to settle; and (3) the Court needs to know immediately the extent to which, if at all, the settlement agreement influences the adversarial system and process. In this regard, the Master in Noonan, supra. stated at paras. 51-52:
Other aspects of a partial settlement may also be relevant. For example it would be relevant if the former defendant has obligated itself to give access to all of its documents, to make witnesses available for interviewing or conversely if the plaintiff has restricted its ability to access such documents or information. It would be relevant if the former defendant has contractually bound itself not to co-operate with the other defendants or has agreed that it will extend such co-operation. One reason these kinds of agreements are relevant is because they may bring the documents or witnesses into the possession, power or control of the plaintiffs. This will be important for production and discovery planning. Similarly the former defendant may or may not have obliged itself to preserve documents and other evidence. All of this will be important for the non-settling defendants to know so that they may bring appropriate motions or factor this into the discovery plan.
Finally, it is fundamental to the operation of the adversary system that all parties know who is adverse in interest. This problem is particularly acute in Mary Carter-type agreements because the settling defendant remains in the action but its position may be significantly different than that set out in the pleadings. It will also be relevant however when the settling defendant is no longer in the action but will nevertheless be providing key evidence at trial. It will be relevant to know whether or not the settling defendants retain a financial or other interest in the outcome of the litigation. It will also be important to know how the settlement might influence the position taken by the plaintiffs and the plaintiffs’ witnesses at trial. The terms of settlement are thus broadly relevant to the conduct of the litigation.
[27] While the facts and circumstances were different in that case and there were two actions involved, the principles and concerns of the court in ensuring the fairness and justice of the process, and the specifics of such considerations, are clearly set forth. While, in that case, full disclosure of the Agreement and Order was ordered, the Master recognized that in certain circumstances, there may be a more limited requirement for disclosure, with certain aspects of the settlement agreement that must be disclosed and other aspects that may remain privileged.
[28] This is, again, consistent with the reasons set forth by Ferrier J. in Pettey, supra, regarding settlement agreements and disclosure obligations in order to ensure that the settlement agreement’s impact on the strategy of the party not involved in the settlement is understood, and in order that the court can properly fulfill its role in controlling its process in the interest of fairness and justice to all parties.
[29] In the case of Moore v. Bertuzzi, 2012 ONSC 597, [2012] O.J. No. 665 (Master), aff’d 2012 ONSC 3248, Master Dash ordered production of the Mary Carter-like settlement agreement entered into by the defendants and a third party on the ground that the agreement had changed the litigation landscape, altered the relationships among the parties from that set out in the pleadings, and changed the adversarial alignments, which could have a significant impact on the conduct of litigation and the pretrial process. He found that the exception to settlement privilege was met where the settlement documentation is necessary for the proper disposition of a proceeding or where disclosure is necessary to address compelling or overriding interests of justice. He found that the changed landscape in the case, with the end of adversity, and the resulting changed adversarial alignments constituted an overriding interest of justice requiring disclosure. This decision was upheld by Perell J. of this Court on June 4, 2012, as set forth above.
Analysis
[30] In this case, Master Dash properly recognized the balance between settlement agreement privilege and the need to ensure the fairness, integrity and justice of the court process in the interests of all parties concerned. He properly recognized that production of all or part of the actual agreement is a matter of court discretion and that, if production is ordered, non-relevant or otherwise privileged portions may be redacted. In balancing privilege against the interests of justice, he was circumspect in ordering disclosure of only those limited portions of the MCA that could have an effect on the litigation process in both the pretrial and trial stages.
[31] Based on the foregoing relevant facts and law, I find that the Master did not misapprehend the law or facts. He correctly considered, analyzed and applied the relevant law to the facts of this case, as it relates to MCAs, confidentiality and disclosure.
[32] The Master properly analyzed the effects of the settlement and Partial Judgment in changing the adversarial orientation. Having read the MCA, which was provided to me by the appellant, sealed, and not to be filed in this matter, and which will be returned to the appellant, I find that the Master properly ordered disclosure of those paragraphs set forth in his Order, to permit the defendant, Durham, to fairly understand the changed adversarial alliances and changed litigation landscape. I find that those paragraphs are relevant to a full understanding of the changed adversarial landscape and an understanding of the new issues, interests and alliances to be met. The Master’s decision is consistent with the caselaw in Ontario, which is set forth above at paragraphs 16 to 29.
[33] Further, I find that the Master did not improperly exercise his jurisdiction. The underlying motion was not an attempt to set aside, vary or appeal the Partial Judgment, nor was it a collateral attack on the Partial Judgment granted by Wilkins J. Indeed, there was nothing in the Partial Judgment that dealt with disclosure of the underlying agreements or portions thereof. Wilkins J. made reference to and read sealed copies of the Minutes of Settlement and the MCA between the plaintiffs and the defendants, Harris and State Farm, and granted Partial Judgment based thereon. The seminal issues involved in the underlying motion before Master Dash, namely, disclosure of specific terms of the MCA, were not canvassed before nor determined by Wilkins J.
Order
[34] The Order of Master Dash dated September 14, 2012 is upheld and the appeal dismissed.
Costs
[35] I would urge the parties to agree upon costs, failing which I would invite the parties to provide any costs submissions in writing, to be limited to three pages, including the costs outline. The submissions may be forwarded to my attention, through Judges’ Administration at 361 University Avenue, within thirty days of the release of this Endorsement.
Carole J. Brown J.
Released: July 18, 2013
COURT FILE NO.: 05-CV-283449 PD1
DATE: 20130718
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
STAMATIS (STEVE) STAMATOPOULOS, NIKOLAOS STAMATOPOULOS, CHRISTOTHEA STAMATOPOULOS, KYRIAKOS STAMATOPOULOS and STEPAHNIE CLARKE
Plaintiffs
– and –
RICHARD A. HARRIS and THE REGIONAL MUNICIPALITY OF DURHAM and HER MAJESTY THE QUEEN IN RIGHT OF THE PROVINCE OF ONTARIO represented by THE MINISTER OF TRANSPORTATION FOR THE PROVINCE OF ONTARIO and STATE FARM INSURANCE
Defendants
REASONS FOR DECISION
Carole J. Brown J.
Released: July 18, 2013