Court File and Parties

COURT FILE NO.: CV-11-436846 DATE: 2021-03-24

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Mann Engineering Ltd. and Aris Building Technologies Inc. AND: Vipul Desai, DCL Engineering Limited, Certified Building Systems, John Lucic, Channa Perera and Hui Ying Yun, a.k.a. Carol Yu

BEFORE: J.T. Akbarali J.

COUNSEL: Ted Flett, for the Responding Party Plaintiffs Jonathan L. Frustaglio, for the Moving Party Defendants Channa Perera and Hui Ying Yu

HEARD: March 24, 2021

Endorsement

[1] The moving party defendants seek disclosure of a settlement agreement reached between the plaintiffs and the former defendants Vipul Desai, DCL Engineering Limited, Certified Building Systems and John Lucic (the “settling defendants.”)

[2] The plaintiffs and the settling defendants (who were also parties to a counterclaim that was resolved by the settlement) entered into a settlement agreement in October 2018. The moving party defendants have made requests to obtain a copy of the settlement agreement, but the plaintiffs have refused to disclose it, claiming settlement privilege. The trial is set to proceed in April 2021.

[3] The parties agree on the relevant law.

[4] There is a duty to immediately disclose to the opposing parties and the court any settlement agreement in which a party’s adversarial position in its pleading changes to a cooperative one. The duty is not limited to pure Mary Carter or Pierringer agreements: Handley Estate v. DTE Industries Limited, 2018 ONCA 324, at para. 39; Tallman Truck Centre Limited v. K.S.P. Holdings Inc., 2021 ONSC 984, at para. 41.

[5] The rationale behind the duty is that, to maintain the fairness of the litigation process, the court needs to know the reality of the adversity between the parties, and whether a settlement agreement changes the dynamics of the litigation or the adversarial orientation: Handley Estate, at para. 39; Moore v. Bertuzzi, 2012 ONSC 3248, 110 O.R. (3d) 611, at paras. 75-79. Moreover, the non-contracting parties must be aware of the agreement so they can properly assess the steps being taken by the plaintiff and contracting defendants: Handley Estate, at para. 36.

[6] Settlement privilege yields to the duty to disclose when a settlement agreement alters the adversarial landscape: Tallman, at para. 76.

[7] The question here is whether the settlement agreement alters the adversarial landscape and must be disclosed.

[8] The moving party defendants argue that it does. They note that, originally, all defendants were represented by the same counsel, and no crossclaims were asserted. However, their counsel moved to get off the record for them only, and less than a month later the main action was dismissed as against the settling defendants. They also note that the settling defendants are listed as trial witnesses for the plaintiffs.

[9] The plaintiffs argue this is a typical settlement agreement, and that there is no evidence that the adversarial landscape has changed. However, this is argument only. The plaintiffs adduced no evidence, for example, that the settlement agreement did not require cooperation from the settling defendants in the plaintiffs’ case, or that the settling defendants are being summonsed as trial witnesses. There is no evidence that the plaintiffs contemplate having to seek permission to treat the settling defendants as adverse witnesses. The plaintiffs have adduced no evidence that the adversarial landscape has changed, when that evidence is within their control, and instead argue that the moving party defendants have not met their burden to adduce evidence they cannot possibly know without disclosure of the agreement.

[10] Both parties asked, as alternative relief, that I review the settlement agreement to determine whether it ought to be disclosed. The agreement should have been filed as a sealed document to enable me to do so in advance of the motion. As it is, the position taken by the plaintiffs has unnecessarily complicated this motion.

[11] After the argument of the motion, I directed the plaintiffs to deliver a copy of the settlement documentation by email to my assistant immediately. I have now received and reviewed the settlement documentation.

[12] The settlement is a typical settlement in which a release is exchanged for consideration. There is no contractual requirement of cooperation, or any other aspect of the settlement agreement that alters the adversarial landscape. Accordingly, the moving party defendants’ motion for disclosure of the agreement is dismissed.

[13] Because the settlement agreement is covered by settlement privilege, I will not cause a copy of it to be placed in the court file.

[14] The only issue that remains is costs. At the motion, I also directed the parties to upload their costs outlines to caselines so that I could deal with the costs of this motion. The parties made some brief submissions on costs at the close of the hearing, and agreed that no further submissions need be made.

[15] The three main purposes of modern costs rules are to indemnify successful litigants for the costs of litigation, to encourage settlement, and to discourage and sanction inappropriate behaviour by litigants: Fong v. Chan (1999), 1999 CanLII 2052 (ON CA), 46 O.R. (3d) 330, at para. 22.

[16] Subject to the provisions of an Act or the rules of court, costs are in the discretion of the court, pursuant to s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43. The court exercises its discretion taking into account the factors enumerated in r. 57.01 of the Rules of Civil Procedure, including the principle of indemnity, the reasonable expectations of the unsuccessful party, and the complexity and importance of the issues. Overall, costs must be fair and reasonable: Boucher v. Public Accountants’ Council for the Province of Ontario, 2004 CanLII 14579 (Ont. C.A.), 71 O.R. (3d) 291, at paras. 4 and 38. A costs award should reflect what the court views as a fair and reasonable contribution by the unsuccessful party to the successful party rather than any exact measure of the actual costs to the successful litigant: Zesta Engineering Ltd. v. Cloutier, 2002 CanLII 25577 (ON CA), 2002 CarswellOnt 4020, 118 A.C.W.S. (3d) 341 (C.A.), at para. 4.

[17] The plaintiffs are the successful party on the motion. Their bill of costs supports partial indemnity costs of $2,288.20, all inclusive. The moving party defendants’ bill of costs supports partial indemnity costs in the amount of $5,767.50, all inclusive.

[18] In my view, notwithstanding the dismissal of the moving parties’ motion, this is an appropriate case in which to order costs against the successful parties under r. 57.01(2).

[19] The moving party defendants had legitimate concerns about the settlement agreement. Rather than meaningfully address them, including by way of adducing actual evidence that the settlement agreement did not change the adversarial landscape of the application, which they could have done without waiving settlement privilege, the plaintiffs chose to let the matter proceed to a contested motion. The record they adduced was unsatisfactory. Although I accept there was confusion about how to file sealed materials on a zoom motion, the information is available, and counsel should be expected to figure it out. What should have been a simple matter that could have been dealt with through a discussion between counsel, or at worst, a straightforward affidavit, became a lengthy motion with cross-examinations.

[20] The plaintiffs’ actions unreasonably caused the moving party defendants to incur costs for which they should be entitled to some indemnity.

[21] In my view, costs of $1,000 all inclusive are fair and reasonable taking into account the purposes of costs awards, the costs incurred by the plaintiffs and their reasonable expectations, and the factors set out in r. 57.01, including the time spent by each party and the importance of the issues.

[22] The plaintiffs shall pay the moving party defendants’ costs of $1,000 all inclusive within thirty days.

J.T. Akbarali J.

Date: March 24, 2021