COURT FILE NO. CV-17-5302-00
DATE: 20210414
BETWEEN:
ONTARIO SUPERIOR COURT OF JUSTICE
ALEARDO CAROTI, JACINTA CAROTI, IAN GROUNDS, MORAIG GROUNDS, NANCY KOSTELAC, BRIAN MCDOWELL, BILJANA NIZALEK, MARIELLE PELCHAT-MORRIS, WILMA JESUS, MONICA SAVONA and MIKE KLECINA in his capacity as ESTATE TRUSTEE OF THE ESTATE OF BORIS KLECINA (also known as BORISLAV KLECINA)
Plaintiffs
and
ANTE KEGALJ, ANTHONY VULETIC, JOHN VULETIC, MIRA VULETIC, EMBLETON PROPERTIES CORP., 1857325 ONTARIO LTD. and BRAMPTON G&A HOLDINGS INC.
Defendants
AND BETWEEN:
ANTHONY VULETIC, JOHN VULETIC, MIRA VULETIC, EMBLETON PROPERTIES CORP. and 1857325 ONTARIO LTD.
Plaintiffs by Counterclaim
and
ALEARDO CAROTI, JACINTA CAROTI, IAN GROUNDS, MORAIG GROUNDS, NANCY KOSTELAC, BRIAN MCDOWELL, BILJANA NIZALEK, MARIELLE PELCHAT-MORRIS, WILMA JESUS, MONICA SAVONA, MILENA BOLAND, FRANK DEMARIA, JURICA BIONDIC, RENATO BIONDIC, ROBERTA BIONDIC, MIKE KLECINA in his capacity as ESTATE TRUSTEE OF THE ESTATE OF BORIS KLECINA (also known as BORISLAV KLECINA), ANNA BILICH, EMMA FARIA, KATARINA GRANIC, ANTON GRANIC, MARIANNE MARTINOVIC, FRANK SAMARDZIC and ROBERT SOKIC
Defendants by Counterclaim
AND BETWEEN:
MILENA BOLAND, FRANK DEMARIA, JURICA BIONDIC, RENATO BIONDIC, ROBERTA BIONDIC
Counterclaimants to the Counterclaim
and
ANTHONY VULETIC, JOHN VULETIC, MIRA VULETIC, EMBLETON PROPERTIES CORP., 1857325 ONTARIO LTD.
Defendants to the Counterclaim
BEFORE: RICCHETTI RSJ.
COUNSEL (participating in motion):
S. Sofer, J. Aston and E. Hayes for Anthony Vuletic, John Vuletic, Mira Vuletic, Embleton Properties Corp., and 1857325 Ontario Ltd. (the “Vuletic Defendants” or “Vuletics”)
T. Gleason and S. Dewart as agents for the Solicitor of Record for Aleardo Caroti, Jacinta Caroti, Ian Grounds, Moraig Grounds, Nancy Kostelac, Brian McDowell, Biljana Nizalek, Marielle Pelchat-Morris, Wilma Jesus, Monica Savona and Mike Klecina in his capacity as Estate Trustee of the Estate of Boris Klecina (also known as Borislav Klecina) (the “Caroti Plaintiffs” or “Carotis”)
HEARD: April 7, 2021
MOTION BY THE VULETICS FOR A STAY
THE MOTION................................................................................................................................. 3
THE BACKGROUND FACTS....................................................................................................... 4
The Investments in the Property.................................................................................................. 4
The Allegations............................................................................................................................. 4
The Settlement Agreement........................................................................................................... 7
The Terms of the Settlement Agreement................................................................................... 12
Other Settlements....................................................................................................................... 13
THE POSITION OF THE PARTIES............................................................................................ 14
THE LAW..................................................................................................................................... 15
THE ISSUES.................................................................................................................................. 17
ANALYSIS................................................................................................................................... 17
Did the Settlement Agreement entirely change the adversarial landscape?.............................. 17
The “Cooperation Clauses”................................................................................................... 19
a) Kegalj as a witness at trial........................................................................................... 19
b) Kegalj to meet with the Carotis’ counsel in advance of discoveries of the Vuletics . 20
c) Delivery of a Will-Say Statement and An Affidavit of Documents before discoveries 20
d) The 2010 Kegalj Action file........................................................................................ 21
Conclusion on the Cooperation Clauses............................................................................ 21
The Vuletics’ Submissions as to the Change in Adversarial Positions................................. 22
a) The Limitations Defence............................................................................................. 22
b) Common interest in defeating the Carotis’ claim........................................................ 22
c) Vuletics and Kegalj had a general common interest.................................................... 23
d) Adversarial to Cooperative.......................................................................................... 23
e) Kegalj is Contractually required to assist the Carotis................................................. 24
f) Non-disclosure of the Settlement Agreement was Tactical......................................... 25
Conclusion on Entirely Changing the Adversarial Landscape................................................... 26
Do these circumstances amount to an abuse of process warranting a stay?.............................. 26
Conclusion..................................................................................................................................... 27
Costs.............................................................................................................................................. 27
THE MOTION
[1] This is a motion by the Vuletics seeking a stay of the action against them on the basis that a settlement agreement between the Carotis and the Defendant, Ante Kegalj (“Kegalj”) was not immediately disclosed.
THE BACKGROUND FACTS
The Investments in the Property
[2] In the early 2000s, the Vuletics wanted to acquire and eventually develop certain lands known as 78 Cliffside Drive, Brampton, Ontario (“Property”). They required investors to acquire the Property.
[3] The Carotis were some of the investors in the acquisition and later assisted in providing additional monies to “carry” the Property until it could reach the appropriate planning stage for development or sale.
[4] Kegalj, as trustee for a “Vuletic” company, was the registered owner of the Property from 2002 to 2012 at which time it was transferred to 185 Corp. (controlled by the Vuletics).
[5] During the years after the acquisition of the Property, mortgages were taken out on the Property; cash calls were made on the investors. The Vuletics’ management and use of funds relating to the Property is at issue. The nature and quantum of the Carotis interest in the Property (and now the proceeds of sale) is at issue in this action.
[6] The Vuletics have admitted that the Carotis are entitled to some portion of the proceeds of sale of the Property.
The Allegations
[7] For the purpose of this proceeding, the following allegations are relevant:
a) In 2010, Kegalj commenced an action against the Vuletics relating, among other things, to the beneficial ownership of the Property, mismanagement and an accounting of the funds
from the investors (the “2010 Kegalj Action”). In 2011, the 2010 Kegalj Action was settled. After the settlement, in 2012, the Property was transferred to 185 Corp, a Vuletics’ corporation;
b) The Property was sold in 2016 for more than $15,000,000. A deposit was paid.
Subsequently, substantial monies were received from the payout of VTB mortgages right up until 2020;
c) In 2017, a related action was commenced by other investors in this Property (the “Pichelli Action”);
d) In the most recent Carotis’ Statement of Claim in this action (second fresh as amended Statement of Claim), the Carotis claim damages against Kegalj and the Vuletics, jointly and severally, in contract, fraud, deceit, breach of fiduciary duty, negligence, constructive trust and other causes of action. Beneficial ownership of the Property, management, use of funds by Kegalj and Vuletics are at issue;
e) in their recent July 2019 Defence, the Vuletics denied the Carotis’ allegations and claims.
With respect to the 2010 Kegalj Action, the Vuletics allege that the allegations by Kegalj were “false”. The Vuletics counterclaimed against the Carotis and other investors;
f) The Vuletics did NOT counterclaim against Kegalj;
g) in the most recent, July 22, 2019 Defence and Crossclaim, Kegalj denies liability to the Carotis. Kegalj alleges “he was a passive investor in a ruinous real estate scheme
orchestrated by the co-defendants John and Anthony Vuletic through their company Embleton Properties Corp. ("Embleton")”. More specifically, Kegalj alleged:
In answer to all of the claims against him, Kegalj's only role in the Project was as a passive investor and nominal owner of the Property. His entitlements from the project were the same as the Plaintiffs', with the only added inducement that he would be entitled to a premium ravine lot because he was one of the initial investors. Despite his very different role in this Project from the Vuletics, the Claim purports to lump him indiscriminately in with those Defendants and makes broad-brush allegations against the 'Defendants" collectively. The Claim contains very few specific details of any wrongdoing on the part of Kegalj, and even those are false.
So Kegalj started litigation against the Vuletics and Embleton (the "Kegalj Action") and obtained a certificate of pending litigation on the Property. Kegalj obtained the CPL in order to protect not only his own interests, but also those of the investors, in the Kegalj Action, Kegalj claimed that the Vuletics had misspent the mortgage funds and cash call contributions….
As the Kegalj Action progressed, it became clear that the Vuletics, through Embleton, had squandered the majority of the proceeds of the various mortgages that had been taken out on the Property, along with the proceeds of the cash calls. Among other things, Anthony had spent a considerable sum of these funds travelling throughout Europe, and by setting up a `talent agency' which conducted fake casting calls.
Kegalj currently has no rights or entitlement regarding the Project, and has no relationship or dealings with the Vuletics, Embleton, or any of the Plaintiffs.
Kegalj cross-claims against the co-defendants John Vuletic, Anthony Vuletic, and Embleton Properties Inc. for:
(a) Contribution and Indemnity for any amounts for which Kegalj is ultimately found liable to the Plaintiffs, including interest, taxes, and other costs;
(b) Costs of this crossclaim; and,
(c) Such other and further relief as this Honourable Court may deem just. (emphasis added)
[8] There is no doubt that, in this action, Kegalj was adverse in interest to the Carotis and the Vuletics.
[9] No defence was filed by the Vuletics to the Kegalj Crossclaim. No explanation is set out in the motion materials except perhaps that the settlement of the 2010 Kegalj Action against the Vuletics included a release.
[10] Various investors, who were not plaintiffs in this action, also advanced claims against the Vuletics. The court permitted these investors to pursue their claims in the counterclaim in this action to ensure there would be one trial.
The Settlement Agreement.
[11] By court order, the examinations for discovery were scheduled to be completed by December 15, 2020. The parties were going to commence the examinations for discoveries on November 12, 2020.
[12] Discussions regarding a settlement between Kegalj and Carotis took place on or about November 10, 2020. On November 10, 2020, Kegalj’s counsel advised the Vuletics’ counsel that he would “likely not” be participating in the examinations for discovery. It is unclear whether Kegalj’s counsel expressly used the words “settlement” or “resolved”.
[13] Mr. Hanet (Vuletics’ counsel) denies he was told that Kegalj had “settled” with the Carotis or words to that effect. Mr. Hanet states he assumed Kegalj might be going bankrupt or was not paying his counsel. Neither counsel suggest that there was a specific, detailed discussion about why Kegalj would not proceed with the examinations. It makes little sense that Mr. Hanet thought Kegalj might be going bankrupt (simply because Kegalj had gone bankrupt in the past isn’t a reasonable assumption) nor was a payment issue with Kegalj’s counsel reasonable since it would have been clear that Kegalj was still required to attend and be examined. It is highly unusual that
Mr. Hanet would not have at least asked “why”, as this was a major change where the Carotis would not examine Kegalj and Kegalj would not examine the Carotis. In these circumstances, the most obvious reason was that there was a settlement between these parties. There is also a contemporaneous note from Kegalj’s counsel which is supportive of his version of this discussion. If necessary, I would have preferred Kegalj’s counsel’s evidence to that of Vuletic’s counsel’s evidence on this issue.
[14] On November 11, 2020, Mr. Paris emailed Mr. Hanet and Ms. Barton: "This is late breaking, but I will not be conducting examinations tomorrow". Rather than questioning why, on November 12, 2020, Vuletics’ counsel sought to use Kegalj’s examination for discovery time: "We will be using all of the time allotted to us and may now use some of Mr. Paris' time if needed".
[15] Even if the reason was unknown, it was apparent that Kegalj was no longer participating in the discoveries and it appeared not to raise any concern with the Vuletics’ counsel. The reason “why” did not appear to be significant to the Vuletics’ counsel who decided to proceed with the examinations without the answer to this question.
[16] A settlement was arrived between Kegalj and the Carotis on or about November 11, 2020.
However, a final amending agreement, was executed on November 13, 2020 but not delivered until November 16, 2020. The Settlement Agreement was then fully in place.
[17] On November 12, 2020, the Vuletics started to examine the Carotis.
[18] The settlement between Kegalj and the Carotis was disclosed to the court on November 26, 2020. In the transcript, there does not appear to be any expression of surprise by the Vuletics’ counsel nor did they raise any issue regarding production of the settlement. This further supports
this court’s preference of Kegalj’s counsel evidence of the earlier disclosure of a possible resolution between Kegalj and the Carotis.
[19] The November 26, 2020 endorsement order provided that the further discoveries were to take place during the first two weeks of February 2021.
[20] Later the same day on November 26, 2020, the Vuletics’ counsel, by email, requested a copy of the Settlement Agreement between the Carotis and Kegalj.
[21] The Carotis’ counsel responded as follows:
Tonight is the first opportunity I have had to respond to your email below. Given Mr. Paris’s discussions with Mr. Hanet before the discoveries started and the fact that there were no discoveries conducted by Mr. Paris on behalf of his client, it should have come as no surprise that a settlement has now occurred between the Plaintiffs and Mr. Kegalj. Our clients and Mr. Kegalj have no obligation to disclose any agreement between them related to the settlement. Mr. Paris agrees. However, without prejudice to the settling parties’ position that the Defendants are not entitled to any information related to the settlement or to know the terms of settlement, we can advise of the following:
There is no pierringer agreement;
The claim against Mr. Kegalj by the Plaintiffs will be dismissed without costs; and
Mr. Kegalj will attend trial to tell the truth as a witness.
Should you wish to raise the issue before Justice LeMay during a motion, please note that this information is being provided without prejudice to our position that the Vuletic Defendants are not entitled to know any terms of the settlement whatsoever.
(emphasis added)
[22] The examination by the Vuletics of the Carotis took place on November 27, December 2, and December 4, 2020. No questions were asked about the Settlement Agreement.
[23] On December 8, 2020, Vuletics’ counsel wrote seeking the continued examination of the Carotis.
[24] When asked by the court what the Vuletics would have done differently if they had known the details of the Settlement Agreement prior to November 12, 2020, Vuletics’ counsel responded that they would have wanted more time to examine the Carotis. Yet, despite the clear disclosure of the settlement on November 26, 2020, the Vuletics proceeded with the examinations of the Carotis in December 2020 and February 2021, knowing there was a settlement without having the terms of the Settlement Agreement. While I recognize that prejudice to the Vuletics is not justification for not immediately producing a settlement agreement which entirely changes the adversarial landscape, these actions by the Vuletics’ counsel are strongly suggestive that they did not believe the details of the Settlement Agreement were significant to the Vuletics.
[25] On December 10, 2020, Ms. Abela wrote to Justice LeMay and copied to all counsel, as follows:
I write further to the case conference held in the above-noted matter on November 26, 2020.
During the case conference, I advised the Honourable Justice LeMay that the Plaintiffs had settled with the Defendant Ante Kegalj and that we would be forwarding to His Honour a draft order dismissing the action against Mr. Kegalj. Please see the draft Order attached along, with the consent of the Plaintiffs and Mr. Kegalj.
[26] On December 10, 2020, the order dismissing the action against Kegalj was signed by Justice LeMay. The Vuletics did not oppose the dismissal order. Vuletics’ counsel now suggests that if they had known the terms of the Settlement Agreement, they “might have opposed the order”. It is hard to accept that Vuletics’ counsel submission that the Settlement Agreement entirely changed the adversarial landscape, when they knew there was a settlement but carried on with the action while doing nothing to ascertain what had changed.
[27] In January 2021, the Carotis and Vuletics argued refusals motions, exchanged answers to undertakings and proceeded with a production motion relating to Kegalj’s counsel’s file in the 2010 Kegalj Action (which file was lost by the court).
[28] On February 8, 9 and 10 2021, the examinations for discovery continued, including by the Vuletics’ counsel of the Carotis. NO questions were asked about the Settlement Agreement nor was a copy of the Settlement Agreement between Kegalj and Carotis asked for during the examinations.
[29] A further case conference occurred before Justice LeMay on February 17, 2021. Again, there was no issue raised regarding the Settlement Agreement.
[30] On February 22, 2021, the Vuletics’ counsel wrote again requesting a copy of the Settlement Agreement. Counsel exchanged communications disagreeing whether the Settlement Agreement was or was not required to be disclosed. The Vuletics’ counsel stated it was required to be disclosed immediately while the Carotis’ counsel stated there was no disclosure obligation in these circumstances. Nevertheless, on March 2, 2021, the Carotis’ counsel provided a copy of the Settlement Agreement to the Vuletics’ counsel.
[31] On March 11, 2021, the Vuletics’ counsel obtained instructions to bring this motion.
[32] Essentially, the Vuletics’ counsel state that their failure to follow up to request or deal with the failure to receive the Settlement Agreement or to bring this issue before the court was because the Vuletics’ counsel was busy dealing with other aspects of the action. I find this to be a very weak explanation given the importance Vuletics’ counsel now places on the Settlement Agreement.
The Terms of the Settlement Agreement
[33] The operative provisions of the Settlement Agreement are:
The Parties agree that the Action will be dismissed against Kegalj on a without costs basis. For greater certainty, the Action will continue against the remaining defendants in the Action.
Kegalj will request that Arie Gaertner’s file from Court File No. CV-10-864600CL Kegalj v. Embleton Properties, Anthony Vuletic and John Vuletic (“Kegalj Action”) are not deleted, destroyed and are preserved.
Kegalj will cooperate with the Plaintiffs’ conduct of the Action in the following respects:
(a) Kegalj will attend as a witness at trial if summonsed by the Plaintiffs and will participate in witness interview(s) with the Plaintiffs’ counsel prior to the trial;
(b) Kegalj will make himself available for and cooperate in any discussions with the Plaintiffs’ counsel in advance of the discoveries of the Vuletics (if necessary);
(c) Kegalj will execute a will-say statement to be delivered prior to trial and will swear and serve his supplementary affidavit of documents (that was delivered already unsworn) before the discoveries;
(d) Kegalj will request (with persistence, if necessary) that his former lawyer, Arie Gaertner, to make available for inspection the Kegalj Action file (but for privileged communication) and provide copies of all affidavit evidence, including exhibits, filed by Kegalj and the Vuletics in the previous Kegalj Action, all exhibits marked at trial in the Kegalj Action; all discovery and trial transcripts from the Kegalj Action and all other non-privileged documents from Mr. Gaertner’s file that the Plaintiffs’ counsel may identify.
DOCUMENTATION
- The following documentation will be executed by the various Parties and delivered as herein provided:
(a) Mutual Full and Final Release between the Parties (in the form attached as Schedule "A"); and
(b) Consent to the dismissal of the action against Kegalj (in the form attached as Schedule “B”).
REPRESENTATIONS
Kegalj represents and warrants that he has not signed any confidentiality, nondisclosure or/or non- disparagement agreement or provision with the Vuletic Defendants that may limit his ability to speak to the Plaintiffs and testify at trial, and that he owes no such obligations to the Vuletic Defendants.
Kegalj represents and warrants that he is not a defendant or respondent to any action or application brought by any parties to the Action, the Pichelli Action or any other potential investors in the 78 Cliffside Dr., Brampton, Ontario development (apart from a respondent in the appeal from the summary judgment decision in Peter Pichelli, Todd Leslie, Frank Toth and 958041 Ontario Limited. v. Ante Kegalj, Anthony Vuletic, John Vuletic Embleton Properties Corp., 1857325 Ontario Ltd., and Brampton G&A (Court File No. 17- 148100) (“Pichelli Action”).
GENERAL PROVISIONS
The Parties agree that these Minutes of Settlement and the Full and Final Release are confidential and will not be published or disclosed, either orally or in writing, directly or indirectly, except to their respective financial and legal advisors, or as required by law, or as required for the purpose of any judicial, regulatory or administrative proceedings.
The Parties agree that neither of them makes any admission of liability and any such liability is in fact denied on their own behalves and on behalf of their respective successors, assigns or subsidiaries.
[34] On November 13, 2020, Kegalj and the Carotis executed an amendment agreement which provided:
We have agreed that the mutual release and particularly the contribution and indemnity provisions relate to claims going forward and would not cover existing claims against the Vuletics and the Vuletic corporations or any future claim against the Vuletics individuals and the Vuletic corporations. For greater certainty, nothing in the minutes of settlement and mutual release is meant to release or prevent the parties from bringing a claim or continuing the claim against the Vuletic individuals or their corporations. Please affix your signature below confirming your client agreement to our understanding of the mutual release and minutes of settlement and our respective client’s agreement to the foregoing. This letter will amend the Minutes of Settlement and Mutual Release.
(emphasis added)
Other Settlements
[35] There have been several other settlements, involving the Vuletics and other parties in this action, which were not disclosed immediately.
[36] In a settlement dated March 6, 2020, the Vuletics, Mr. Sokich, and Ms. Faria (defendants to the Vuletics’ counterclaim) agreed to settle the claims between them. The settlement required the Vuletics to pay $250,000.00 to Mr. Sokich and $145,000.00 to Mr. Faria from the monies in court. When the Vuletics brought such a motion, they were required to disclose this settlement agreement, which disclosure took place in June or July 2020. Of great significance to the adversarial landscape, the settlement provided that, if the motion was not successful, the Vuletics would "admit" at trial that Mr. Sokich and Mr. Faria were entitled to an equitable lien for these amounts over the funds paid into Court and certain interests in the Property.
[37] In a settlement executed on June 6, 2020, the Vuletics and the Biondic plaintiffs (in the main action and the Vuletics’ counterclaim) agreed to settle the claims between them. The Settlement required the Vuletics to pay $920,000.00 to the Biondic plaintiffs. It also required the Vuletics to bring a motion to have the funds paid out of Court, or alternatively to "admit" at trial that the Biondic Plaintiffs were entitled to certain equitable liens. On June 9, 2020, Carotis requested production of the settlement agreement, but the Vuletics claimed settlement privilege. When the Vuletics brought a motion to pay the monies out in accordance with the settlement, the agreement eventually was disclosed to the court.
[38] In July 2020, the Vuletics entered into similar settlements with investors Frank Samardzic, Anton Granic, and Katarina Granic (defendants to the Vuletics’ counterclaim). Again, these settlements were not immediately disclosed by the Vuletics.
THE POSITION OF THE PARTIES
[39] The Vuletics submit that the Settlement Agreement, “changed the litigation landscape”, was required to be disclosed “immediately” and, as a result of the failure to do so, requires the court to stay the Carotis action.
[40] The Vuletics position is described as follows in their factum:
… the Court of Appeal affirmed that “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.”45 The failure to disclose such an agreement is a specific kind of abuse of process for which the only remedy is a stay.
[41] The Carotis submit that the Settlement Agreed did not “entirely change the litigation landscape” and hence did not have to be disclosed. In the alternative, the Carotis submit that the
court does have discretion as to a remedy for what may amount to an abuse of process and should exercise that discretion to permit the Carotis action to proceed.
THE LAW
[42] A stay application such as this, is anchored on an allegation of an abuse of process. The abuse of process doctrine empowers the court to "prevent the misuse of its procedure in a way that would be manifestly unfair to a party to the litigation or would in some other way bring the administration of justice into disrepute". See Toronto (City) v CUPE, Local 79, 2003 SCC 63 at para 35 and 37.
[43] The abuse of process doctrine has been applied to the failure of a party to immediately disclose a settlement agreement where the settlement agreement entirely changes the adversarial landscape.
[44] At the heart of the Vuletics’ motion is reliance on Handley Estate v. DTE Industries Limited, 2018 ONCA 324.
[45] The facts in Handley established a clear and unequivocal abuse of process by a settling party litigant:
[2] In this 2009 action, the plaintiff entered into litigation agreements with one of the defendants, H&M Combustion Services Ltd. (“H&M”). Under the 2011 agreement, H&M agreed to defend the action and commence a third party claim, which the plaintiff would fund. Under the 2016 agreement, H&M assigned all its interest in the lawsuit to the plaintiff, who indemnified H&M from any exposure in the litigation and undertook to prosecute the third party claim.
[3] Neither the plaintiff nor H&M disclosed the agreements to the other parties immediately upon their execution. They were disclosed in a piecemeal fashion throughout 2016.
[46] In Handley, the real proponents of the claims and defences were obscured by the terms of the undisclosed “settlement agreements”. Indeed, the plaintiff, essentially became the driving
force behind a co-defendant and third-party claimant. All this occurred, without the knowledge of other defendants or the court. At the motion for the stay, the insurer behind the co-defendant, admitted that the 2016 agreement was an abuse of process and should have been disclosed immediately. The motions judge found that both the 2011 and 2016 settlement agreements were an abuse of process and should have been disclosed immediately. This finding was not disputed on appeal.
[47] The Court of Appeal in Handley set out the following principles:
(i) There is an obligation to disclose immediately any agreement between or amongst parties to a lawsuit that “change entirely the landscape of the litigation” because “the court needs to know the reality of the adversity between the parties” or “adversarial orientation” of the parties. “Failure of compliance amounts to abuse of process”; and
(ii) The absence of prejudice does not excuse late disclosure. For policy reasons, “The only remedy to redress the wrong of this form of abuse of process is to stay the claim by the defaulting, non-disclosing party.”
[48] The court in Handley referred to and relied upon its prior decision in Aecon Buildings v. Stephenson Engineering Limited, 2010 ONCA 898. Aecon was another case where there was a clear case of abuse of process because the settlement agreement hid the real adversarial nature of certain claimants:
[9] Essentially, 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 (the “consultants”).
[49] Neither Handley nor Aecon dealt with the onus or standard of proof to establish abuse of process because, in those cases, failure to disclose the settlement agreements amounting to abuse of process was admitted or clearly established.
[50] Given the extreme nature of the remedy, I am satisfied that the onus on a party seeking a stay of the action for abuse of process remains a heavy burden. See R. v. Nixon, 2011 SCC 34 at para 42.
[51] Carotis counsel submits that abuse of process (arising from a failure to immediately disclose a settlement agreement) arises only where the settling parties remain in the proceeding. Carotis’ counsel points to the facts in several authorities that followed and relied upon Handley. Given my reasons below, it is not necessary, in the circumstances of this case to decide this issue and whether it is integral to the remedy described in Handley.
THE ISSUES
[52] Therefore, the issues to be decided on this motion are:
a) Did the Settlement Agreement “entirely change the litigation landscape”?
b) If so, was this settlement agreement disclosed immediately?
ANALYSIS
Did the Settlement Agreement entirely change the adversarial landscape?
[53] Not all settlement agreements need to be disclosed immediately. It is only where the settlement agreement “entirely changes” the adversarial relationship between the litigants (or adversarial landscape), that the settlement agreement must be immediately disclosed.
[54] Every settlement alters the litigation landscape to some extent. Some entirely, as in Handley and Aecon, where the real adversity amongst the litigants was hidden by the settlement agreement. On the other hand, a settlement, such as where a plaintiff simply agrees to discontinue
against one defendant, alters the adversarial landscape but, because it does not entirely change the
adversarial landscape.
[55] Even, in some circumstances where, pursuant to a settlement, a party agrees to cooperate with another litigant, does not necessarily amount to an “entire” change in the adversarial landscape. This was described by J. Perrell in Poirier v. Logan, 2021 ONSC 1633:
[57]… I also agree that it is only settlement agreements that fundamentally alter the relationship among the parties to the litigation such that there has been an entire change in the landscape of the litigation that must be immediately disclosed. Further, I agree that a settlement agreement by one litigant to co-operate with another litigant, be that other a friend or a foe, does not necessarily fundamentally alter the litigation landscape or the adversarial orientation of the litigation.
(emphasis added)
[56] In some cases, depending on the type and degree of cooperation, will amount to an entire change in the adversarial landscape. For example, in Poirier, J. Perrell found that the degree of active participation by a settling party did change the entire adversarial landscape:
[72] As I noted in Moore v. Bertuzzi, the adversarial orientation of a lawsuit is complex because parties may be adverse about some issues and not others. That complexity was present in the immediate case as evidenced by the defendants’ arrangement to delay the examination for discovery in the crossclaims. In the immediate case, the settlement agreement between Mr. Poirier and Mr. Friedberg would impact on the tactics and the strategy, the line of questioning for examinations for discovery and how to assess the steps being taken from that point forward.
[73] While sometimes an undertaking to co-operate or assist may not change the litigation landscape, this was not one of those cases. The defendants had crossclaims, and they had manifestly agreed to hold their crossfire until later in the litigation. By delivering an affidavit that was vetted by plaintiff’s counsel as part of the settlement, Mr. Friedberg was charging into the fray of the crossclaims and assisting Mr. Poirier. That was a fundamental change in the litigation landscape.
(emphasis added)
[57] The litigation circumstances of each case, the terms of the settlement and actions taken by the settling parties are highly relevant to assess whether and the degree of changes to the adversarial landscape and, in particular, whether there has been an entire change in the adversarial landscape amounting to an abuse of process.
The “Cooperation Clauses”
[58] The Vuletics’ counsel points to what he termed the “cooperation clauses” in the Settlement Agreement as entirely changing the adversarial landscape. I disagree.
[59] Let me address the specific terms in the Settlement Agreement:
a) Kegalj as a witness at trial
[60] The fact that Kegalj will be a “witness at trial if summonsed” does not add to a change in the adversarial landscape. Whether Kegalj is/was a party or a non-party, he would nevertheless be compellable as a witness at trial.
[61] The fact Kegalj will participate in witness interviews with the Caroti’s counsel before testifying, also adds nothing to the change in the adversarial landscape. Kegalj could have met with any counsel, if he chose to, when he was a defendant.
[62] There is no prohibition to Kegalj meeting with the Vuletics’ counsel in the same manner.
[63] Based on Kegalj’s position in his Defence and Crossclaim, that it was the Vuletics who were responsible for the claims and damages, it is not surprising that he would agree to meet with the Carotis’ counsel even before a settlement. This should not have come as a surprise to the Vuletics given the allegations in the pleadings.
[64] I am not persuaded that this term has the effect of entirely changing the adversarial landscape.
b) Kegalj to meet with the Carotis’ counsel in advance of discoveries of the Vuletics
[65] Again, whether or not the claim against Kegalj is dismissed, Kegalj has the right to meet with whomever he wishes at any time.
[66] Kegalj is not prohibited from meeting with the Vuletics’ counsel.
[67] Kegalj does not, nor does any witness, enter the litigation fray by solely agreeing to meet with Carotis’ counsel prior to the examinations for discovery.
[68] In any event, Carotis’ counsel did NOT meet with Kegalj before the examinations of the Vuletics.
[69] Given the pleadings, I do not consider this to have changed the adversarial landscape.
c) Delivery of a Will-Say Statement and An Affidavit of Documents before discoveries
[70] Dealing first with the Affidavit of Documents, this does nothing more than require Kegalj to comply with the Rules of Civil Procedure. Something that should have been done much earlier in the action.
[71] Kegalj had previously produced an unsworn Affidavit of Documents. He was obliged to deliver a sworn Affidavit of Documents. And he did so.
[72] Regarding the Will-Say Statement, Kegalj, as a witness is free to choose to do this before trial. He can provide one to the Vuletics’ if he so chooses.
[73] Given the pleadings, this does not amount to a changed the adversarial landscape.
d) The 2010 Kegalj Action file
[74] The court file for this action was lost.
[75] In any event, this file could be obtained through a court order AND it was through a production order made in February 2021. Further, it was in the interest of all parties that the productions be ordered by the court to ensure these relevant documents be produced. An attempt to get the documents through a request from Kegalj did nothing to change the adversarial landscape.
[76] Even if Kegalj had been able to obtain these documents and provided them to the Carotis’ counsel, they would have to be disclosed to the Vuletics’ counsel under the Rules of Civil Procedure.
Conclusion on the Cooperation Clauses
[77] I do not conclude that the terms of the Settlement Agreement changed the adversarial landscape, let alone “entirely” changed the adversarial landscape. These terms did nothing more than permit and commit Kegalj to do what he was entitled to do anyway and does not prohibit Kegalj from doing exactly the same for the Vuletics.
[78] It appears as though the Vuletics have no difficulty with the Settlement Agreement provided that Kegalj was silenced or his rights as a witness were curtailed.
[79] Even though some of these commit Kegalj to meet, provide a will say statement or testify, there is nothing in the Settlement Agreement that specifies what or how Kegalj must testify or provide information to the Carotis. In the end, Kegalj is simply to provide truthful information. I fail to see how this changes entirely the adversarial landscape.
The Vuletics’ Submissions as to the Change in Adversarial Positions
[80] The Vuletics makes other submissions on the impact of the Settlement Agreement. At the heart of this submission, the Vuletics submit that they had a common interest with Kegalj in this action and that Kegalj is, as a result of the Settlement Agreement, is now adverse in interests to them.
a) The Limitations Defence
[81] Vuletics’ counsel points to the fact Kegalj pled the Limitations Act: “If Kegalj could establish his limitation defence, it could be of assistance to the Vuletics.”
[82] Vuletics’ counsel submits that this Kegalj allegation might be of assistance to the Vuletics.
This submission has no merit. A limitation period is a defence. The Vuletics have not pleaded a limitations defence.
[83] I am satisfied that a dismissal of Kegalj’s defence has no impact on the Vuletics’ defence or the adversarial positions.
b) Common interest in defeating the Carotis’ claim
[84] The Vuletics’ counsel also submits that, if their defence is successful it “could only help Kegalj”. In other words, both Vuletics and Kegalj had a common interest in the dismissal of the Carotis’ claim.
[85] I see no merit to this submission.
[86] In every action where there are multiple defendants, they share a common interest in defending the claim. To accede to this submission would require every dismissal against a co-
defendant (or even a discontinuance) to amount to a “entire change the litigation landscape”. I reject this.
c) Vuletics and Kegalj had a general common interest
[87] I reject that the Vuletics had a common interest other than they were both sued by the Caroti Plaintiffs.
[88] When the pleadings are read in their entirety, it is clear that there was a significant adversarial relationship between the Vuletics and Kegalj. This is clearly evident from the references to the 2010 Kegalj Action, the allegations in the Kegalj Defence and the allegations in the Kegalj crossclaim.
[89] Kegalj’s position was clear for the past 10 years – it was adverse to the Vuletics and there is no evidence that ever changed.
[90] And Kegalj remains adverse in interest. The November 13, 2020 amendment to the Settlement Agreement provides that the Kegalj crossclaim is not impacted by the Settlement Agreement. Kegalj remains free to pursue that crossclaim against the Vuletics, if he so chooses.
d) Adversarial to Cooperative
[91] Kegalj’s position was that the conduct the subject of the Carotis’ claims was that of Vuletics and not himself.
[92] The Vuletics’ counsel submits that Kegalj “no longer shares a common interest with the Vuletics”. The problem with this submission is that the Vuletics and Kegalj had very little in common – the main lis between them, in the defence and crossclaim” was adverse. That adversity did not change with the Settlement Agreement.
[93] The relationship Kegalj now has with the Carotis is that of a witness. There is nothing that requires Kegalj to do anything more than a witness is entitled to do.
[94] The Vuletics submit that the litigation landscape changed as a result of Carotis not examining Kegalj because “harmful evidence to the Caroti Plaintiffs might have been adduced for
all to learn” (emphasis added). This submission makes little sense since the Vuletics did not seek to examine Kegalj despite the allegations made by Kegalj in his pleadings. Surely, if there were admissions Vuletics wanted to elicit from Kegalj they would have and could have examined Kegalj for discovery. But they chose not to.
e) Kegalj is Contractually required to assist the Carotis
[95] I will not repeat why the terms of the Settlement Agreement do NOT change the adversarial nature of the relationship between Kegalj and the Vuletics.
[96] The Vuletics submit that Kegalj “is now contractually required to assist the Caroti Plaintiffs in prosecuting their claim”. I reject this description. Kegalj is now a non-party as a result of the Settlement Agreement and dismissal order.
[97] I will repeat, what Kegalj has agreed to do in the Settlement Agreement is nothing more than what a witness is free to do. It is nothing more than to tell the truth as a witness. Nothing more than a witness must do. Nothing less than what a witness is free to do.
[98] Kegalj is not “assisting” to prosecute the claim, give specific evidence or anything else which amounts to “assisting” which changes what he would have needed to do to establish his allegations – that it was the Vuletics who acted as alleged and are liable to the Carotis.
[99] I am not persuaded that when a plaintiff discontinues against a co-defendant and then calls upon that co-defendant to be witness for the plaintiff changes the adversarial landscape. This is a potential part of every adversarial landscape where a plaintiff makes claims against multiple defendants.
f) Non-disclosure of the Settlement Agreement was Tactical
[100] I accept that there was no full disclosure of the terms of the Settlement Agreement immediately. However, I do not accept that there was a “tactical nature” to the non-immediate disclosure of the full terms of the Settlement Agreement.
[101] The Vuletics’ counsel were aware of a settlement (or even a likely or possible settlement) as early as November 10, 2020. They chose not to pursue it at the time. They chose not to pursue it on November 26, 2020. When a copy was refused to the December 1, 2020, the Vuletics did nothing until March 2021 (despite intervening court attendances and continuing examinations). Now the Vuletics take the position that the terms of the Settlement Agreement are so significant to “entirely change” the adversarial landscape. It is difficult to accept this submission, in light of the specific terms of the Settlement Agreement and the inaction by the Vuletics over a number of months after knowing there was a settlement between Kegalj and the Carotis.
[102] Further, I am not persuaded that the summary provided on December 1, 2020 was misleading. Kegalj is a witness and is obliged to tell the truth in court.
Conclusion on Entirely Changing the Adversarial Landscape
[103] As far as the Vuletics are concerned, the adversarial landscape has not changed. AND it certainly has not changed “entirely”. Kegalj was always and remains adverse to the Vuletics. Kegalj is now a witness.
[104] Unlike the Handley and Aecon cases, in the case at bar, there was no subterfuge or attempt to hide the Kegalj’s true adversarial interest. There was no misleading the Vuletics or the court as to a settlement between Kegalj and the Carotis.
[105] Kegalj, if he testifies, may give evidence that it was the Vuletics who committed the wrongs alleged by the Carotis in this action – the same position he took in 2010, in his defence and in his crossclaim. He may not. He will if called as a witness testify truthfully.
[106] I am not persuaded that individually, or collectively, the terms of the Settlement Agreement entirely changed the adversarial landscape.
[107] I am not persuaded that, from the Vuletics’ perspective entirely changed the litigation landscape.
[108] As a result, I conclude there was no obligation to disclose the Settlement Agreement immediately to the Vuletics. There was no abuse of process. The motion is dismissed.
Do these circumstances amount to an abuse of process warranting a stay?
[109] It is not necessary for me to decide whether Handley goes as far as Vuletic’s counsel submits, that is, the courts have no discretion when the settlement that entirely changes the adversarial landscape is not immediately disclosed, regardless of the circumstances, the equities or other relevant factors such as the degree of the actions constituting the abuse of process.
[110] I leave it to some other court to determine whether the court continues to have a discretion to look at all the circumstances of the litigation, the equities and terms of the settlement, to decide whether, in those circumstances there is an abuse of process. Neither Handley or Aecon specifically deal with this issue.
CONCLUSION
[111] The motion is dismissed.
COSTS
[112] Cost Outlines were received from the parties.
[113] Any party seeking costs shall serve and file written submission on entitlement and quantum within two weeks of the release of these reasons. Written submissions shall be limited to 3 pages of submissions plus any relevant documents and authorities.
[114] Any responding party shall have one week thereafter to serve and file responding submissions. Written submissions shall be limited to 3 pages of submissions plus any relevant documents and authorities.
[115] There shall be no reply submissions without leave.
RICCHETTI RSJ.
Date: April 14, 2021