Court File and Parties

COURT FILE NO.: CV-18-605410 DATE: 20211206

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: CRESTWOOD PREPARATORY COLLEGE INC., CRESTWOOD SCHOOL, MANDRAKE MANAGEMENT CONSULTANTS CORPORATION, NEXCAREER INC. and RADAR HEADHUNTERS INC., formerly known as WWWORK!COM INC.

AND:

DAVID SMITH, THOMAS THORNEY, RITA BOTELHO, JAMES KEMBLE and FISH RECRUIT INC.

BEFORE: VERMETTE J.

COUNSEL: Sean Dewart and Brett Hughes, for the Plaintiffs Stephen Aylward, for the Defendants

HEARD: August 20, 2021, with supplementary written submissions delivered on September 21 and 27, 2021

ENDORSEMENT

[1] The Defendant David Smith moves for:

a. an order staying or dismissing this action as against him on the ground that it is an abuse of process due to the Plaintiffs’ failure to immediately disclose litigation agreements they reached with: (1) the Defendants James Kemble and Fish Recruit Inc. (together, “Kemble Defendants”); and (2) the Defendant Thomas Thorney; and

b. an order staying or dismissing this action as against him on the ground that it is an abuse of process in that it largely duplicates parallel proceedings against Mr. Smith in the Florida and Ontario Courts.

[2] The Plaintiffs also move for leave to amend the Consolidated Statement of Claim. The proposed amendments seek to remove the Kemble Defendants from the Consolidated Statement of Claim.

FACTUAL BACKGROUND

a. The parties

[3] The Plaintiffs Mandrake Consultants Corporation (“Mandrake”), NexCareer Inc. (“NexCareer”) and Radar Headhunters Inc. (formerly known as wwork!com Inc.) (“Radar”) are executive search firms.

[4] The Plaintiff Crestwood Preparatory College Inc. is an Ontario corporation operating as a secondary private school in Toronto. The Plaintiff Crestwood School is a partnership operating a kindergarten and elementary school in Toronto, at the same site as Crestwood Preparatory College Inc. (together, “Crestwood”).

[5] Mr. Harold Peerenboom is the Chairman of Mandrake, NexCareer and Radar and the founder and (corporate) principal of Crestwood. He is a resident of both Toronto, Ontario, and Palm Beach, Florida, where he has a house in a private community named Sloan’s Curve.

[6] The Defendant David Smith is a former employee and partner of Mandrake. His employment was terminated in December 2011. In January 2012, he entered into Minutes of Settlement with Mandrake, NexCareer and Radar (“Minutes of Settlement”).

[7] The Defendant Rita Botelho is Mr. Smith’s ex-wife.

[8] The Defendant Thomas Thorney is Mr. Smith’s former business partner and alleged accomplice in the Hate Mail Campaign (defined below).

[9] The Defendant Fish Recruit Inc. carries on business in the executive search and recruitment industry and is a competitor of Mandrake. The Defendant James Kemble is the managing partner of First Recruit Inc.

b. Hate Mail Campaign and the Florida litigation

[10] Most of the litigation in issue on this motion relates in whole or in part to an alleged hate mail campaign against Mr. Peerenboom. It is alleged that beginning in June 2011, Mr. Peerenboom became the victim of a malicious hate mail campaign by which more than 1,300 letters were sent to Mr. Peerenboom, his family members, business associates, clients, and neighbours, including residents of Sloan’s Curve in Florida, clients and employees of Mandrake, and staff and parents of students of Crestwood (“Hate Mail Campaign”). Among other things, the hate mail accused Mr. Peerenboom of heinous crimes, including the murder of a former employee of Crestwood who was killed in Florida, and the sexual assault of minors. The letters in question were sent throughout the United States and Canada.

[11] In 2013, Mr. Peerenboom commenced an action against Isaak and Laura Perlmutter and several Jane and John Doe defendants in the Circuit Court of the Fifteenth Judicial Circuit in Palm Beach County, Florida, in which he alleged that the Perlmutters orchestrated the Hate Mail Campaign to drive him out of Sloan’s Curve (“Perlmutter Florida Action”). At all material times, the Perlmutters were members of the Sloan’s Curve community. The Hate Mail Campaign is alleged to have had its genesis in a dispute between Mr. Peerenboom, Mr. Perlmutter and another resident over the award of the contract to operate the community’s tennis centre. Mr. Peerenboom alleges in the Perlmutter Florida Action that the defendants carried out the Hate Mail Campaign to intimidate him to withdraw from participating in the management of the community. Mr. Peerenboom sued the Perlmutters for defamation, intentional infliction of emotional distress, tortious interference with advantageous business relationships and civil conspiracy.

[12] On February 15, 2018, Mr. Peerenboom commenced a separate proceeding in Florida against Mr. Smith, Mr. Thorney and several Jane and John Doe defendants in the Circuit Court of the Fifteenth Judicial Circuit in Palm Beach County regarding their alleged involvement in the Hate Mail Campaign (“Smith Florida Action”). Mr. Peerenboom alleges that Mr. Smith and Mr. Thorney acted in concert with the Perlmutters to send some of the hate mail. He further alleges that Mr. Smith agreed to participate in the scheme in return for payment and that Mr. Smith understood that he would be used as a scapegoat and a diversion. The causes of action alleged in the Smith Florida Action are, for all intents and purposes, the same as in the Perlmutter Florida Action.

[13] On April 7, 2020, Mr. Smith filed his defence to the Smith Florida Action. In July 2020, the Florida Court granted an order on Mr. Peerenboom’s motion consolidating the Perlmutter Florida Action and the Smith Florida Action for discovery and trial. The consolidated action is referred to below as the “Florida Action”.

[14] The Florida Action is at an advanced stage. In December 2020, an order was made setting the action for jury trial beginning on July 19, 2021. However, I was advised by the parties that the trial did not proceed in July 2021 and that, instead, a summary judgment motion was scheduled to be heard in late August 2021.

c. Ontario litigation

[15] This action (“Action”) is the result of the consolidation of three actions, described briefly below.

[16] On August 10, 2017, Mandrake, NexCareer and Radar commenced an action against Mr. Smith and Ms. Botelho (“First Ontario Action”). A Fresh as Amended Statement of Claim was filed on August 10, 2018. In the First Ontario Action, the plaintiffs alleged that Mr. Smith had breached the Minutes of Settlement, intentionally interfered with the plaintiffs’ contractual relationships and fraudulently conveyed assets to Ms. Botelho. They also alleged knowing assistance against Ms. Botelho. While allegations were made against Mr. Thorney, he was not named as a party.

[17] With respect to the alleged breaches of the Minutes of Settlement, the Fresh as Amended Statement of Claim stated that Mr. Smith had provided Mr. Thorney with the plaintiffs’ proprietary information, which Mr. Smith had undertaken to return or destroy. It further stated that Messrs. Smith and Thorney had used the plaintiffs’ proprietary information after opening their own business.

[18] The Fresh as Amended Statement of Claim also contained allegations regarding the Hate Mail Campaign. It alleged that Messrs. Smith and Thorney had joined the Hate Mail Campaign, and that the letters sent in the context of that campaign were sent with the intention of interfering with Mandrake’s contractual relations with its clients and harming Mandrake’s goodwill in the marketplace.

[19] On April 10, 2018, Mandrake commenced an action against Mr. Smith and the Kemble Defendants for intentional interference with economic relations, conversion, conspiracy, deceit and unjust enrichment (“Second Ontario Action”). Mandrake alleged that Mr. Kemble and Mr. Smith conspired to use Mandrake’s proprietary and/or confidential information to place candidates through Fish Recruit Inc. It further alleged that the defendants intentionally interfered with Mandrake’s business relationships by unlawfully misappropriating its proprietary and/or confidential information and trade secrets and using such information to obtain clients for Fish Recruit Inc.

[20] On September 18, 2018, Crestwood and Mandrake commenced an action against Mr. Smith and Mr. Thorney (“Third Ontario Action”). The Third Ontario Action related exclusively to the Hate Mail Campaign. Mandrake and Crestwood alleged that by making defamatory comments about Mr. Peerenboom, Messrs. Smith and Thorney unlawfully interfered with the economic relations of Mandrake and Crestwood. They also alleged that they had suffered harm to their reputation and business as a result of the false and defamatory statements about Mr. Peerenboom, Mandrake and Crestwood.

d. Litigation agreements between Mr. Peerenboom and Mr. Thorney

[21] On April 26, 2018, Mr. Peerenboom and Mr. Thorney entered into a Tolling and Cooperation Agreement and a Release of Liability Agreement bearing the style of cause of the Smith Florida Action (“First Thorney Agreement”).

[22] On November 29, 2018, a couple of months after the Third Ontario Action was commenced, Mr. Peerenboom and Mr. Thorney entered into a Cooperation Agreement, which amended the First Thorney Agreement (“Second Thorney Agreement”). The Second Thorney Agreement does not bear any style of cause.

[23] I find it unnecessary to review the First Thorney Agreement in any detail. The Second Thorney Agreement states that it supplements and amends the First Thorney Agreement. It provides, in part:

1. Covenant Not to Sue. In exchange for Thorney’s agreement to the terms below, Peerenboom covenants not to sue Thorney or Thorney’s spouse for any claims that are included in or could have been included in the Actions, as that term is defined below, or for any cause of action based on any statement made by Thorney at his February 9, 2018, deposition taken in connection with one or more of the Actions. The term “Actions” means: (i) Harold Peerenboom v. David Smith, Thomas Thorney, and John/Jane Does 1 to 10, Case No. 50-2018- CA-001996-XXXX-MB (15th Judicial Circuit, Palm Beach County, Florida) [i.e. the Smith Florida Action]; (ii) Harold Peerenboom v. Isaac Perlmutter and John/Jane Does 1 to 10, Case No. 50-2013-CA-015257- XXXX-MB (15th Judicial Circuit, Palm Beach County, Florida) [i.e. the Perlmutter Florida Action]; and (iii) Mandrake et al v. Smith et al, Court File No. CV-18-605410 (Ontario Superior Court) [i.e. the Third Ontario Action]. Peerenboom makes this covenant on behalf of himself, individually, his spouse Robin Peerenboom, and in his capacity as a representative of Crestwood School, Crestwood Preparatory College and Mandrake (collectively, the “Peerenboom Parties”). Peerenboom warrants and represents he has the authority to make such covenants and agreements stated in this Agreement on behalf of each of the Peerenboom Parties, each of whom has agreed to be bound by the covenants and agreements stated in this Agreement. [Emphasis added.]

2. Tolling Agreement; Dismissals

d. The Peerenboom Parties shall dismiss any pending actions as against Thorney without prejudice. Any and all Timing Defenses for any claims dismissed under this Section shall be tolled within the meaning of the Tolling Agreement and under the same terms set forth therein until the Actions are finally concluded with no possibility of appeal or until 10 days has elapsed following notice of termination as provided in Section 3(b).

e. Upon final resolution of the Actions, and so long as Thorney has not breached this Agreement, the Parties will enter into full mutual general releases and, if necessary, file dismissals with prejudice.

3. Duty to Cooperate and to Provide Truthful Testimony. Thorney agrees to cooperate fully and to provide truthful testimony, including:

a. Thorney shall:

i. Provide all non-privileged evidence, documents, data, material and information in his possession, custody and control (which includes material in the possession of his spouse, agents or entities that he controls) that (a) are relevant to the Actions or (b) pertain to or reflect his relationship, whether business, personal or otherwise, with David Smith, including specifically companies they owned, operated or were employed by and financial transactions, transfers or gifts between or to any one of them or their entities, agents, spouses or other family members;

ii. Provide for forensic examination to be conducted pursuant to the protocol set forth in Addendum A to this Agreement of Thorney’s computer files, email and data, with metadata, including any email or cloud-based data storage owned or used by him; and electronic devices owned or used by him, including but not limited to computers, cell phones, tablets, iPads and PDAs;

iii. Provide a privilege log for any documents or communications withheld on the basis of attorney-client privilege, specifying the nature, date, subject matter and basis for claim of privilege for each withheld document or communication.

iv. Submit to DNA testing (for comparison to the Hate Mail) which may be used only for the purpose of comparison to the Hate Mail and for no other purpose. All DNA material shall be destroyed if the comparisons reveal that the DNA is not a match to the DNA from the Hate Mail or, at the latest, when the Actions are finally concluded with no possibility of appeal. Such DNA will not be provided to law enforcement authorities in any jurisdiction except in response to legal process, and in that event, Peerenboom shall provide such advance notice to Thorney as is reasonable under the circumstances; and,

v. Testify in person, upon reasonable notice, at depositions, hearings and trial in the Actions or related actions, including traveling to courts in the respective jurisdictions for live testimony at trial. Both parties understand and agree that Thorney may, if permitted by the relevant jurisdiction, demand that the requesting party pay Thorney’s reasonable out-of-pocket expenses incurred in providing such testimony.

b. Thorney shall provide complete and truthful testimony and shall be forthcoming in such testimony, which obligation includes providing truthful testimony concerning David Smith’s or any other party’s conduct related to the Hate Mail or other claims or issues in the Actions or related actions.

c. Thorney agrees to make himself as available and fully responsive to other parties in the Actions as to Peerenboom.

d. This Agreement is conditioned on Thorney being truthful and complete in his testimony. A material omission, withholding of material evidence or any substantive misrepresentation made to Peerenboom, his counsel or to any party to the Actions or their counsel will constitute material breach of this Agreement and will allow Peerenboom to sue Thorney on ten (10) days written notice.

[24] The First Thorney Agreement and the Second Thorney Agreement are referred to below as the “Thorney Agreement”.

[25] Mr. Peerenboom terminated the Thorney Agreement on February 15, 2021, alleging that Mr. Thorney was in material breach of the Thorney Agreement. The termination occurred after Mr. Smith found out about the existence of the Thorney Agreement in November 2020, but before a copy of the Thorney Agreement was provided for the first time to Mr. Smith’s counsel by Mr. Thorney’s counsel on February 19, 2021.

e. Litigation agreement between Mandrake and the Kemble Defendants

[26] On March 29, 2019, Mandrake and the Kemble Defendants entered into a settlement agreement, titled “Tolling and Cooperation Agreement”, in relation to the Second Ontario Action or any consolidated actions arising from the Second Ontario Action (“Kemble Settlement Agreement”). Mr. Peerenboom executed the Kemble Settlement Agreement on behalf of Mandrake. As set out below, that agreement was only disclosed to Mr. Smith’s counsel on January 21, 2020.

[27] The Kemble Settlement Agreement provides, in part:

WHEREAS in exchange for the Cooperation as defined below, Mandrake has agreed to provide to Fish [defined as including both Mr. Kemble and Fish Recruit Inc.] a Full and Final Release and dismissal of the Action without costs, subject only to Mandrake’s right to reinstate the Claims against Fish in the event that Fish commits a material breach of this Agreement which Fish fails to cure within the cure period set forth below (“Uncured Material Breach”);

NOW THEREFORE in consideration of the covenants, agreements, and releases set forth herein and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, it is hereby agreed between Mandrake and Fish, through their respective undersigned Counsel, that the Action as to the Fish defendants be dismissed with prejudice (except in the event of an Uncured Material Breach of this Agreement by Fish), and the Claims against Fish by Mandrake in the Action be tolled, on the following terms and conditions:

Cooperation

2. In return for a Full and Final Release in the form attached as Schedule A, and a dismissal of the Action against Fish, Fish agree to fully, honestly, and truthfully cooperate in the Action by providing an affidavit sworn by Mr. James Kemble (the “Affidavit”) setting out the following information:

a. the names and details of all the candidate and client referrals provided to Fish by Mr. Smith;

b. which of the candidate referrals provided to Fish by Mr. Smith that were placed by Fish and the details as to where and for what remuneration these candidates were placed;

c. which of the client referrals provided to Fish by Mr. Smith resulted in candidate placements and the details as to what remuneration was received by either Fish or Mr. Smith;

d. whether Mr. Smith or his wife were compensated for providing this information to Fish and if so how and in what amounts and all supporting documentation appended as exhibits to the Affidavit;

e. an accounting of any revenues Fish earned from the placement of these candidates or further to client referrals from Mr. Smith and all supporting documentation appended as exhibits to the Affidavit;

f. as exhibits to the Affidavit, any and all agreements reduced to writing and correspondence with Mr. Smith and Fish and a summary of any oral agreements pertaining to the use of information provided to Fish’s executive search business; and,

g. as exhibits to the Affidavit, all documentation and correspondence (whether electronic or in hard copy) referable to the candidate and client referrals from Mr. Smith to Fish, including all documentation referable to the placement of these candidates and client referrals, Mr. Smith sharing the information about these candidates or client referrals with Fish, the revenue derived from the placement of these candidates or as a result of these client referrals by Mr. Smith or Fish and whether Mr. Smith was compensated for providing this information.

3. In addition, Fish will have an ongoing obligation pending the conclusion of the Action to advise Mandrake of any further candidate or client referrals received from Mr. Smith or any further revenue or benefit received by Fish resulting from prior candidate or client referrals from Mr. Smith.

4. In addition, Fish agrees to no longer work with Mr. Smith, including no longer accepting client or candidate referrals from Mr. Smith, pending the outcome of the Action.

5. The Parties recognize that any Uncured Material Breach of this Agreement, including any uncured material omission or uncured material misrepresentation in the Affidavit, shall entitle Mandrake to commence an action, or other legal proceeding, against Fish, referable to the Claims, subject to the terms of the Tolling Agreement set out in paragraph 7 below.

6. On or before March 29, 2019, the Plaintiff shall deliver an executed copy of the Full and Final Release in the form attached as Schedule A hereto, and a consent to the dismissal of the Action without costs to be held in escrow by Counsel for Fish pending the delivery of the Affidavit to Counsel for Mandrake which shall be delivered on or before April 5, 2019.

7. The Parties stipulate and agree that, subject only to an Uncured Material Breach of this Agreement by Fish, the intent is that all matters are settled and resolved between them such that the Plaintiff will have no further right of action against either Kemble or Fish in respect of either the Claims or the matters released by the Full and Final Release. However, in the event that Mandrake becomes aware of a material breach of this Agreement by Fish, including a material misrepresentation or material omission in the Affidavit, then Counsel for Mandrake will provide Counsel for Fish with written notice of the details of such breach, and Fish will have ten (10) days to cure such breach; failing which, Mandrake will be at liberty to commence within thirty (30) days of such failure to cure, new legal proceedings against Fish in respect of the Claims, and in that event, the parties agree that the following tolling provisions shall apply to those proceedings: […].

f. Consolidation of the Ontario actions and events leading to this motion

[28] On January 17, 2019, counsel for the Plaintiffs sent a letter to counsel for the Defendants in all three Ontario actions enclosing a Notice of Motion and a proposed Consolidated Statement of Claim. The letter asked for the Defendants’ consent to an order consolidating the three actions. Counsel for the Plaintiffs sent a follow-up letter on February 4, 2019.

[29] Counsel for the Plaintiffs formally served the Notice of Motion for the motion to consolidate on all Defendants on February 22, 2019, i.e. approximately one month before the settlement with the Kemble Defendants and approximately three months after the execution of the Second Thorney Agreement.

[30] Mr. Kemble provided an affidavit to the Plaintiffs pursuant to the Kemble Settlement Agreement in April 2019. On April 29, 2019, counsel for the Kemble Defendants informed counsel for the Plaintiffs that, as required by the Kemble Settlement Agreement, Fish Recruit Inc. had advised Mr. Smith to stop referring any more candidates or clients to it.[^1]

[31] On April 30, 2019, after hearing from Defendants’ counsel with respect to their position on the proposed consolidation motion, counsel for the Plaintiffs circulated a draft Order. The lawyer for the Kemble Defendants was not copied on the letter. Neither the letter nor the draft Order made any reference to an agreed-upon and imminent dismissal of the Second Ontario Action against the Kemble Defendants.

[32] In early May 2019, Mr. Smith’s former lawyer wrote to the lawyer for the Kemble Defendants inquiring as to whether his clients had entered into an agreement with Mandrake. On May 15, 2019, the lawyer for the Kemble Defendants left a voicemail message to Mr. Smith’s former lawyer in which he informed her that his clients had reached an agreement involving a consent dismissal of Mandrake’s claims as against them. No mention was made of the cooperation terms in the Kemble Settlement Agreement.

[33] On May 22, 2019, the Second Ontario Action was dismissed on consent as against the Kemble Defendants. On the same day, in response to an inquiry made by counsel for Ms. Botelho, Plaintiffs’ counsel advised her that the claim against the Kemble Defendants had been resolved, without providing any additional detail. The other Defendants’ counsel were not copied on this e-mail, and there is no evidence that the Plaintiffs’ counsel advised the other counsel that the Second Ontario Action had been resolved and dismissed as against the Kemble Defendants. However, the Kemble Defendants’ counsel was removed from subsequent correspondence between counsel.

[34] Mr. Smith subsequently retained new counsel and, on June 5, 2019, notices of change of lawyer were served in all three Ontario actions. After being asked for their position on the issue of consolidation, Mr. Smith’s new counsel indicated that they had not yet received a complete file from Mr. Smith’s former lawyers. They requested from the Plaintiffs’ counsel, and received from them, copies of the Notice of Motion, the proposed Consolidated Statement of Claim and the draft Order (received on June 18, 2019) and copies of the Statements of Claim in the three Ontario actions (received on July 5, 2019). In providing this information to Mr. Smith’s new lawyers, at no time did counsel for the Plaintiffs indicate that the Kemble Defendants were no longer Defendants. Counsel for Mr. Smith eventually consented to the draft consolidation order on July 8, 2019. The lawyer for the Kemble Defendants was not copied on any of this correspondence (including the correspondence from Mr. Smith’s counsel), but the lawyers for the other Defendants were usually copied.

[35] Master (now Associate Justice) Abrams signed the consolidation order on July 19, 2019. The Consolidated Statement of Claim attached to the order was not amended to reflect the dismissal of the action as against the Kemble Defendants. The order dismissing the action against the Kemble Defendants was included in the Motion Record, but the Motion Record was not served on the Defendants.

[36] None of the Defendants served a Statement of Defence before the consolidation of the three Ontario actions, and none of the Defendants have served a Statement of Defence in response to the Consolidated Statement of Claim.

[37] On July 30, 2019, counsel for the Plaintiffs wrote to counsel for Mr. Smith, Ms. Botelho and Mr. Thorney to propose a schedule for the exchange of productions and examinations for discovery. On August 6, 2019, he wrote again to the same counsel to serve them with the Consolidated Statement of Claim. On September 18, 2019, he sent another letter to follow up on his request to schedule the exchange of productions and examinations for discovery.

[38] On September 19, 2019, counsel for the Plaintiffs, who are also counsel for Mr. Peerenboom, sent a letter to counsel for Mr. Smith enclosing a Notice of Action and Statement of Claim issued in Newmarket (“Newmarket Action”). The Newmarket Action, which was commenced on April 17, 2019 by Mr. Peerenboom against Mr. Smith, is an action for defamation and concerns the Hate Mail Campaign. The letter asked whether Mr. Smith’s counsel would accept service on behalf of Mr. Smith. Counsel for Mr. Peerenboom provided the following explanation in his cover letter:

The enclosed Notice of Action and Statement of Claim were issued to protect against the expiry of the limitation period in Ontario. Should your client attorn the jurisdiction of the Florida court in the Florida action and undertake not to advance any arguments in the Florida action concerning jurisdiction or forum non conveniens or any other non-merits-based defence, then we are instructed to discontinue the Ontario action. If your client will not provide such an undertaking, then we propose that the Ontario claim be held in abeyance until the Florida litigation concludes.

[39] As stated above, Mr. Smith filed his defence in the Smith Florida Action in April 2020, attorning to the jurisdiction of the Florida court.

g. Discovery of the litigation agreements

[40] Counsel for Mr. Smith state that they reviewed the case history of the Second Ontario Action on December 9, 2019 and, as a result, took steps to obtain from the courthouse a copy of the order dated May 22, 2019 dismissing the Second Ontario Action against the Kemble Defendants on consent. On December 10, 2019, counsel for Mr. Smith sent the following letter to counsel for the Plaintiffs:

We have recently become aware that your clients have entered into an agreement with the defendants, James Kemble and Fish Recruit, relating to their involvement in your clients’ consolidated action and/or the antecedent action against Mr. Smith and those defendants in Court File No. CV-18-595560.

Please provide us with all information related to any such settlement or agreement, including the principal terms thereof, and any documentation of the agreement if it has been reduced to writing.

We request that you provide us with this information as soon as possible, and in any event by no later than December 13, 2019. Given the potential impact of this issue on the consolidated action and related proceedings involving our clients, we will be required to receive and review this information before any of the other issues in this litigation can be addressed, including those raised in your without-prejudice communications of December 3, 2019.

[41] By letter dated December 11, 2019, counsel for the Plaintiffs confirmed that the Plaintiffs’ claim against the Kemble Defendants had been resolved and provided a copy of the order dated May 22, 2019 dismissing the Second Ontario Action against the Kemble Defendants. However, he took the position that Mr. Smith was “not entitled to any details of the terms of the Plaintiffs’ agreement to settle with these Defendants.”

[42] On December 20, 2019, counsel for the Plaintiffs wrote to counsel for Mr. Smith, Ms. Botelho and Mr. Thorney to ask that they deliver Statements of Defence to the Consolidated Statement of Claim.

[43] On January 8, 2020, counsel for Mr. Smith advised that they intended to bring a motion to stay the Action as an abuse of process as a result of the non-disclosure of the Kemble Settlement Agreement. On January 21, 2020, the Plaintiffs’ counsel delivered a copy of the Kemble Settlement Agreement under cover of a “without prejudice” letter. However, the Full and Final Release attached as Schedule A to the Kemble Settlement Agreement has not been disclosed. Mr. Smith ultimately brought this motion on May 25, 2020.

[44] The existence of the First and Second Thorney Agreements was not discovered until they were produced in November 2020 as exhibits to a deposition of Mr. Thorney in Florida. On December 8, 2020, counsel for Mr. Smith sent a letter to counsel for the Plaintiffs and counsel for Mr. Thorney to ask for a copy of all cooperation, settlement or litigation agreements between Mr. Thorney and Mr. Peerenboom and/or any of the Plaintiffs.

[45] Counsel for the Plaintiffs responded as follows on December 9, 2020:

We write further to your correspondence of December 8, 2020.

The Plaintiffs have no such agreement with Mr. Thorney.

Mr. Peerenboom’s agreement with Mr. Thorney, which arose in the context of the Florida litigation, has no bearing on this action. The Plaintiffs are distinct legal entities, of which Mr. Peerenboom is merely a shareholder (or partner as the case may be). The Plaintiffs are not privy to the agreement with Mr. Thorney. As such, there is no obligation to produce such an agreement, which is irrelevant to this litigation.

[46] On January 20, 2021, counsel for Mr. Smith obtained a copy of the Thorney Agreement from U.S. counsel for the Perlmutters. However, the documents were subject to a protective order which prohibited their disclosure or use outside of the Florida Action. On January 26, 2021, Mr. Smith’s counsel renewed his request that the Plaintiffs produce the Thorney Agreement.

[47] The Thorney Agreement and Mr. Peerenboom’s notice of termination were ultimately produced to Mr. Smith’s counsel by Mr. Thorney’s counsel on February 19, 2021, in response to a summons.

[48] On February 23, 2021, Mr. Smith served an Amended Notice of Motion adding two additional grounds in support of his motion for a permanent stay of proceedings: (1) the non-disclosure of the Thorney Agreement; and (2) the allegation that the Action is duplicative of the Florida Action.

h. Post-hearing submissions regarding another Ontario action

[49] A few weeks after the hearing of this matter, I received additional submissions from counsel in writing. I was advised that on August 30, 2021, i.e. 10 days after the hearing of the motion, Mr. Peerenboom was served with a Statement of Claim issued on March 3, 2021 in which Mr. Smith alleges that Mr. Peerenboom breached the Minutes of Settlement.

[50] In light of this development, the Plaintiffs argued the following:

The plaintiffs submit that Mr. Smith’s recently disclosed statement of claim provides further confirmation that it will be fairer and more efficient for an Ontario court to determine their claims and Mr. Smith’s defences in the present action, as an Ontario court will now in any event be required to do so in respect of Mr. Smith’s own claim. Mr. Smith’s complaints about a multiplicity of proceedings were, with respect, disingenuous.

[51] Mr. Smith’s position is that this new action is “a defensive measure by Mr. Smith to preserve certain claims against the expiry of a limitations period” and “in case the present stay motion were to fail and he be required to conduct litigation in Ontario.” Mr. Smith maintains the position that all Ontario litigation between himself, Mr. Peerenboom, and Mr. Peerenboom’s corporations should be stayed in favour of the Florida litigation commenced by Mr. Peerenboom. Mr. Smith has undertaken not to prosecute this new action provided that all of the Ontario proceedings against him are permanently stayed or dismissed, including the Newmarket Action. I note that no relief regarding the Newmarket Action has been sought on the motion before me.

DISCUSSION

[52] As stated above, Mr. Smith seeks a permanent stay of this Action on two grounds: (a) the failure to immediately disclose the Kemble Settlement Agreement and the Thorney Agreement; and (b) the duplication of proceedings against Mr. Smith in the Florida and Ontario courts. The Plaintiffs’ position is that the Kemble Settlement Agreement and the Thorney Agreement were not subject to any disclosure obligation.

[53] In my view, the Plaintiffs had the obligation to immediately disclose the Kemble Settlement Agreement and the Thorney Agreement and failed to do so. As a result, this action should be stayed. Given my conclusion on the first ground advanced by Mr. Smith, I will only discuss briefly his second ground based on the multiplicity of proceedings.

a. Permanent stay for failure to immediately disclose litigation agreements

[54] In their respective facta and oral arguments, counsel extensively referred to case law dealing with the obligation to disclose litigation agreements, including a number of recent cases. While they sometimes relied on the same cases, they also sought to distinguish cases that were more heavily relied upon by the other side, or tried to emphasize a particular sentence or passage in a case. Given that this is a very active area of the law right now and that the facts of each case can be important in understanding the conclusion reached by the court, I review and discuss the relevant case law below, starting with the two leading decisions of the Court of Appeal.

(i) Court of Appeal’s decisions in Aecon and Handley Estate

[55] In 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.

[56] The Court of Appeal stated the following:

[12] The 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.

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

[14] In 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.

[15] Other 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.

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

[57] The 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.

[58] The Court of Appeal allowed the appeal and stayed the action. Writing for the Court of Appeal, Brown J.A. stated the following on the issue of the types of litigation agreements covered by the obligation of immediate disclosure:

[39] The 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), 2000 CanLII 22777 (ON SC), 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.

[40] In 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?

[41] In 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.

[59] With 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.

(ii) Cases applying Aecon and Handley Estate

[60] The principles set out in Aecon and Handley Estate have been applied in a number of cases, at least seven of which decided in 2021.[^2] I review and discuss below the main cases relied upon by the parties on this motion.

[61] In Tribecca Finance Corp. v. Harrison, 2019 ONSC 1926 (“Tribecca”), the plaintiff and the defendant to a mortgage enforcement action settled the main action, but forgot to address the third party claim against the principal of the plaintiff lender. A formal order dismissing the action was obtained, but no order was obtained regarding the third party claim against the lender’s principal. The defendant had also brought a third party claim against her former lawyer. When the former lawyer inquired as to the status of the third party claim against the lender’s principal, he was advised that it had settled. The settlement in that case did not include any cooperation terms.

[62] Gray J. dismissed the motion for a permanent stay. He stated the following:

[32] In my view, the case before me is quite unlike these cases [Aecon and Handley Estate], for two reasons. First, I am not convinced that the agreement significantly changes the landscape of the litigation. Second, it is clear that there was no intent on the part of the settling parties to mislead the court or the other parties in order to advantage Ms. Downward [the defendant].

[33] The only consequence of the agreement is that Mr. Kaushal [the lender’s principal] is no longer a defendant to the third party claim. There is no agreement that he participate in the trial of the third party claim in any way, or to provide any assistance in any other manner to Ms. Downward. Before the agreement was entered into, Mr. Grivogiannis [the former lawyer] was subject to a claim by Ms. Downward, based on his alleged negligence in ensuring her interests were protected, and he remains in that situation. The absence of Mr. Kaushal from the proceeding does not affect that state of affairs. It is open to Mr. Grivogiannis to take the position that because of Mr. Kaushal’s actions, some portion of Ms. Downward’s damages should be attributed to him, thus arguably reducing the amount Mr. Grivogiannis should pay, assuming liability is established. Ms. Downward can be cross-examined on the issue at trial, and it is open to Mr. Grivogiannis to bring a motion to examine Mr. Kaushal for discovery if he wishes.

[34] At the end of the day, I am not convinced that this is the sort of agreement that changes the landscape of the litigation such that it is required to be immediately disclosed.

[35] Unlike Aecon and Handley Estate, there was no deliberate decision made to hide the agreement from the remaining parties to the third party claim. It was purely by inadvertence that the agreement was not disclosed. Indeed, it was not until an inquiry was made as to the status of Mr. Kaushal that counsel for Ms. Downward and Mr. Kaushal even realised that there actually was an agreement to let Mr. Kaushal out of the third party claim, and that this naturally followed from the settlement of the main action.

[36] I am far from saying that the failure to disclose an agreement that changes the landscape of the litigation through inadvertence would necessarily mean that a stay of the proceedings would not be granted. Where the landscape of the litigation is significantly altered, a stay may well be required notwithstanding inadvertence leading to non-disclosure. However, that is not this case.

[63] In Magnotta Winery Corporation v. Ontario (Alcohol and Gaming Commission), 2021 ONSC 178 (“Magnotta”), Koehnen J. dismissed a motion brought by the plaintiffs to strike the defendants’ statements of defence for failing to produce a tolling agreement between themselves in a timely manner. Koehnen J. noted that in Aecon and Handley Estate, the agreements in issue changed the litigation landscape: “What one expected to be adversarial parties (plaintiff and defendant) were in fact cooperating parties.” (para. 24) In his view, the agreement between the two defendants was different and did not change the expected litigation landscape because “[o]ne would expect that two defendants would have a common interest in defeating a plaintiff’s claim.” (para. 25)

[64] In Tallman Truck Centre Limited v. K.S.P. Holdings Inc., 2021 ONSC 984 (“Tallman”), Myers J. found that “disclosure of most of the settlement terms three weeks after the agreement was finalized” did not fulfil the plaintiff’s obligation to disclose the terms of the settlement immediately, and he ordered that the action be permanently stayed. According to Myers J., the fact that counsel for the non-settling defendant came to suspect that some type of settlement had occurred as a result of steps taken by the settling parties to implement the settlement did not fulfil the obligation of disclosure. He stated the following:

[56] In my view, in serving Secure’s [the settling defendant’s] responding motion record and then the notice of discontinuance, the plaintiff and Secure made no disclosure of any settlement agreement. They took steps in the litigation that would lead experienced litigants to infer the existence of a settlement of some kind. That is not disclosure of an agreement that changes the litigation landscape.

[57] Even if KSP’s [the non-settling defendant’s] counsel could be said to have been told enough to discern that there was a settlement, nothing in the documents delivered by the plaintiff and Secure disclosed the existence of a litigation agreement under which Secure was obligated to provide ongoing support to the plaintiff’s satisfaction.

[58] KSP’s counsel was left to divine the nature of the settlement instead of being told about it forthrightly and immediately.

[65] Myers J. also held that the Supreme Court of Canada’s decision in Sable Offshore Energy Inc. v. Ameron International Corp., 2013 SCC 37 did not require a balancing of the policy of disclosing settlement terms against the policy of protecting settlement privilege to determine whether the delayed disclosure amounted to an abuse of process of sufficient magnitude to justify the drastic remedy of ending the lawsuit. He stated:

[8] I do not agree with the plaintiff’s submission that Sable Island requires a balancing of interests where a party fails to disclose the settlement terms on a timely basis as required. It says that once the settlement terms that relate to the change in litigation adversity of the settling defendant are fully disclosed as required, then a balancing of interests may allow the plaintiff to withhold settlement terms that do not relate to the change of the litigation landscape. The plaintiff never gets to the exception in this case because it did not disclose the fact of settlement or the settlement terms at all on a timely basis as required.

[66] In Poirier v. Logan, 2021 ONSC 1633 (“Poirier”), Perell J. dismissed Mr. Poirier’s action as a result of his failure to immediately disclose the settlement agreement he concluded with one of the defendants to the remaining defendants. The settlement was reached on October 30, 2019, but the existence of the settlement was only disclosed to the other defendants at the end of April 30, 2020, and the main (but not complete) terms of the settlement were disclosed in early May 2020. After summarizing the applicable principles as set out in Aecon, Handley Estate and other cases, Perell J. discussed the issue of the types of settlement agreements that need to be disclosed:

[57] I agree with Mr. Poirier’s counsel that not all settlement agreements require immediate disclosure. I agree that the court should be cautious before dismissing Mr. Poirier’s potentially meritorious deceit action as an abuse of process. 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. A settlement agreement may and most often will change the litigation landscape but whether that change actually occurs will ultimately depend on the circumstances of each particular case.

[58] Where I part company with Mr. Poirier’s counsel is that, in my opinion, notwithstanding his valiant arguments to the contrary, the agreement in the immediate case between Mr. Poirier and Mr. Friedberg [the settling defendant] did fundamentally change the litigation landscape.

[60] On the argument of this motion, all the counsel agreed that there will be settlement agreements that do not immediately have to be disclosed. Perhaps, simple settlement agreements where a plaintiff just lets one of several defendants out of the litigation are an example where immediate disclosure is not required. I, however, say perhaps, because it will still depend on the facts of the particular case whether even a simple settlement agreement must immediately be disclosed.

[61] As a practice point, however, 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, then - better to be safe than sorry. As the immediate case demonstrates, the risks of intentionally or unintentionally keeping the settlement agreement a secret are far too risky.

[64] The reasons why a plaintiff might agree to settle may provide insight as to whether the adversarial orientation or the litigation landscape has fundamentally changed. The reasons in the immediate case are not known but the factual background and the factors discussed below tend to suggest that it was an unexplained tactical and strategic decision for Mr. Poirier to settle with Mr. Friedberg.

[65] There are many possible reasons why a plaintiff might enter into a settlement agreement with a defendant in litigation that will proceed against other defendants. Some of those reasons are strategic, some tactical, some substantive, and some pragmatic. And depending upon the reasons for the partial settlement, there are many different ways to structure the settlement with or without contribution, compensation, or co-operation of the settling defendant and there are variations about the appropriate timing for a settlement with a defendant.

[70] The point of all this discussion about the circumstances of a settlement agreement is that the circumstances of each case will reveal whether the litigation landscape has actually changed. Thus, Mr. Poirier’s argument in the immediate case that in the circumstances of the immediate case, the litigation landscape had not fundamentally changed was a theoretically feasible argument. However, with respect, it is a failed argument.

[71] Mr. Friedberg was not a fringe player either as a party or as a potential witness to the events that are the source of Mr. Poirier’s action against him, Mr. Logan, Ms. Goldstein, and Buchli Goldstein LLP. His role was fundamental before the litigation and within the litigation. Mr. Friedberg’s co-operation and his delivery of an affidavit was not the same thing as being an innocent witness who provides a witness statement. He was a potentially culpable party who was being let out of the main action. Whether he was going to stand common cause with his co-defendants or to turn on them to divert or diffuse or escape blame in the crossclaims was not a small matter in the litigation landscape and the earth moved when he settled with the plaintiff while not settling with the crossclaiming co-defendants.

[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 in the original.]

[67] In Waxman v. Waxman, 2021 ONSC 2180 (“Waxman”), Koehnen J. granted summary judgment in favour of a defendant and held that, in the alternative, he would permanently stay the action against that defendant. The settlement agreements in issue in that case provided, among other things, that the settling defendants would provide evidence to the plaintiffs by way of affidavits and cross-examinations about the substantive issues in the action, which the plaintiffs could use in pursuit of their claims against the non-settling defendant. The agreements also allowed the plaintiffs to withdraw unilaterally from the settlement if they were not satisfied with the sufficiency of the evidence that the settling defendants provided about the substantive merits of the claim or their assets.

[68] Koehnen J. found that the settlements clearly changed the relationship between the plaintiffs and the settling defendants from parties adverse in interest to parties who were cooperating. He stated that that cooperation extended to providing affidavits and subjecting themselves to cross-examinations (para. 29). He further stated the following with respect to the affidavits and cross-examinations and the importance of timely disclosure:

[39] Those affidavits and transcripts demonstrate a further difficulty with the plaintiffs’ submission about adversity of interest. On the one hand, the plaintiffs deny that there was a settlement because whatever agreement had been reached was only conditional. At the same time, however, the plaintiffs obtained affidavits from the settling defendants and cross examined on the affidavits without providing copies of the affidavits to Elko [the non-settling defendant] or notifying Elko of the cross examinations. As a general rule, parties to a lawsuit must produce affidavits intended to be used in the lawsuit to all parties. Similarly, all parties are entitled to notice of cross examinations. Parties are not generally entitled to run a private process on the side that includes some but excludes others.

[40] That, however, is exactly what occurred here. […]

[43] Providing timely notice of agreements that change the litigation landscape is important for a number of reasons, including the following:

(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.

(v) The court must be aware of the precise adversarial orientation of the parties in order to maintain the integrity of its own process. A court cannot make orders that govern the litigation effectively unless it is aware of the specific adversarial orientation of the parties.

[69] In Mann Engineering Ltd. v. Desai, 2021 ONSC 2245, Akbarali J. concluded that the settlement agreement in issue between the plaintiffs and certain defendants did not alter the adversarial landscape and, accordingly, did not need to be disclosed. After reviewing the settlement documentation which was delivered to her at her direction, she found that the settlement was a typical one in which a release was exchanged for consideration, and that there was no contractual requirement of cooperation or any other aspect that would alter the adversarial landscape.

[70] In Caroti v. Vuletic, 2021 ONSC 2778 (“Caroti”), Ricchetti R.S.J. held that the settlement agreement in issue did not need to be disclosed immediately as it did not entirely change the litigation landscape. He stated that when the pleadings were read in their entirety, it was clear that there was a significant adversarial relationship between the settling defendant and the remaining defendants. Further, he found that the “cooperation clauses” in the settlement agreement did not change the adversarial landscape:

a. A term that the settling defendant would be a witness at trial if summonsed and would participate in witness interviews before testifying did not constitute a change in the adversarial landscape. The settling defendant would be compellable as a witness at trial and he could have met with any counsel, if he chose to, when he was a defendant. Further, there was no prohibition to him meeting with the other counsel. Ricchetti R.S.J. also noted that given the position of the settling defendant in his pleading, it was not surprising that he would agree to meet with counsel for the plaintiffs, even before a settlement.

b. The same reasoning applied to the term that the settling defendant would meet with counsel for the plaintiffs in advance of the discoveries of the remaining defendants.

c. Given the pleadings in the case, the terms that the settling defendant would deliver a will-say statement prior to trial did not amount to a change in the adversarial landscape. As a witness, the settling defendant was free to choose to do this, and he could provide one to the remaining defendants if he so chose.

[71] Ricchetti R.S.J. concluded as follows:

[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 [settling defendant] to do what he was entitled to do anyway and does not prohibit Kegalj from doing exactly the same for the Vuletics [remaining defendant].

[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 [plaintiffs]. In the end, Kegalj is simply to provide truthful information. I fail to see how this changes entirely the adversarial landscape.

[72] In Skymark Finance Corporation v. Her Majesty the Queen in Right of Ontario (unpublished – Sosna J.) (“Skymark”), the litigation agreement in issue provided, in part, that the settling defendant would waive solicitor-client privilege and testify at discovery in accordance with an affidavit that she provided to the plaintiff. If the settling defendant complied with the terms of the agreement, the plaintiff would discontinue the action against her.

[73] The plaintiff’s position was that it had no obligation to provide the non-settling defendants with disclosure of the litigation agreement. The plaintiff argued that the litigation agreement did not provide for any ongoing cooperation from the settling defendant, other than being a witness providing truthful evidence on her discovery. It submitted that the settling defendant’s cooperation as a witness providing truthful evidence in accordance with her affidavit did not fundamentally alter the relationship among the parties to the litigation or the adversarial orientation of the litigation.

[74] Sosna J. rejected the plaintiff’s submissions on this point. He stated the following:

[45] In her affidavit, Ms. Smith [the settling defendant] portrayed the Clement Defendants as being responsible for the actions of the Smith parties, and thereby liable to Skymark [the plaintiff] for its damages. As a result, the Smith’s litigation objective shifted, from defending against Skymark’s claim as set out in the pleadings, to pointing her finger at the Clement Defendants. By doing so, Ms. Smith sought to limit her liability in the Main Action.

[46] As such, the Smith parties and Skymark were no longer litigation adversaries, but were allies, while the Smith parties’ relationship with the Clement Defendants changed from one of cooperation, to one of adversity.

[63] The non-disclosure of the Litigation Agreement was critical, since the co-defendants were unaware that the landscape of the litigation had dramatically changed. It is fundamental to the operation of the adversary system that all parties know who is adverse in interest: see Moore v. Bertuzzi, 2012 ONSC 597, 110 O.R. (3d) 124, at para. 79. By not disclosing the Litigation Agreement, Skymark and Ms. Smith hindered the development of the litigation strategy of the defendants. Any failure of compliance to immediately disclose the agreement amounts to abuse of process: see Aecon Buildings, at para. 16.

(iii) Application to this case

[75] As stated in Poirier, whether a settlement agreement fundamentally changes the litigation landscape depends on the circumstances of the particular case. In my view, both the Kemble Settlement Agreement and the Thorney Agreement effected such a change in this case. Both of these agreements changed the “dynamics of the litigation” and the “adversarial orientation”: Handley Estate at para. 39. Their terms altered the apparent relationships between the parties that would otherwise be expected in the conduct of the litigation: they changed the expected relationship between the Plaintiffs and certain Defendants from an adversarial one into a co-operative one: see Handley Estate at paras. 40, 41; Magnotta at para. 24; and Waxman at para. 29. One would expect that two defendants accused of conspiracy and/or joint wrongdoing would have a common interest in defeating a plaintiff’s claim: see Magnotta at para. 25. This was the natural expectation in this case given the allegations involving Mr. Smith and Mr. Thorney and the allegations involving Mr. Smith and the Kemble Defendants. The Kemble Defendants and Mr. Thorney did not play a peripheral role in the Action: they were central to the allegations against Mr. Smith, both with respect to the breaches of the Minutes of Settlement (Mr. Thorney and the Kemble Defendants) and the Hate Mail Campaign (Mr. Thorney).

[76] Further, while the Plaintiffs’ reasons to settle with the Kemble Defendants and Mr. Thorney are not known, it appears to me that these reasons were tactical and strategic, and that the Plaintiffs thought that it was tactically advantageous for them to keep secret their cooperation with these Defendants. The Plaintiffs agreed to let potentially culpable defendants out of the litigation without any monetary compensation being paid in exchange for their cooperation and very detailed information regarding Mr. Smith. Mr. Kemble and Mr. Thorney were not “innocent witnesses” providing witness statements – they were alleged co-conspirators and joint wrongdoers with Mr. Smith. The fact that they turned on Mr. Smith and decided to assist the Plaintiffs “was not a small matter in the litigation landscape”: see Poirier at para. 71.

[77] The Plaintiffs argue that the obligation of immediate disclosure does not apply to a situation where the settling defendant has not pleaded in response to the action and has not served a statement of defence. They rely on the fact that the plural form of the word “pleading” is used in the case law, and they submit that an unanswered claim by the plaintiff is insufficient. According to them, for the obligation of disclosure to be triggered, the settling defendant must have made a representation to their co-defendants and the court through a statement of defence and their conduct that they dispute the plaintiff’s claim and will actively challenge it. The Plaintiffs further submit that the litigation landscape is only set if the parties to the settlement agreement have pleaded and the settlement is inconsistent with the position taken in their pleadings.

[78] In my view, the obligation of immediate disclosure applies before statements of defence are filed. In Handley Estate, the Court of Appeal stated (at para. 40) that the question to pose to ascertain whether an agreement triggers the immediate disclosure requirement is whether 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.[Emphasis added.]

[79] The question is not limited to the relationships between the parties based on the pleadings. Rather, it also refers to the apparent relationships between the parties that would be expected in the conduct of the litigation. What would be apparent and expected in the conduct of the litigation before statements of defence are delivered would be, at least in part, based on a pleading – i.e., the Statement of Claim. In most cases, the expected relationship between plaintiffs and defendants is adversarial, not cooperative. While this may not be the situation in all cases, and while this starting point may be changed, nuanced or complexified by specific pleadings and developments in the litigation, this does not mean that there is no expected relationship and no obligation of disclosure before statements of defence are delivered. The filing of a statement of defence is an important step in the litigation and, before doing so, the defendants should know whether one of them is, despite the allegations in the statement of claim, on the plaintiff’s side and providing assistance and cooperation at this very early stage.

[80] The Court of Appeal has recognized that procedural fairness requires immediate disclosure, among other things because the settlement agreement may have an impact on the strategy to be pursued by non-settling defendants, who need to be able to properly assess the steps being taken by the settling parties: see Handley Estate at para. 38. These considerations apply at the pre-statement of defence stage as well as after. I also note that in Aecon, the litigation agreement in issue was reached in principle before the statement of claim was issued: see para. 5. The formal written agreement was executed approximately two months later and after the Statement of Claim had been issued, but there is no indication that statements of defence had been delivered at that time.

[81] The allegations in this case do not foreshadow any “natural” alliance or cooperation between the Plaintiffs and any of the Defendants. As stated above, the terms of the Kemble Settlement Agreement and the Thorney Agreement altered the apparent relationships between the parties that would otherwise be expected in the conduct of the litigation as they changed the relationship between the Plaintiffs and these Defendants from an adversarial one into a cooperative one. As a result, the Plaintiffs had the obligation to immediately disclose the settlement agreements.

[82] This Action (and the underlying three Ontario actions) was commenced a number of years ago, and the Plaintiffs have been pressing Mr. Smith for a statement of defence and a schedule for production of documents and examinations for discovery. Holding that the disclosure obligation has not yet been triggered and does not apply in these circumstances would be contrary to the rationale underlying the disclosure obligation.

[83] The Plaintiffs also argue that the disclosure obligation is focused on settlements in which the action is not dismissed against the settling defendant and the settling defendant remains an active participant in the action while being incentivized or required to assist the plaintiff in building a case against the non-settling defendant. This is the case where the plaintiff and the settling defendant have entered into a Mary Carter agreement.

[84] I disagree that the obligation of immediate disclosure only applies to settlements where the settling defendant remains in the action. The Court of Appeal stated in Handley Estate that the obligation of immediate disclosure was not limited to Mary Carter agreements and Pierringer agreements: see para. 39. Given that, in a Pierringer agreement, the plaintiff discontinues its claim against the settling defendant (see Handley Estate, footnote 2), the fact that the settling defendant does not remain in the action cannot be dispositive because the disclosure obligation clearly applies to Pierringer agreements. The Court of Appeal has also clearly stated that it applies to other types of litigation agreements, as set out in Handley Estate at paras. 39-40.

[85] In any event, the settling defendants in this case remain connected to the Action. Mr. Thorney remains a Defendant in the Action, despite the Thorney Agreement. As for the Kemble Defendants, they have an ongoing cooperation/disclosure obligation under the Kemble Settlement Agreement pending the conclusion of the Action. In addition, I agree with Mr. Smith that the Kemble Defendants retained a continuing interest in the Action as the Plaintiffs have the right to reinstate their claims against the Kemble Defendants (which are tolled until the completion of the Action against Mr. Smith) in the event of an “uncured material breach” of the Kemble Settlement Agreement.[^3] Further, the Kemble Settlement Agreement was entered into almost two months before the Second Ontario Action was dismissed as against the Kemble Defendants, the Kemble Settlement Agreement was not immediately disclosed during the interim period, and the allegations against the Kemble Defendants remained in the consolidated Action.

[86] The Plaintiffs submit that the facts of this case are on all fours with the facts in Tribecca. I disagree. The litigation agreement in Tribecca contained no cooperation terms and did not change the relationship between the two third parties. There was no allegation of joint wrongdoing on the part of the two third parties. Further, I disagree that the failure to disclose in this case was inadvertent. In Tribecca, the lawyers did not even realize that they had, by implication, settled the third party claim against the lender’s principal until they were asked about the status of the third party claim against him. Here, detailed agreements were entered into and the course of conduct of the Plaintiffs’ counsel shows that the decision not to disclose the settlements was a deliberate one, not an inadvertent one. In any event, as pointed out by Gray J. in Tribecca, the fact that non-disclosure may have been inadvertent does not mean that a stay of proceedings would not be granted if the litigation agreement in issue significantly altered the litigation landscape.

[87] Moreover, as stated in Tallman, the fact that counsel for Mr. Smith knew or came to suspect that some type of settlement had occurred as a result of steps taken or not taken (e.g. not copying the lawyer for the Kemble Defendants on correspondence) by the Plaintiffs’ lawyers did not fulfil the obligation of disclosure. Counsel cannot be left “to divine the nature of the settlement instead of being told about it forthrightly and immediately”: see Tallman at paras. 56-58. As stated in Aecon at paragraph 15, other parties to the litigation are not required to make inquiries to seek out litigation agreements. The obligation is that of the parties who enter into such agreement to immediately disclose them.

[88] The Plaintiffs also rely on the Caroti case. In my view, Caroti is distinguishable as the settlement agreements and the relationships between the parties in this Action are different. In Caroti, it was clear that there was a significant adversarial relationship between the settling defendant and the non-settling defendants. This is not the case here. Further, the cooperation terms in the settlement agreement in Caroti were very limited. As noted by Ricchetti R.S.J., the settlement in that case did not specify what or how the settling defendant was to provide information to the plaintiffs (see para. 79). Here, in contrast, the “what” is set out in a very detailed fashion in the settlement agreements, and is broader than what would have been required under “normal” discovery obligations, especially in the case of Mr. Thorney who agreed to submit to DNA testing and to a broad forensic examination of his electronic devices and electronic data.

[89] While the Kemble Settlement Agreement and the Thorney Agreement do not prevent Messrs. Kemble and Thorney from cooperating with other parties, and the Thorney Agreement expressly states that Mr. Thorney is to make himself “as available and fully responsive to other parties”, this is insufficient in this case to find that the agreements did not fundamentally change the landscape of the litigation. In my view, the lack of timely disclosure of the settlement agreements in this case prevented Mr. Smith from taking some of the steps outlined in Waxman at para. 43. A clause providing that Mr. Smith can ask for the same information as the Plaintiffs is somewhat illusory if Mr. Smith does not know about that clause, the extent of the information that is being provided to the Plaintiffs and when it is provided. As stated in Skymark at para. 63, it is important for parties to know who is adverse in interest. Because of the non-disclosure of the Kemble Settlement Agreement and the Thorney Agreement, Mr. Smith was unaware that the litigation landscape had changed and that some of his co-defendants were no longer adverse to the Plaintiffs.

[90] Accordingly, I find that the Plaintiffs failed to disclose settlement agreements that fundamentally changed the landscape of the litigation and, accordingly, this Action should be permanently stayed as against Mr. Smith

b. Stay for multiplicity of proceedings

[91] As a result of my conclusion on the first ground of Mr. Smith’s motion for a permanent stay, I do not need to deal with the second ground, i.e. that this action is an abuse of process in that it largely duplicates parallel proceedings against Mr. Smith in Florida. However, had I not ordered a permanent stay of this action based on the failure to disclose the Kemble Settlement Agreement and the Thorney Agreement, I would have declined Mr. Smith’s request to grant a permanent stay on this second ground.

[92] In order to obtain a permanent stay, Mr. Smith had to clearly demonstrate that: (1) continuing the action would cause substantial prejudice or injustice to him, and not merely inconvenience and expense; and (2) the stay would not cause an injustice to the Plaintiffs. Factors to be considered in determining prejudice include the likelihood and effect of the two matters proceeding in tandem in two different forums; the possibility and effect of different results; the potential for double recovery; and the effect of possible delay. An injustice would result if the continuance of the action would be oppressive or vexatious to Mr. Smith or would be an abuse of process of the court in some other way. See Catalyst Fund Limited Partnership II v. Imax Corporation, 2008 CanLII 48809 at para. 20 (Ont. S.C.J).

[93] In my view, a permanent stay based on an alleged multiplicity of proceedings would cause an injustice to the Plaintiffs because their claims and the damages they seek are not part of the Florida Action. While there is significant overlap between the issues raised in this Action and the issues raised in the Florida Action with respect to the Hate Mail Campaign, the Florida Action does not deal with the alleged breaches of the Minutes of Settlement by Mr. Smith and the alleged misappropriation of Mandrake’s proprietary and/or confidential information and trade secrets. Further, the nature of the damages claimed in both actions is different. In the Florida Action, Mr. Peerenboom claims damages in his personal capacity. Mandrake, NexCareer, Radar and Crestwood are not parties to the Florida Action. In contrast, in this Action, the damages sought are the damages suffered by these corporate entities, not the damages sustained by Mr. Peerenboom who is not a party to this Action. While there may be issues with the way the damages have been pleaded in the action and while damages may not ultimately be established, the damages pleaded in the Florida Action and in this Action are conceptually distinct. I also note that the Florida Action is in its final phase, and Mr. Smith has not argued or established that it would be possible at this late stage to amend the Florida Action to add new corporate plaintiffs, expand the damages claim to include their alleged damages, and add new causes of action based on the Minutes of Settlement.

[94] However, given the substantial overlap between the allegations in the Florida Action and this Action regarding Mr. Smith’s involvement in the Hate Mail Campaign and the fact that the Florida Action is at a very advanced stage, I would have granted a temporary stay of this Action pending the final determination of the Florida Action as against Mr. Smith. A temporary stay pending the resolution of a foreign proceeding is typically granted when the foreign proceeding would substantially reduce the issues to be determined or if success in the foreign proceeding could have a material impact on the outstanding issues in the case: see Catalyst Fund Limited Partnership II v. Imax Corporation, 2008 CanLII 48809 at para. 21 (Ont. S.C.J). I find that this is the case here and that the equities would clearly favour a temporary stay of this Action pending the resolution of the Florida Action. There is substantial overlap of issues in the two proceedings with respect to liability and they share the same factual background with respect to the Hate Mail Campaign allegations. In addition, issuing a temporary stay would prevent unnecessary and costly duplication of judicial and legal resources, would reduce the risks of inconsistent findings and would not result in an injustice to the Plaintiffs as their causes of action and remedies would be maintained. This court could, if necessary, resolve any remaining issues after the resolution of the legal and factual issues before the Florida court.

CONCLUSION

[95] In light of the foregoing, I order that this Action be permanently stayed as against Mr. Smith.

[96] Given this ruling, the Plaintiffs’ motion for leave to amend the Consolidated Statement of Claim to remove the Kemble Defendants from the Consolidated Statement of Claim is moot.

[97] If costs cannot be agreed upon, Mr. Smith shall deliver submissions of not more than three pages (double-spaced), excluding the costs outline, within 14 days of the date of this endorsement. The Plaintiffs shall deliver their submissions (with the same page limit) within 10 days of their receipt of Mr. Smith’s submissions.

Vermette J.

Date: December 6, 2021

[^1]: Mr. Smith’s evidence is that this conversation with Mr. Kemble took place in September 2019. [^2]: In light of the number of recent cases dealing with this issue, counsel for the Plaintiffs commented that motions for failure to immediately disclose litigation agreements had become a cottage industry. [^3]: The right to reinstate the claims (which are being tolled) is different from the right to bring a proceeding for breach of a settlement agreement.