SUPERIOR COURT OF JUSTICE - ONTARIO
RE: PERFORMANCE ANALYTICS CORPORATION, PERFORMANCE ANALYTICS GROUP CORPORATION, and PERFORMANCE ANALYTICS CONSULTING CORPORATION, Plaintiffs
-and-
JUSTIN MCNEELY, MICHAEL MATRICK, PATRICK HICKEY, SEAN ANTONELLO, and JUMP ANALYTICS INC., Defendants
BEFORE: FL Myers J
COUNSEL: Sean Dewart and Brett Hughes, for the plaintiffs
Andrew MacDonald, for the defendants (other than Sean Antonello)
HEARD: December 15, 2021
ENDORSEMENT
The Law
1Settlement of civil litigation is good.
2The law strongly favours settlements of civil litigation. The policy is so strong that efforts to settle and resulting settlement agreements are protected from disclosure by a special form of privilege. Justice Abella explained in Sable Offshore Energy Inc. v. Ameron International Corp., 2013 SCC 37
1The justice system is on a constant quest for ameliorative strategies that reduce litigation’s stubbornly endemic delays, expense and stress. In this evolving mission to confront barriers to access to justice, some strategies for resolving disputes have proven to be more enduringly successful than others. Of these, few can claim the tradition of success rightfully attributed to settlements.
2The purpose of settlement privilege is to promote settlement. The privilege wraps a protective veil around the efforts parties make to settle their disputes by ensuring that communications made in the course of these negotiations are inadmissible.
3However, as the Supreme Court of Canada also explained, there are exceptions to settlement privilege under which settlement terms must sometimes be disclosed.
4One category of cases where settlement terms must be disclosed can be seen when a settlement provides that a party to the litigation switches sides. Our civil litigation system is an adversarial system. The fundamental assumption of the system is that when two parties have economic incentives to litigate, they will each develop their best theories of the case and present their best evidence to support their side. The clash of positions advanced by self-interested, adverse parties is believed to illuminate the truth for a neutral trier.
5Adversarial litigation cannot continue fairly however, when a party is ostensibly on one side but has a secret deal under which he is actually helping the other side. The clash of economic self-interest that drives the parties’ search for the truth is missing in that case.
6In Handley Estate v. DTE Industries Limited, 2018 ONCA 324 the Court of Appeal reiterated the strict approach to these types of settlement agreements previously discussed by the court in Aecon Buildings v. Stephenson Engineering Limited, 2010 ONCA 898:
45By contrast, Aecon squarely addressed the consequences that should flow from a specific kind of abuse of process – a party’s failure to disclose immediately an agreement that alters the adversarial posture of the litigation. Several clear messages emanate from Aecon:
(i) The obligation of immediate disclosure of agreements that “change entirely the landscape of the litigation” is “clear and unequivocal” – they must be produced immediately upon their completion: at paras. 13 and 16;
(ii) The absence of prejudice does not excuse the late disclosure of such an agreement: at para. 16;
(iii) “Any failure of compliance amounts to abuse of process and must result in consequences of the most serious nature for the defaulting party”: at para. 16; and
(iv) The only remedy to redress the wrong of the abuse of process is to stay the claim asserted by the defaulting, non-disclosing party. Why? Because sound policy reasons support such an approach:
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: at para. 16.
46Aecon identified the remedy for a specific kind of abuse of process. As a matter of litigation procedural policy, no unfairness is likely to arise from the application of the Aecon principles. At least one party to a litigation agreement usually is an insurer or other sophisticated litigation participant who should be well aware of the Aecon principles. Where such a sophisticated party fails to comply with its clear disclosure obligation, judicial time should not be spent on inquiring into what, if any, prejudice was caused by a breach of the party’s clear obligation (or, as argued by Aviva, whether the undisclosed litigation agreement somehow actually benefited the parties who knew nothing of its existence).
47Moreover, if a party to a litigation agreement is unclear whether the agreement has the effect of changing the adversarial position of the contracting parties, thereby attracting the mandatory disclosure obligation, it is always open to the party to move before the court for directions. In that way, the court can enforce and control its own process and ensure that justice is done between and among the parties. [Emphasis added.]
7There has been a string of recent cases in which the exception to settlement privilege for settlement agreements that change entirely the litigation landscape has been discussed. See for example: Chu de Québec-Université Laval v. Tree of Knowledge International Corp., 2021 ONSC 5946, Waxman v. Waxman, 2021 ONSC 2180, Poirier v. Logan, 2021 ONSC 1633, and Tallman Truck Centre Limited v. K.S.P. Holdings Inc., 2021 ONSC 984.
8What emerges from the cases, in my respectful view, is that the strict rules from Hendley Estate are robustly applied when the settlement agreement undermines the adversarial process. That assessment is made from the perspectives of both the remaining parties and the court.
9From the court’s perspective, I can do no better than to parrot the words of Koehnen J. in Waxman, at para. 43:
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. [Note omitted.]
10From the parties’ perspective, Koehnen J. listed several ways in which an agreement between some parties can affect the other parties’ rights and interests. He adopted the assessment made by Perell J., in Poirier, at para 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.
11Here, the remaining defendants represented by Mr. MacDonald submit that a settlement agreement between plaintiffs and the defendant Antonello should have been disclosed. For the reasons which I will explain below, I find that Mr. Antonello did not switch sides. The litigation orientation of the parties was not changed by the agreement to let Mr. Antonello out of the litigation. He did not make common cause with the plaintiffs. The earth did not move when he was let out. The settlement did not change the “landscape of the litigation” let alone do so “entirely”.
12Strategically, all that happened of note was that a minor player was let out of the lawsuit on agreeing to make further disclosure of documents to all parties and confirming that he has no other documents to disclose. I find that this is not the kind of abuse of process dealt with by the rules in Hendley Estate. Neither is it a case where the balancing of interests discussed in Sable Offshore might otherwise favour making further inroads into the litigation privilege surrounding the settlement and its terms.
The Settlement
13The plaintiffs claim that the three remaining defendants represented by Mr. MacDonald were former employees who resigned on July 31, 2017 and breached their obligations to the plaintiffs by creating their own competitive business.
14Mr. Antonello resigned from the plaintiffs a few weeks later. He provided consulting services to the other defendants’ new business. He was not involved in soliciting clients for the new business. He is not alleged to have an ownership stake in the new business.
15Mr. Antonello was represented separately from Mr. MacDonald’s clients. There were no crossclaims made as between Mr. Antonello and Mr. MacDonald’s clients.
16On November 12, 2020, the plaintiffs and Mr. Antonello settled on the basis that he was let out of the action. On November 13, 2020, pursuant to the settlement agreement, Mr. Antonello swore an affidavit that was not disclosed to the remaining defendants until Messrs. Dewart and Hughes disclosed the settlement agreement.1
17On November 20, 2020, also pursuant to the settlement agreement, Mr. Antonello swore a supplementary affidavit of documents that was sent to all parties that day.
18On November 21, 2020, in response to a question posed by Mr. MacDonald, Mr. Antonello’s counsel disclosed that there was a settlement between the plaintiffs and Mr. Antonello. He advised that the terms were confidential.
19The full settlement has now been disclosed for this motion.
20Mr. MacDonald submits that the supplemental affidavit of documents discloses more documents than the defendants were obliged to disclose. Mr. Dewart agrees that counsel for the plaintiffs was not pleased with a ruling by a Case Management Master (now an Associate Justice) that had limited the documentary disclosure obligations of the defendants. As a term of letting Mr. Antonello out of the lawsuit, it required him to disclose all that he had related to the issues.
21Mr. MacDonald asserts that Mr. Antonello has disclosed documents that are irrelevant and may be covered by confidentiality obligations owing by Mr. Antonello to the remaining defendants or by them to their customers.
22I cannot see however how a party disclosing documents in his possession can be said to affect the landscape or adversarial orientation of the litigation. Mr. MacDonald’s clients could hardly crossclaim against Mr. Antonello for joining their firm. They had no discovery rights against him as they were not adverse in interest. One defendant disclosing more documents than another defendant believes is required or wise does not alter the adversarial structure of the case.
23Mr. Macdonald submits that the plaintiffs had a “private discovery” of Mr. Antonello and that is a recognized risk of undisclosed settlement agreements. In discussing Sable Offshore in the Tallman case, at para. 50, I wrote:
The plaintiff could not, for example, obtain private discovery from the settling defendant and then use the settlement agreement to limit the other defendants from having equal access to discovery.
24Here, the plaintiffs did not use the settlement to deprive the defendants of equal access to discovery. They obtained extra documentary discovery for all. That does not put Mr. Antonello secretly in the plaintiffs’ camp or alter the adversarial positions. Mr. Antonello is not staying in the litigation as a defendant while secretly being in league with the plaintiffs. He is gone for the cost of making disclosure that an Associate Justice says he did not have to make. That sounds like consideration for a settlement and nothing more.
25Mr. Macdonald points to the affidavit that Mr. Antonello provided to the plaintiffs that was not disclosed to them before examinations for discovery. The affidavit essentially confirmed that the documents produced by Mr. Antonello were all that he had and specified numerous possible sources that had been searched or were otherwise limited. Mr. MacDonald argues that this affidavit was private discovery because it amounted to cross-examination on the affidavit of documents that would normally have taken place in front of all parties during oral examinations for discovery.
26I have an issue with the defendants claiming prejudice because they could not hear the plaintiff’s examination of a co-defendant with whom they were not adverse in interest. Mr. MacDonald’s clients were not deprived of discovery rights against Mr. Antonello. They had none. Nothing stopped them from speaking to him before or after he settled.
27In my view, it was the plaintiffs who gave up their right to examine Mr. Antonello. In return they received some evidence from him concerning his search for documents. Mr. MacDonald argues that some of the evidence about where Mr. Antonello worked at which times and when he had access to emails could also be seen to be admissions going to the merits. If so, then they are akin to a witness statement obtained by the plaintiffs. The document may be subject to privilege, but the information is discoverable.
28Mr. MacDonald did ask on discovery if the plaintiffs had any affidavits of Mr. Antonello’s evidence. Counsel for the plaintiffs responded that they did not. Many months later, counsel provided further information to clarify the answer. I agree with him that in the context of the examination for discovery, the question put by Mr. MacDonald did seem to be looking for whether the plaintiffs had pinned down Mr. Antonello’s evidence on the merits for the trial. The negative response was not untruthful. But it did deserve clarification. They had an affidavit just not one that went to Mr. Antonello’s evidence on the substance of the case.
29Moreover, the clarification provided by counsel months later was incomplete to say the least. But I must take care to avoid circular reasoning.
30If the settlement did not need to be disclosed, then the issue is just whether counsel has given an incomplete answer on discovery. It would be a mistake to say that counsel’s subsequent coyness establishes that the settlement was producible under Hendley Estate. At best, Mr. MacDonald can use his colleague’s incomplete answer as an example of a risk that could be avoided by full disclosure of the settlement.
31Disclosure of a witness statement is always preferable for the recipient compared to counsel’s summary. Counsel provide incomplete summaries of privileged documents at their own risk. But an incomplete summary does not retroactively strip the underlying privileged document of its privilege.
32Mr. MacDonald submits that the non-disparagement clause in the settlement agreement changes the adversarial orientation of the parties. But the clause protects Mr. Antonello’s right and obligation to make any disclosure required by law. His trial testimony is therefore not implicated at all by this clause. Unlike Tallman, Mr. Antonello has not reversed his prior position or evidence. He has not committed to any version of his evidence or promised to side with the plaintiffs expressly or impliedly. I see no relevancy of the non-disparagement clause to the issue of whether the settlement agreement entirely changed the litigation landscape.
33Mr. MacDonald argues that had the plaintiffs disclosed the settlement, his remaining defendants’ positions on discovery could have been different. But, he submits, I should not inquire as to the details of that outcome as it is speculative and might impermissibly become an argument about whether the remining defendants were prejudiced by the plaintiffs’ non-disclosure. In my view, this is a straw man argument. There is noting but speculation in Mr. MacDonald’s submission that the remaining defendants’ position on discovery might have differed. I see nothing indicating why that would be so other than speculation baldly advanced by counsel.
34I agree with Mr. Dewart’s sports analogy. In this case, Mr. Antonello did not switch teams. He left the rink altogether. The adversarial action continues just without one second or third line player.
35Mr. Dewart relies on Perell J. noting in Poirier, at para. 57, that even cooperation among a settling defendant and the plaintiff is not necessarily a material change in the adversarial landscape. Each case must be assessed on its facts.
36In this case, nothing in the settlement agreement changed entirely the litigation landscape. The respective adversarial roles of the parties and Mr. Antonello were clear and known. The details of the settlement remained privileged. The details of Mr. Antonello’s evidence as told to the plaintiffs remains the subject of discovery as between the parties.
37I do not address Mr. Dewart’s fallback argument that if disclosure was required, it was effectively made in the circumstances of this case.
38Mr. Hughes submits that there is a heavy burden on a party claiming an abuse of process. He cites support from the precedents indicating that the remedy in these cases is so drastic that it must be approached with caution and it should be available only in the clearest of cases.
39While I have no issues with the obiter dicta of my colleagues as to the proper doctrinal approach to a claim of abuse of process, the Court of Appeal has set out the tests to put the general doctrine of abuse of process into play in this category of cases. Mr. Hughes agrees that there is only one burden of proof – the balance of probabilities. If I find on the balance of probabilities facts that the Court of Appeal says must result in a dismissal of the proceeding, then that is the result required despite the general desirability of the doctrine of abuse of process being confined to the clearest of cases. In other words, cases with facts that meet the test in Hendley Estate are, by definition, among the clearest of cases.
Outcome
40The motion is dismissed.
41The plaintiffs seek costs on a partial indemnity basis of $18,588.96 all-in. I have reviewed the costs outline and find the hours and rates claimed by the plaintiffs reasonable in light of the effort required in the circumstances. As the costs of the remaining defendants were claimed at more than double the amount claimed by the plaintiffs, I am satisfied that there is no access to justice issue here. The costs claimed by the plaintiffs are well within the range reasonably to be expected by the moving defendants.
42I therefore order the remaining defendants to pay the plaintiffs their costs fixed at $18,588.96 within 30 days.
FL Myers J
Date: December 16, 2021