Court File and Parties
COURT FILE NO.: CV-20-00639748-00CL DATE: 20240925 SUPERIOR COURT OF JUSTICE – ONTARIO (COMMERCIAL LIST)
RE: THRIVE CAPITAL MANAGEMENT LTD., THRIVE UPLANDS LTD., 2699010 ONTARIO INC., and 2699011 ONTARIO INC. Plaintiffs
AND: NOBLE 1324 QUEEN INC., MICHAEL HYMAN, GIUSEPPE ANASTASIO, DAVID BOWEN, NOBLE DEVELOPMENTS CORPORATION, HAMPSHIRE AND ASSOCIATES INCORPORATED, NOBLE 12826 LESLIE CORP., WILSHIRE HOLDINGS INC., NOBLE 376 DERRY CORP., NOBLE 390 DERRY CORP., 2704536 ONTARIO INC., 2724136 ONTARIO INC., HAMSHIRE HOLDINGS INC., AZAN HOMES INC., LISA SUSAN ANASTASIO , RAJEREE ETWAROO, GUISEPPE ANASTASIO JR., SANDRA AZAN-HYMAN, JUSTIN HYMAN, ALAN HYMAN, MORRIS HYMAN, VINCE IOZZO, JOSEPH PERRUCCIO, CELIA LOSIGGIO, MARCO CARUSO, RUBENS TARZIA, ARTSYL TECHNOLOGIES INC., MRG CUSTOM CONCRETE FORMING INC., ISH INVESTMENT CORPORATION, GLAZEPRO INC., JOHN WALKER, 2445362 ONTARIO INC., 2577146 ONTARIO LIMITED, LECOS AUTO SALES LTD., 1782998 ONTARIO INC., CAR NATION CANADA INC., UNIQUE CHRYSLER DODGE JEEP LTD., STRADA CONSTRUCTION AND FERLISI CONSTRUCTION and CON- STRADA CONSTRUCTION GROUP INC . Defendants
BEFORE: KIMMEL J.
COUNSEL: Jason Wadden / Michael O’Brien / Aditi Gupta , for the Noble Defendants 1 (Moving Parties on Motion) Hugh Scher, for the Plaintiffs (Responding Parties on Motion)
HEARD: August 2, 2024
ENDORSEMENT (Noble Defendants' Motion to dismiss or STAY aCTION FOR ABUSE OF PROCESS)
Overview
1The Noble Defendants characterize the relief they seek in their Fresh Amended Notice of Motion dated June 13, 2024 as two separate motions: (i) The Bowen Agreement Motion, in which they seek an order dismissing or staying this Action in its entirety as a result of the plaintiffs' failure to make timely and complete disclosure of a settlement agreement that they entered into with the defendant David Bowen either in the fall of 2020 or January of 2021 (the "Bowen Agreement"); and (ii) the Mareva Set-Aside Motion, in which they seek to set aside the interim Mareva Injunction granted by the orders against the Noble Defendants dated April 23, May 19, June 1, and June 10, 2020 (the "Mareva Injunction") as a result of the passage of time and the material change in their circumstances since it was granted over four years ago.
2A full day hearing was scheduled on August 2, 2024, but there was not sufficient time to address the parties' submissions on both motions. It was agreed that the Bowen Agreement Motion would be argued and the Mareva Set-Aside Motion would be adjourned, since the Bowen Agreement Motion could be dispositive of both motions if the Noble Defendants are successful.
3The Bowen Agreement Motion turns on whether the plaintiffs failed to disclose the Bowen Agreement in a full and timely manner. If so, the Noble Defendants argue that the court must stay the action as an abuse of process based on the prevailing jurisprudence from the Court of Appeal for Ontario.
4The plaintiffs contend that the Bowen Agreement was sufficiently disclosed. In the alternative, they argue that the Noble Defendants waited too long after learning about the Bowen Agreement to bring the Bowen Agreement Motion and should not be permitted to raise the issue now. The plaintiffs rely upon the procedural history of this action which includes lengthy contempt proceedings against certain of the Noble Defendants (the Developer Defendants). The Developer Defendants were found to be in contempt of the Mareva Injunction in June of 2020. They did not satisfy the court that they had purged their contempt for over two years (during which time the Noble Principals were incarcerated as part of the sanction for their contempt and little else happened in the Action).
5For the reasons that follow, the Bowen Agreement Motion is granted. The parties shall convene a case conference before me to determine what should happen to the Mareva Set-Aside Motion, and the Mareva Injunction itself, given that this Action is now stayed.
Procedural Timeline and Delays
6Upon the granting of the Mareva Injunction on April 23, 2020, a comeback hearing was scheduled for June 10, 2020. The Original Defendants 2 were to be afforded the opportunity to file material in opposition to the continuation of the Mareva Injunction. However, the parties became embroiled in contempt proceedings. On June 19, 2020, the Original Defendants were found to be in contempt of the Mareva Injunction.
7Over the next several years, lengthy proceedings ensued. These proceedings were focused on the appropriate sanction for the finding that the Original Defendants were in contempt, efforts to purge their contempt and dealings with various assets in the interim. This involved the following procedural events:
a. After the November 5, 2020 sanction hearing, the court rendered judgment on January 21, 2021, against the Developer Defendants 3 for the full amount of the claim ($9 million) as the sanction for their past and continuing contempt of the court's previous orders (Thrive Capital Management Ltd. et al v. Michael Hyman et al, 2021 ONSC 482, the "First Sentencing Decision").
b. On August 5, 2021, the plaintiffs amended their statement of claim to add new defendants who had been identified as potential recipients of the funds in issue.
c. In a decision dated October 15, 2021, the Court of Appeal overturned the First Sentencing Decision and ordered that the contempt judgment and First Sentencing Decision of Koehnen J. be set aside (Thrive Capital Management Ltd. v. Noble 1324, 2021 ONCA 722, at para. 36, the "Appeal Decision"). The matter was remitted back to another judge of the Superior Court of Justice to determine the appropriate sanction to be imposed upon the Developer Defendants for their contempt of the court's earlier orders.
d. On November 22, 2021 (after the judgment had been set aside), Mr. Anastasio, who was at the time represented by his own counsel, delivered a Statement of Defence dated November 18, 2021 in response to the Amended Statement of Claim. He asserted no cross-claims or counterclaims. The other Developer Defendants did not deliver defences while they remained embroiled in the continuing contempt proceedings.
e. The plaintiffs were having difficulty serving some of the new defendants and brought a motion to seek assistance from the court in this regard on March 31, 2022.
f. A second sentencing hearing was held on May 3, 2022, with a decision rendered on July 12, 2022 (see Thrive Capital Management Ltd. v. Noble 1324 Queen Inc., 2022 ONSC 4081, the "Re-sentencing Decision"). In that decision, the court found that the Developer Defendants had still not purged their contempt and ordered the incarceration of the Noble Principals, among other sanctions that included all Developer Defendants being deemed to be noted in default in the Action.
g. The contempt proceedings were finally concluded following a hearing that took place on November 7, 2022, when the Developer Defendants were found to have taken reasonable steps to purge their contempt in a decision dated February 28, 2023 (see Thrive Capital Management Ltd. v. Noble 1324 Queen Inc., 2023 ONSC 1383).
8The plaintiffs prepared a more detailed procedural history that spans the almost three years in which the parties were embroiled in the prolonged contempt proceedings that is appended to their factum. The contempt proceedings were arduous, all encompassing and hard fought.
9Among other things, the court observed in the February 28, 2023 endorsement (at paras. 53 and 54) that the "litigation landscape" had changed since the Mareva Injunction had been granted almost three years earlier. One such change was the addition of new defendants in August 2021 to the Amended Statement of Claim who could provide some of the missing tracing and disclosure that the Original Defendants had not been able to provide as the Mareva Injunction had required them to do.
10While the court was eventually satisfied that the Developer Defendants had sufficiently purged their contempt for the action to proceed, they have been charged criminally with alleged fraud and forgery relating to their handling of their investors' funds and fabricating bank statements to mislead investors. Those allegations are also the subject of other civil proceedings, but are not part of this motion. None of these charges and allegations have been proven in court.
11After the Developer Defendants were found to have purged their contempt in the February 28, 2023 endorsement, their deemed noting in default was set aside. They were in a position to deliver their defences once the February 28, 2023 order was settled. Their Fresh Amended Statement of Defence, Crossclaim and Counterclaim (the "Defence") was delivered on or about April 6, 2023 (coinciding with their retention of new counsel). Bowen is named as the sole defendant to the cross-claim, against whom the Developer Defendants allege breaches of fiduciary and contractual duties, misrepresentation and knowing assistance in frauds and misrepresentations alleged to have been committed by the plaintiffs. Crossclaims were not asserted against any of the new defendants.
12After delivering their Defence, an urgent case conference was requested by the Developer Defendants on April 20, 2023 at which they raised for the first time their desire to bring the Mareva Set-Aside Motion and Bowen Agreement Motion (the "Proposed Motion").
13The Developer Defendants had originally suggested a timetable for their Proposed Motion (and other motions at that time proposed by the plaintiffs) at the urgent case conference that was convened on April 21, 2023. Instead of scheduling and timetabling any of those motions, the parties were directed by the court to first confer about the potential motions and a discovery plan. The parties had one exchange of correspondence about the potential motions (on June 28, 2023 and July 14, 2023) but did not confer about a discovery plan. Nothing further occurred until the Noble Defendants convened a case conference a year later, in April 2024, to schedule their Proposed Motion. Their Notice of Motion for the Proposed Motion was delivered on April 16, 2024 (later amended June 14, 2024).
14The court granted limited Preliminary Urgent Relief on June 21, 2024 by varying the Mareva Injunction order in respect of the Noble Principals. Relying in part upon Jack Digital Productions Inc v. Comex Foreign Exchange Inc., 2007 ONSC 43901, at para. 7, the court concluded that it should be amended to allow the Noble Principals to earn a livelihood and contribute to their living and legal expenses from any newly earned income. That decision was made having regard to several factors including the four years that had elapsed since the Mareva Injunction was first granted.
15On the subject of the delay in the prosecution of the action, when the Preliminary Urgent Relief was granted the court considered both the overall delay since the action was commenced in 2020 and the delay since the defences were filed in April 2023. While much of the overall delay could be attributed to the conduct of the Noble Defendants until they finally put evidence before the court at the November 7, 2022 hearing that they had purged their contempt, the court concluded that not all of the delay after they delivered their Amended Statement of Defence, Counterclaim and Crossclaim in April 2023 could be attributed to them.
16The court recognized at the time the Preliminary Urgent Relief was granted that there may be more to say about the post-April 2023 period of delay. The parties disagree about who was responsible for moving the Action and the Proposed Motion forward, and about why neither were advanced for over 8.5 months after the initial communications in June/July 2023.
The Bowen Agreement
17The Court of Appeal for Ontario's immediate disclosure rule regarding partial settlements is at the heart of the Bowen Agreement Motion. The timing of the Bowen Agreement and of its disclosure are essential to this motion.
18David Bowen was one of the Original Defendants who had been found to be in contempt of the Mareva Injunction. According to the plaintiffs' former counsel who has provided sworn testimony on this motion, by the time of the November 5, 2020 sentencing hearing "the plaintiffs were sufficiently comfortable with the status of the discussions and that there would be a written final legally binding agreement to be able to take the position at the hearing that Mr. Bowen was now cooperating and trying to purge his contempt and that we weren't seeking to sentence him at that time."
19Counsel for the plaintiffs attested in his affidavit that "[a]round the time the First Sentencing Hearing was originally scheduled [in October 2020], the plaintiffs and Bowen reached an agreement in principle. In return for the plaintiffs not pursuing a sentence for contempt for Bowen, Bowen agreed to purge his contempt and repay the plaintiffs' money that he had received from the Developer Defendants, $110,000." No mention is made of Bowen's agreement to co-operate in the Action (outlined below).
20Plaintiffs' counsel explained when he testified that "[t]his was an agreement in principle because it had not yet been drafted and all of the material terms were not finalized, such as when Bowen would pay back the money. The Bowen Agreement was finalized and executed in January, 2021."
21The Bowen Agreement was eventually reduced to writing and signed on January 19, 2021. That written agreement confirms that Bowen agreed to
a. repay the Plaintiffs $110,000 4 of their funds that he acknowledged having received;
b. cooperate with the plaintiffs in the Action, including by providing them with relevant documents and information, and, "at the [plaintiffs'] request, prepare and swear affidavit(s) for use in the Thrive Action, and fully cooperate with the [plaintiffs] to provide all necessary information to ensure the affidavit(s) is complete and accurate"; and
c. "take all other steps reasonably requested by the [plaintiffs] to assist with the Thrive Action."
22In exchange, the plaintiffs agreed not to seek any sanctions for the court's prior finding of contempt against Bowen. It was expressly acknowledged and agreed that the Bowen Agreement was not a settlement of the action by the plaintiffs against Bowen, which would continue against him.
23Counsel for the plaintiffs claimed (in a letter he wrote to counsel for the Noble Defendants dated July 14, 2023 as part of the court directed communications about their Proposed Motion) to have "advised the parties and the Court of the settlement at the start of the hearing before Justice Koehnen on November 5, 2020." He further stated: "I disclosed the terms of the agreement but not the agreement itself at that time. This was necessary because the plaintiffs were no longer pursuing contempt remedies against Mr. Bowen. This disclosure was provided soon after the agreement was made. This disclosure was reflected at paragraph 3 of Justice Koehnen's decision dated January 21, 2021."
24All that paragraph 3 of that decision indicates is that no penalty was sought against Bowen and so he was excluded from the definition of "Developer Defendants" against whom the sanction was being ordered. There is no clear or direct statement in the transcript from the November 5, 2020 hearing about an agreement having been reached between the plaintiffs and Bowen. The transcript confirms that it was disclosed at the hearing that Bowen was now cooperating and trying to purge his contempt:
…he has started complying with the orders, and in particular, by providing us with access to his emails and his texts, and he's also in the course of providing us with a bunch of other information. Now, he has not provided us with everything to get himself in compliance with the orders but he has agreed to do so. We've exchanged lists of information that we need from him and he has agreed to do so and to, to undertake that. And so, in light of that -- so, first, I need to advise the Court that Mr., Mr. Bowen's compliance is different than it was even two weeks ago. And he has substantially now complied. As I say, there are some further issues. We do appreciate Mr. Bowen's cooperation and, again, it takes a bit more time to deal with him because we're not dealing through counsel.
25Similarly, Bowen directly advised the court as follows at the September 5, 2020 hearing:
Guided by my conscience now to provide full disclosure of everything that I can in my control to the Court, I listed the many items that are not in my control, purging my content [sic] as best I can with the ultimate aim that investors will get back as much of their money as possible. I've provided the plaintiffs with all my emails and texts, not just the ones the Court ordered. Full transparency, full disclosure, and will continue to provide information as needed and requested.
So, in conclusion, Your Honour, my apology is sincere. My attempt to purge my contempt is, is sincere, to the best of my ability that I can control.
26Bowen provided the court with written submissions on November 12, 2020, after the sentencing hearing but before the First Sentencing Decision was released, in his stated capacity as a "defendant" who was potentially facing a similar penalty for contempt as Hyman and Anastasio. Among other things, Bowen reiterated in these submissions his earlier statements to the court at the hearing that: "My counscious [sic] dictates that I continue to work with the plaintiffs and provide them with full and accurate disclosure of all the facts that I am aware of which I will be pursuing."
27Bowen's post-hearing written submission also reinforced certain points he had made at the November 5, 2020 sentencing hearing that contradicted things that the Developer Defendants had represented to the court. Bowen's unsworn submissions were considered by the court to be supportive of the court's negative views about Mr. Hyman's credibility and reliability (at para. 43 of the First Sentencing Decision).
28It was no secret that the interests of Bowen and the Developer Defendants were no longer aligned by the time of the November 5, 2020 sentencing hearing. They had been represented by the same counsel who resigned earlier that year due to a conflict of interest.
29In his costs submissions dated November 17, 2020, Hyman argued that any costs award against the Developer Defendants in respect of the sentencing hearing should be divided three ways (between Hyman, Anastasio and Bowen). He asserted in support of this contention that: "… Bowen has stayed in the background, apparently offering recently to assist the Plaintiffs, but incurring no costs in the meantime and making no attempt (until recently) to assist the other Developer Defendants in purging their collective contempt."
30In the First Sentencing Decision, the court concluded (at para. 86) that:
It is not appropriate to hold Mr. Bowen liable for costs, It is clear that Mr. Bowen played a minor role in the piece. It appears that he received approximately $33,000 of the plaintiffs' $9,000,000. He appears to have been a contract employee working very much under the direction of Messrs. Hyman and Anastasio rather than being any sort of mastermind. He has demonstrated genuine contrition for his role in what occurred. He has explained that he was assured that this was all a misunderstanding that Mr. Hyman would quickly correct. He has begun cooperating with the plaintiffs and providing whatever information he can.
31The evidence clearly supports a finding that the plaintiffs had reached an agreement with Bowen prior to the November 5, 2020 sentencing hearing. The only outstanding matter that had yet to be agreed upon with Bowen that the plaintiffs or their former counsel have identified was the schedule for Bowen to repay what he had agreed to the plaintiffs.
32The existence of the plaintiffs' agreement with Bowen was not disclosed at the November 5, 2020 sentencing hearing. Having parted ways with the plaintiffs, Bowen was downplaying his own role and expressed remorse for any involvement he had in the alleged scheme. That does not amount to disclosure of a co-operation agreement.
33Considering the totality of the evidence about what was disclosed at that hearing, and the contemporaneous written records of that disclosure, I find that only one aspect of that agreement was disclosed at the November 5, 2020 sentencing hearing: that Bowen was working co-operatively with the plaintiffs to purge his contempt. This is what one would expect any defendant who has been found in contempt to do, although the Developer Defendants were ultimately found not to have done so and sanctions were ordered against them. The remaining terms of the Bowen Agreement (such as his agreement to repay funds to the plaintiffs and to fully cooperate with the plaintiffs and assist them in the Action) were not disclosed at the time (the "Undisclosed Terms").
34The written Bowen Agreement provided that its terms were to be kept strictly confidential and that it was not to be disclosed to any "third parties" without consent. Although the Bowen Agreement provided that the plaintiffs would email the court upon execution to advise that they were not seeking sanctions against Bowen, the plaintiffs have not produced any evidence of having done so. However, consistent with the Bowen Agreement, the plaintiffs did not seek any sanction against Bowen for contempt at the November 5, 2020 hearing or thereafter, and no sanction was imposed against Bowen in the court's First Sentencing Decision.
35The court and the plaintiffs were also not told about the existence of the Bowen Agreement or provided with a copy of it when it was signed on January 19, 2021. Two days after it was signed, the First Sentencing Decision dated January 21, 2021 was released, granting judgment in the action for the full $9 million claimed against the Developer Defendants, but not against Bowen.
36The existence of the Bowen Agreement was first disclosed to the Developer Defendants during a Rule 39.03 Examination of Bowen conducted at the request of the plaintiffs on March 22, 2022 (the "Bowen Examination"). This examination was conducted to obtain evidence in support of the plaintiffs' position at the hearing for the court to reconsider the appropriate sanction to impose upon the Developer Defendants (after the matter had been remitted to this court by the Court of Appeal). The re-sentencing hearing was at that time returnable on March 30, 2022 but it was later adjourned to May 3, 2022.
37Both Bowen and the plaintiffs were operating on the basis that Bowen's attendance at that examination was, at least in part, due to the Bowen Agreement. At the outset of that examination counsel for the plaintiffs asked Bowen: "And you've also agreed to provide cooperation to the plaintiffs in this litigation?" Bowen responded in the affirmative. Later during that cross-examination when questioned by counsel for Mr. Anastasio, Bowen stated that his agreement with the plaintiffs in this case was to provide evidence and answer all their questions and that there is an agreement in writing to repay the compensation that Bowen made on the deal (indicated to be $110,000).
38A copy of the Bowen Agreement was first provided to the Noble Defendants following the Bowen Examination, on April 25, 2022 in response to a request for its production made during that examination. The court was first made aware of the Bowen Agreement in the context of that re-sentencing hearing on May 3, 2022.
Events and Conduct Post-Disclosure of the Bowen Agreement
39Excerpts from the Bowen examination were relied upon by the plaintiffs in both their written and oral submissions for the re-sentencing hearing that was eventually heard on May 3, 2022. Anastasio's factum for the re-sentencing hearing referred generally to Bowen's co-operation with the plaintiffs.
40None of the Developer Defendants raised any concern about an abuse of process associated with the late disclosure of the Bowen Agreement, nor was any request made for a stay or dismissal of the Action at that time. At that time, they still had not purged their contempt of the Mareva Injunction and were in default of that order which remained in effect.
41The concern about the late disclosure of the Bowen Agreement was first raised on behalf of the Developer Defendants by their (then) new counsel a year after they had been provided with a copy of it. This was shortly after they had been found to have purged their contempt and had been granted leave to deliver defences (or in the case of Anastasio, an amended defence). Shortly after they delivered their Fresh Amended Statement of Defence, Counterclaim and Crossclaim, at a case conference held on April 20, 2023 the Noble Defendants sought to schedule their Proposed Motion to stay or dismiss this action or to amend the Mareva Injunction.
42Upon the first indication by the Developer Defendants that they wished to pursue their Proposed Motion (which is this motion), the court directed the parties to confer about it first, given that the new counsel for the Developer Defendants was not present at the November 5, 2020 sentencing hearing and did not have all of the background. Counsel for the parties had one exchange of correspondence which was concluded by mid-July 2023.
43However, this motion was not formally advanced for a further year, in a Notice of Motion dated April 16, 2024 (later amended by the Fresh as Amended Notice of Motion dated June 13, 2024) for a hearing on June 21, 2024 that was adjourned to August 2, 2024.
The Issues
44The moving parties (Noble Defendants) articulate the issue for the court on the Bowen Settlement Motion to be: Whether this proceeding should be stayed due to an abuse of process resulting from the plaintiffs' failure to immediately disclose the Bowen Agreement to the court or the parties?
45The plaintiffs' response to this motion adds an additional issue regarding the two-year delay by the Noble Defendants in bringing this motion after they were provided with a copy of the Bowen Agreement. This raises the further question: Having regard to the particular circumstances of this case, have the Noble Defendants waived any right they may have had to seek a dismissal or stay of this action for the plaintiffs' failure to make a timely disclosure of the Bowen Agreement?
The Ontario Court of Appeal's Immediate Disclosure Rule Regarding Partial Settlements
46The most recent case from the Court of Appeal that was cited on this motion provides a good history and review of the rule about immediate disclosure of partial settlements: see Skymark Finance Corporation v. Ontario, 2023 ONCA 234, 166 OR (3d) 131. The following extract from Skymark (at paras. 46-49) is lengthy but comprehensively summarizes the applicable law:
The immediate disclosure rule
46This court has held, repeatedly, that settlement agreements reached between some parties, but not others, need to be immediately disclosed to non-settling parties if they entirely change the litigation landscape. This litigation obligation may be traced back to this court’s decision in Laudon v. Roberts, 2009 ONCA 383, 308 D.L.R. (4th) 422, leave to appeal refused [2009] S.C.C.A. No. 304, Aecon Buildings v. Stephenson Engineering Limited, 2010 ONCA 898, 328 D.L.R. (4th) 488, leave to appeal refused [2011] S.C.C.A. No. 84, and Handley Estate. It has been restated and refined numerous times, especially in recent years: see Tallman Truck Centre Limited v. K.S.P. Holdings Inc., 2022 ONCA 66, 466 D.L.R. (4th) 324, leave to appeal refused, [2022] S.C.C.A. No. 170, at para. 23; Waxman v. Waxman, 2022 ONCA 311, 471 D.L.R. (4th) 52, leave to appeal refused, [2022] S.C.C.A. No. 188, at para. 24; Poirier v. Logan, 2022 ONCA 350, leave to appeal refused [2022] S.C.C.A No. 255, at para. 47.
47A helpful summary of how this rule operates is found in CHU de Québec–Université Laval v. Tree of Knowledge International Corp., 2022 ONCA 467, in which Sossin J.A. said, at para. 55:
The following principles can be drawn from this court’s decisions on the abuse of process that arises from a failure to immediately disclose an agreement which changes the litigation landscape:
a) There is a “clear and unequivocal” obligation of immediate disclosure of agreements that “change entirely the landscape of the litigation”. They must be produced immediately upon their completion: Handley Estate, at para. 45, citing Aecon at paras. 13 and 16]; see also Waxman, at para. 24;
b) The disclosure obligation is not limited to pure Mary Carter or Pierringer agreements. The obligation extends to any agreement between or amongst the parties “that has the effect of changing the adversarial position of the parties into a co-operative one” and thus changes the litigation landscape: Handley Estate, at paras. 39, 41; see also Tallman, at para. 23; Waxman, at paras. 24, 37; Poirier, at para. 47;
c) The obligation is to immediately disclose information about the agreement, not simply to provide notice of the agreement, or “functional disclosure”: Tallman, at paras. 18-20; Waxman, at para. 39;
d) Both the existence of the settlement and the terms of the settlement that change the adversarial orientation of the proceeding must be disclosed: Poirier, at paras. 26, 28, 73;
e) Confidentiality clauses in the agreements in no way derogate from the requirement of immediate disclosure: Waxman, at para. 35;
f) The standard is “immediate”, not “eventually” or “when it is convenient”: Tallman, at para. 26;
g) The absence of prejudice does not excuse a breach of the obligation of immediate disclosure: Handley Estate, at para. 45; Waxman, at para. 24; and
h) Any failure to comply with the obligation of immediate disclosure amounts to an abuse of process and must result in serious consequences: Handley Estate, at para. 45; Waxman, at para. 24; Poirier, at para. 38. The only remedy to redress the abuse of process is to stay the claim brought by the defaulting, non-disclosing party. This remedy is necessary to ensure the court is able to enforce and control its own processes and ensure justice is done between the parties: Handley Estate, at para. 45; Tallman, at para. 28; Waxman, at paras. 24, 45-47; Poirier, at paras. 38-42.
48I wish to stress an additional point. The immediate disclosure rule is not designed to discourage settlements – far from it. The rule simply compels the immediate disclosure of such agreements when they profoundly impact the litigation. This was clear from inception of this line of authority. In Aecon, MacFarland J.A. said the following, at para. 13:
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. [Emphasis in original.]
49In her reasons the previous year in Laudon, at para. 39, MacFarland J.A. adopted the following rationale for the rule in Pettey v. Avis Car Inc. (1993), 1993 ONSC 8669, 13 O.R. (3d) 725 (Gen. Div.), in which Ferrier J. said, at pp. 737-738:
The non-contracting defendants must be advised immediately because the agreement may well have an impact on the strategy and line of cross-examination to be pursued and evidence to be led by them. The non-contracting parties must also be aware of the agreement so that they can properly assess the steps being taken from that point forward by the plaintiff and the contracting defendants. In short, procedural fairness requires immediate disclosure. Most importantly, the court must be informed immediately so that it can properly fulfil its role in controlling its process in the interests of fairness and justice to all parties. [Emphasis added.]
More recently, this passage was endorsed by Brown J.A. in Handley Estate, at para. 36, and by Paciocco J.A. in Poirier, at para. 42.
47In Poirier, at para. 41, the Court of Appeal reiterated that “any breach of the obligation to disclose falls among the clearest of cases that require a stay. There is a one-part test ... if it is found that immediate disclosure of a settlement was required but not made, it follows automatically that an abuse of process has occurred and that the action must be stayed.”
Analysis
48The two broad issues have been identified for the court's consideration (above), and the sub-issues that they raise, will be addressed in sequence.
Has the Immediate Disclosure Obligation Been Triggered?
49The earlier findings in this endorsement establish that the plaintiffs had reached an agreement with Bowen prior to the November 5, 2020 sentencing hearing. At the very least, the Bowen Agreement was finalized when it was executed on January 19, 2021.
50According to the Court of Appeal's guidance, there is a "clear and unequivocal" obligation to immediately disclose any agreements between or amongst parties "that [have] the effect of changing the adversarial position of the parties into a cooperative one" (Tree of Knowledge at para. 55). Such agreements inherently change the litigation landscape or alter the "dynamics of the litigation."
51In Handley Estate v. DTE Industries Limited, 2018 ONCA 324 (at para. 39 quoting Moore v. Bertuzzi, 2012 ONSC 3248, 110 O.R. (3d) 611, at paras. 75-79) the Court of Appeal observed that the court must “know the reality of the adversity between the parties” and whether any agreement changes the “adversarial orientation” between the parties in order to maintain fairness. To determine if the immediate disclosure obligation has been triggered the court must ask 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? see Handley, at para. 40 quoting Aviaco International Leasing Inc. v. Boeing Canada Inc., 2000 ONSC 22777 at para. 23.
52The relevant parties for purposes of evaluating this are the parties to the agreement at issue. That is, the plaintiffs and Bowen in this case. The fact that Bowen's interests were no longer aligned with the Developer Defendants' interests by the time of the Bowen Agreement is not the critical question. That is part of the litigation landscape in the sense that the defendants may be pointing fingers at each other (as they often do), but the critical question is whether the Bowen Agreement changed the adversarial position between the plaintiffs and Bowen (who remains a defendant in the action as far as the pleadings are concerned) to a co-operative arrangement. If it did, according to the Court of Appeal's guidance, that would have changed the "litigation landscape" or altered "the dynamics of the litigation."
53The plaintiffs focus on the aspects of the Bowen Agreement that were about him co-operating to purge his contempt, something that any defendant against whom a finding of contempt has been made would be expected to do. They suggest this did not change the litigation landscape or alter the dynamics of the litigation between the plaintiffs and Bowen.
54However, the plaintiffs overlook or attempt to downplay the Undisclosed Terms of the Bowen Agreement. Specifically, that he had agreed to repay $100,000 (more than the $33,000 that the court understood he had received according to in the First Sentencing Decision), cooperate with the plaintiffs by providing affidavit evidence or other testimony and to co-operate in its compilation, provide them with documents and information and take any other reasonable step to assist them in the Thrive action. It was not just his cooperation to purge his contempt, but all of these other Undisclosed Terms, that were the quid pro quo for the agreement of the plaintiffs not to seek any sanctions against Bowen for the court's prior finding of contempt against him.
55When all of these terms of the Bowen Agreement are considered, I find that the Bowen Agreement did have the effect of changing the adversarial position between the plaintiffs and Bowen to a co-operative arrangement (even though Bowen remains a defendant in the action on paper). It altered the apparent relationships or expected conduct of the litigation between the plaintiffs and Bowen from what would otherwise be assumed from the allegations in the statement of claim. The agreement thus changed the litigation landscape and altered the dynamics of the litigation.
56The conduct required of Bowen under the terms of the Bowen Agreement would not be expected by the non-settling Developer Defendants in the normal course of the litigation. Bowen was agreeing to do more than what would have been required of him as a defendant in the normal course of the litigation. see Crestwood Preparatory College Inc. v. Smith, 2022 ONCA 743, 164 O.R. (3d) 291, at para. 54.
57An agreement does not have to be a settlement of all issues in an action against the participating defendants for it to come within the immediate disclosure rule. see Aecon, which involved an agreement to cap damages as against a defendant who was to remain in the action.
58The Undisclosed Terms of the Bowen Agreement are the very type of terms postulated but found not to exist in Tribecca Finance Corp. v. Harrison, 2019 ONSC 1926, at para. 33, where the court observed (in concluding that the immediate disclosure obligation had not been triggered) that there was no agreement that the settling defendant participate in the trial in any way, or provide assistance in any other manner. In contrast, in this case that is exactly what Bowen had agreed to do. Beyond merely purging his own contempt, he agreed to provide assistance to the plaintiffs in their prosecution of the action against the other defendants.
59In the circumstances of this case, I find that the immediate disclosure obligation was triggered. The plaintiffs had an obligation to immediately disclose the Bowen Agreement at the earliest at the November 5, 2020 sentencing hearing or, at the latest, upon execution of the written Bowen Agreement on January 19, 2021.
60One further argument that the plaintiffs made regarding the Bowen Agreement was that it did not have to be disclosed because Bowen has not fully performed his obligations under it. Specifically, he has not paid any of the agreed upon sum of $110,000. That cannot be a defence to the immediate disclosure requirement because the requirement arose before the obligation to pay was even triggered.
61In any event, the Bowen Agreement was partially performed by both sides. The plaintiffs did not seek a sanction against Bowen for contempt and Bowen has co-operated with the plaintiffs both in terms of purging his contempt and in other respects in the action more generally. For example, he attended the r. 39.03 examination in March of 2022 which both he and the lawyer for the plaintiffs acknowledged at the outset was arranged pursuant to his agreement to co-operate. Bowen indicated during the examination that there was a written agreement to co-operate, and the Bowen Agreement was produced a month later in response to a request by counsel for one of the Developer Defendants.
Did the Plaintiffs Make Immediate Disclosure of the Bowen Agreement?
62The plaintiffs argue that what they disclosed at the November 5, 2020 sentencing hearing constituted sufficient disclosure of the Bowen Agreement.
63According to the Court of Appeal's guidance, as summarized in Tree of Knowledge (at para. 55): "The obligation is to immediately disclose information about the agreement, not simply to provide notice of the agreement, or “functional disclosure"" and "[b]oth the existence of the settlement and the terms of the settlement that change the adversarial orientation of the proceeding must be disclosed."
64Here there is no suggestion of any disclosure having been made of the Undisclosed Terms (detailed above) of the Bowen Agreement within the November 5, 2020 to January 21, 2021 time frame. All that was disclosed in that timeframe was that Bowen was starting to co-operate, that he had taken some steps in an effort to purge his contempt and perhaps that he had gone above and beyond what he was ordered to do in some respects. The Bowen Agreement went beyond merely purging Bowen's own contempt in a number of ways, most significantly by requiring him to fully cooperate and assist the plaintiffs in the Action generally and requiring him to repay funds he was alleged to have fraudulently received.
65The Undisclosed Terms of the Bowen Agreement were the very terms that had the effect of changing the adversarial orientation of this litigation as between the plaintiffs and Bowen. Where one defendant enters into a settlement agreement and "joins cause" with the plaintiff, the plaintiff's failure to immediately disclose the settlement agreement will amount to an abuse of process. The timeframe that will satisfy the immediacy requirement will to some extent depend on the circumstances of the particular case. A three-week delay in disclosure was held not to meet the test as being “immediate” in Tallman (at para. 26).
66Conversely, in Tree of Knowledge, the Court of Appeal found that the essential terms of the agreement were disclosed immediately “because any delay in disclosure occurred within the context of a motion before the court to approve the Settlement Agreement itself, and amend the pleadings accordingly, the rationale underlying the rule that failure to disclose is an abuse of process was not engaged” (at para. 4).
67The court and the plaintiffs were not told about the Undisclosed Terms (or even the existence of an agreement between Bowen and the plaintiffs) at the November 5, 2020 sentencing hearing and were not provided with a copy of the Bowen Agreement when it was signed on January 19, 2021. The disclosure that was made at the November 5, 2020 sentencing hearing did not satisfy the plaintiffs' immediate disclosure obligation. A copy of the Bowen Agreement was first provided to the Noble Defendants following the Bowen Examination, on April 25, 2022 in response to a request for its production made during that examination. That did not satisfy the plaintiffs' immediate disclosure obligation.
68The plaintiffs suggest that once judgment was granted against the Developer Defendants as a sanction under the First Sentencing Decision released on January 21, 2021, there could be no abuse of process because the action was no longer continuing as against the Developer Defendants. Even if I were to accept that suggestion, the rationale would have fallen away as of October 15, 2021 when the Court of Appeal set aside the judgment. The Bowen Agreement was still not disclosed until six months after that, and only after it had been invoked and relied upon by the plaintiffs to compel Bowen to attend an examination in support of the re-sentencing hearing. That delay does not meet the immediacy requirement.
69The abuse of process that was created by the plaintiffs' failure to meet the immediate disclosure obligation regarding the Bowen Agreement arose at the time of the First Sentencing Hearing. One might postulate that the non-disclosure was ameliorated because the Bowen Agreement had been disclosed and was in fact referred to in the context of the second sentencing hearing and eventual Re-Sentencing Decision. However, I have difficulty fitting that disclosure timeline into the strict construct of the immediate disclosure obligation as articulated by the Court of Appeal. It does not address any abuse of process that may have occurred in the context of the First Sentencing Decision (that I was not involved in) and all that flowed from that decision.
What is the Consequence of the Plaintiffs' Failure to Satisfy the Immediate Disclosure Obligation?
70According to the Court of Appeal's guidance, as summarized in Tree of Knowledge (at para. 55), the only remedy to redress the abuse of process is to stay the claim brought by the defaulting, non-disclosing party. This remedy is necessary to ensure the court is able to enforce and control its own processes and ensure justice is done between the parties.
71There is a proposed Rule amendment that is directed at the cases from the Court of Appeal dealing with partial settlements. It is intended to respond to concerns relating to the effect of existing jurisprudence in this area, specifically, the concern that a presumptive stay is an extraordinary remedy, and that more flexibility is required to address non-compliance.
72The Rule amendment has not come into effect. Accordingly, I remain bound to follow the Court of Appeal's directive and have no choice but to stay the Action. This is not the remedy that I would have imposed if I had any discretion to impose a different one. Having presided over the second half of the contempt proceedings, I have witnessed the conduct of the Developer Defendants in this proceeding firsthand, and have not been impressed by them. Nor was the court particularly impressed by the defences that they raised. That is reflected in the many endorsements that have been issued, both before and after my involvement.
73In the circumstances of this case, the court would have been open to hearing submissions about other remedies to impose if that was an option. Unfortunately, that is not an option based on the current state of the law.
What is the Effect of the Delay by the Noble Defendants in Bringing the Bowen Agreement Motion?
74I was not provided with any authority or jurisprudence about the time within which a party must invoke the immediate disclosure rule in order to rely upon it.
75The plaintiffs suggested that the delay in invoking the rule could be interpreted or inferred to be an acknowledgment by the Noble Defendants that the rule was not triggered in this case because the Bowen Agreement had been disclosed to them at the time of the November 5, 2020 sentencing hearing. However, for reasons previously indicated, the evidence about what was said at that hearing (from the transcript and from the plaintiffs' lawyer) does not support that inference. In fact, the evidence led me to conclude the opposite, that important Undisclosed Terms of the Bowen Agreement that ought to have been disclosed were not disclosed until the Bowen Agreement was produced in April 2022.
76Since part of the policy rationale for the immediate disclosure rule is “the court must be informed immediately so that it can properly fulfil its role in controlling its process in the interests of fairness and justice to all parties”, the timing of any motion brought by the other defendants not party to the agreement is arguably not relevant (see Skymark, at para. 49 quoting Pettey v. Avis Car Inc. (1993), 1993 ONSC 8669, 13 O.R. (3d) 725 (S.C.), at pp. 737-738). One exception to that may perhaps be when it comes time to deal with the issue of costs if the delay resulted in steps having been taken and costs incurred that might have been avoided if the motion had been brought earlier.
77The Noble Defendants provided a "straw man" waiver framework within which the court could consider the delay argument that the plaintiffs raised. I say straw man, because they provided this framework and then argued that it cannot be satisfied because of the requirement that a party expressly or by necessary inference be found to have been aware of the right and intend to give it up in order for the right to be waived. This is well established in the jurisprudence: see, for example, Technicore Underground Inc. v. Toronto (City), 2012 ONCA 597, 354 D.L.R. (4th) 516, at para. 63:
The Supreme Court of Canada provides guidance on the doctrine of waiver in Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., [1994] 2 S.C.R. 490. In paragraphs 19, 20 and 24, it lays down the following. Waiver occurs when one party to a contract (or proceeding) takes steps that amount to foregoing reliance on some known right or defect in the performance of the other party. It will be found only where the evidence demonstrates that the party waiving had (1) a full knowledge of the deficiency that might be relied on and (2) an unequivocal and conscious intention to abandon the right to rely on it. The intention to relinquish the right must be communicated. Communication can be formal or informal and it may be inferred from conduct. The overriding consideration in each case is whether one party communicated a clear intention to waive a right to the other party.
78In this case, at the time the Bowen Agreement was eventually disclosed in April 2022, the Developer Defendants were still in default and were focused on satisfying the court that they had purged their contempt. They were only found to have succeeded in doing so when the court's February 28, 2023 endorsement was released, after which the order was settled that allowed them to deliver Defence (or in the case of Anastasio, an amended defence) once they were no longer deemed to be in default.
79The Developer Defendants further argue that while they were preoccupied with defending the contempt proceedings which threatened their liberty, they should not be held to have been under an obligation to take other steps and incur costs in the Action. see Chimienti v. Windsor (City), 2011 ONCA 16, 105 O.R. (3d) 72, at para. 15.
80Shortly after the Noble Defendants delivered their Defence on April 6, 2023 and were able to take steps in the action, at a case conference held on April 20, 2023 they sought to schedule their Proposed Motion, that they indicated would include a request to stay or dismiss this action due to the alleged abuse of process. The court determined (at the Preliminary Urgent Motion) that the further delay after that case conference was not entirely the fault of the Developer Defendants. Eventually the Bowen Motion was scheduled and argued on August 2, 2024.
81This sequence of events does not support a finding of any express, or inference by necessary implication, of an intention by the Noble Defendants to waive any right they had to seek a stay of this action for the plaintiffs' failure to meet the immediate disclosure obligation in respect of the Bowen Agreement. If other things had been happening in the Action the situation might be different, but no steps were taken, by either side, during the period of alleged delay after the Defence was delivered.
Final Disposition
For the foregoing reasons, the Bowen Motion is granted and the action is stayed as against the Noble Defendants. The parties shall arrange a case conference with me (minimum one hour) to seek directions regarding the Mareva Set-Aside Motion, the Mareva Injunction itself and any other relief as they may consider appropriate, arising out of this decision.
Costs
82The court assumes that the parties exchanged their costs outlines for the Bowen Motion by August 16, 2024 as they agreed to do at the hearing. It was agreed at the conclusion of the hearing that the parties would attempt to reach an agreement on costs after receiving the court's decision on this motion and advise the court if they are able to, failing which they may agree upon a schedule for the exchange of written cost submissions (originating submissions not to exceed 3 pages double spaced each and responding submissions not to exceed 1.5 pages double spaced each).
83The Noble Defendants indicated that they may wish to make further submissions regarding the costs of the entire action, not just this motion, if the motion is granted. If the parties are not able to agree upon the process for exchanging cost submissions they may arrange a case conference with me through the Commercial List scheduling office, or may combine it (with additional time as needed) with the case conference already directed to consider implications for the Action and the Mareva Injunction.
84If the parties agree on a process for exchanging cost submissions, counsel for the parties shall advise of such by email to my judicial assistant at: linda.bunoza@ontario.ca
Kimmel J. Date: September 25, 2024
Footnotes
Footnotes
- The Defendants/ Plaintiffs By Counterclaim And Crossclaim, Michael Hyman and Giuseppe Anastasio (together, the "Noble Principals"), Noble 1324 Queen Inc., Noble Developments Corporation, Hampshire and Associates Incorporated, Noble 12826 Leslie Corp., Wilshire Holdings Inc., Noble 376 Derry Corp., Noble 390 Derry Corp. (together, "Noble Developments), and 2704536 Ontario Inc., 2724136 Ontario Inc., Hampshire Holdings Inc., Azan Homes Inc., Lisa Anastasio, Guiseppe Anastasio Jr., Sandra Azan-Hyman, Justin Hyman, Alan Hyman, and Morris Hyman (the "Other Noble Defendants", and together with the Noble Principals and Noble Developments, the "Noble Defendants").
- At that time, the named defendants were Noble 1324 Queen Inc., Michael Hyman, Giuseppe Anastasio, David Bowen, Noble Developments Corporation, Hampshire and Associates Incorporated were referred to as the "Original Defendants".
- For the purposes of this endorsement, the term “Developer Defendants” shall be used to refer to all of the Original Defendants excluding David Bowen as that is how that term has been used in prior endorsements.
- When the plaintiffs produced a copy of this agreement to the Noble Defendants in April 2023 in answer to an undertaking under advisement given during the Bowen Examination, it was noted that the amount of the monthly payments was not accurately reflected in the signed agreement. Rather: "The parties agreed that Bowen would pay the plaintiffs $110,000 and the payments would be divided over 18 months. The plaintiffs have not received any payments from Bowen pursuant to the Agreement." The Bowen Agreement had specified a monthly amount that did not accord with this, although it provided for eighteen payments commencing June 1, 2021.