Which Settlement Agreements Require Immediate Disclosure?

• Published date: 08 December 2022
• Law Firm: Torys LLP
• Author: Ms Linda Plumpton, Gillian Dingle and Stacey Reisman

While litigants with potentially meritorious claims are rarely stopped in their tracks, the Ontario Court of Appeal has confirmed that this is precisely what will happen if a party fails to immediately disclose a critical settlement agreement.

In seven recent decisions, the Court of Appeal has reiterated that failure to comply strictly with this disclosure requirement is an abuse of process for which the only appropriate remedy is a stay of proceedings¹.

The question with which litigants continue to grapple is, which agreements require immediate disclosure? Although each case will depend on its facts, the recent case law provides guidance on the factors that courts will consider when assessing whether immediate disclosure is required. Settling parties should pay careful attention to this guidance to avoid the serious consequences that may otherwise ensue.

The immediate disclosure obligation: changing the litigation landscape

The immediate disclosure obligation first arose in the context of Mary Carter and Pierringer agreements, which are types of agreements that enable a plaintiff to settle its claim with some but not all defendants². The obligation was developed by courts to guard against the risk of abuse of process. The abuse, in this context, is the risk of misleading the court and the parties about the true nature of the adversarial relationships in the litigation, particularly given the impact of those relationships on the strategy and steps to be taken by the non-settling defendants. Thus, at its core, the purpose of the rule is to maintain the fairness of the litigation process, and to ensure that a court can maintain the integrity of its own process³.

More recently, the disclosure obligation has been extended to any agreement between a plaintiff and one or multiple defendants that has the effect of changing the position of the parties to the agreement from an adversarial one into a cooperative one. This, the Court has held, changes the litigation landscape⁴. If a party fails to immediately disclose an agreement that meets this threshold, it automatically follows that an abuse of process has occurred, and the action must be stayed⁵.

What constitutes a change to the litigation landscape?

There is no single test to determine whether an agreement has "changed the litigation landscape". However, recent case law provides insight on the factors that courts may consider.

1. The parties' pleaded positions

In two recent decisions, the Court of Appeal...