



COURT OF APPEAL FOR ONTARIO

CITATION:
Tallman Truck Centre Limited v. K.S.P. Holdings Inc., 2022
    ONCA 66

DATE: 20220127

DOCKET: C69194

Huscroft,
    Trotter and Coroza JJ.A.

BETWEEN

Tallman Truck Centre Limited

Plaintiff (Appellant)

and

K.S.P. Holdings Inc.
and Secure Capital Advisors Inc.

Defendants (
Respondent
)

J. Thomas Curry, Dena N. Varah and Sean
    Lewis, for the appellant

Jeffrey E. Feiner, for the respondent

Heard: January 10, 2022 by
    videoconference

On appeal from
    the order of Justice Frederick L. Myers of the Superior Court of Justice, dated
    February 8, 2021, with reasons reported at 2021 ONSC 984.

REASONS FOR DECISION

[1]

Tallman Truck Centre Limited (Tallman) appeals
    from an order staying its action on the basis that it failed to immediately
    disclose to one defendant, K.S.P. Holdings Inc. (K.S.P.), that it had
    entered into a settlement agreement with the other defendant, Secure Capital
    Advisors Inc. (Secure). Under this settlement agreement, Secure reversed its
    pleaded position and joined cause with Tallman. The agreement was not disclosed
    until three weeks after it was made. K.S.P. successfully moved to stay the
    action, based on the principles in
Handley Estate v. DTE Industries Limited
,
    2018 ONCA 324, 421 D.L.R. (4th) 636.

[2]

The following reasons explain why we dismiss Tallmans
    appeal.

Background

[3]

In the underlying action, Tallman sought to
    enforce a right of first refusal against K.S.P. in the context of a complex
    real estate transaction. It claimed damages against Secure in relation to a
    leaseback agreement that it alleged existed between the defendants, which they
    both denied in their pleadings.

[4]

Tallman brought a summary judgement motion for specific
    performance of the right of first refusal against K.S.P. In the lead up to this
    motion, and unbeknownst to K.S.P., Tallman engaged in settlement discussions
    with Secure, whereby Secure would support Tallmans summary judgment motion by
    providing affidavit evidence in which it acknowledged the existence of the
    leaseback arrangement. In return, Tallman agreed to discontinue the claim
    against Secure. Additionally, in the event that the summary judgment motion was
    unsuccessful, and the action continued, Secure had a continuing obligation to
    provide support and cooperation to Tallman throughout the Litigation. Only
    then would it receive a full and final release, which was being held in escrow
    by Tallmans counsel (not counsel on appeal).

[5]

The timing of these events is important. The
    summary judgment motion was scheduled to be heard in December of 2018. In the
    Spring of 2018, counsel for K.S.P. attempted to contact Secures counsel to
    ascertain whether Secure could provide helpful evidence to K.S.P. concerning
    the alleged leaseback arrangement, consistent with their pleaded positions.
    Counsel for Secure did not respond. As it turned out, Secure was in discussions
    with Tallman.

[6]

On April 12, 2018, Tallmans counsel drafted an
    affidavit for the principal of Secure to swear, in which he acknowledged the
    existence of a leaseback arrangement. On May 14, 2018, Secure returned a
    marked-up copy of the draft. The final version was sworn on May 22, 2018 and
    was held by counsel for Secure.

[7]

The terms of the settlement between Tallman and
    Secure were formally reduced to writing in a document prepared by Tallman and
    sent to Secure on June 6, 2018. On June 7, 2018, Secures counsel provided
    written acceptance of the agreement. The motion judge described the upshot of
    the agreement as follows: Secure was no longer adverse in interest to the
    plaintiff. Rather, to obtain its bargained-for release, the quality of its
    continuing support of the plaintiff was subject to the plaintiffs approval.

[8]

On June 7, 2018, Secures counsel served his
    clients affidavit in a responding motion record. The affidavit purported to be
    sworn 
in response to
the motion for summary judgment brought by the
    plaintiff (emphasis added). In reality, it was sworn
in support of
the motion. On June 8, 2018, Tallman attempted to discontinue the action
    against Secure on a without costs and with prejudice basis. For technical
    reasons, the notice of discontinuance was not accepted by the court. Tallman
    filed another version of this document on June 13, 2018. By June 19, 2018,
    the notice of discontinuance had still not been accepted by the court. Because
    pleadings were closed, the consent of K.S.P. was required. Tallman sought
    K.S.P.s consent, still not having disclosed the settlement agreement.

[9]

By this point in time, counsel for K.S.P. suspected
    that a settlement had been reached between Tallman and Secure. He wrote to
    Tallmans counsel on June 21, 2018, asking for confirmation of this fact. On
    June 24, 2018, Tallmans counsel wrote to K.S.P., but did not disclose the
    settlement agreement. Counsel was more focused on keeping up its end of the
    bargain with Secure, writing: In my view, there is no proper basis for you to
    withhold your consent to the filing of the notice of discontinuance.

[10]

The settlement agreement was finally disclosed
    on June 27, 2018, three weeks after it was signed by the parties. Apparently,
    the resistance to earlier disclosure came from Secures counsel. Tallmans
    counsel eventually persuaded Secures counsel that the agreement should be
    disclosed, not because they were legally obliged to do so, but because it would
    be tactically advantageous. In a June 27, 2018 email to K.S.P.s counsel,
    Tallmans lawyer provided a copy of the June 7, 2018 agreement. He advised, We
    will not be producing any of the other documents you have requested in this
    regard. Tallmans counsel held back the release it held in escrow pursuant to
    the written settlement agreement. Tallman disclosed the document only after
    being ordered to do so following a contested motion before a Master.

[11]

On the motion to stay the proceedings, counsel
    for K.S.P. asserted that there was at least an oral agreement as of May 22,
    2018 that should have been immediately disclosed. The motion judge did not
    necessarily reject this submission; instead, he preferred to base his decision
    on the June 7, 2018 written agreement. He said, I am therefore not to be taken
    as finding that there was no disclosable agreement prior to June 7, 2018. I
    simply choose not to decide that question as it is not necessary in this case.

Discussion

[12]

Tallman submits that the motion judge erred in
    the following ways. He mischaracterized the nature of the dispute between the
    parties and erred in finding that the settlement agreement changed the entire
    litigation landscape between the parties. He erred in finding that the
    settlement agreement was not disclosed immediately, as contemplated in
Handley
.
    He erred in finding that
Handley

applied to the
Pierringer
-type
    agreement in this case, and in finding that the factual circumstances fell
    within the ambit of
Handley
. Lastly, to the extent that the facts of
    this case crossed the line drawn in
Handley
, the motion judge erred in
    failing to impose a more measured remedial response, short of a stay of
    proceedings.

[13]

We reject these submissions.

[14]

In his oral submissions, Mr. Curry on behalf of
    Tallman, submits that the motion judge mischaracterized the degree to which the
    positions of K.S.P. and Secure were mutually antagonistic. This led the motion
    judge to erroneously find that Secures change of position was sufficient to
    constitute a change to the litigation landscape, as contemplated in
Handley
and earlier cases: see
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;
Laudon v. Roberts
, 2009 ONCA 383, 308 D.L.R. (4th) 422, at
    para. 39, leave to appeal refused, [2009] S.C.C.A. No. 304.

[15]

We do not accept this submission. This basis for
    challenging the motion judges decision was not included in Tallmans Notice of
    Appeal. Moreover, Tallmans factum appears to acknowledge there was such a
    change, but insists that disclosure had been adequate.

[16]

In any event, the motion judge did not
    misapprehend the nature of the relationship between the defendants. Although there
    were no cross-claims between K.S.P. and Secure (their dispute having been
    addressed in earlier litigation that settled), Secures realignment with
    Tallman was a dramatic change from K.S.P.s perspective. As the motion judge
    said:

[A]fter the settlement between the plaintiff
    and Secure, Secure reversed its position and went from opposing the plaintiff
    to supporting the plaintiffs claim. It is no longer submitting a position in
    the litigation that is adverse in interest to the plaintiff.

. . .

On June 7, 2018, Secures counsel provided a
    written acceptance. From that point onward at least, Secure was no longer
    adverse in interest to the plaintiff. Rather, to obtained its bargained-for
    release, the quality of its continuing support of the plaintiff was subject to
    the plaintiffs approval.

[17]

It was open to the motion judge to make these
    findings. The lack of cross-claims between the defendants was not a necessary
    condition to the application of
Handley
.

[18]

Tallman submits that it did make disclosure 
    functional disclosure  of the settlement agreement on June 8, 2018 when it
    served its notice of discontinuance on counsel for K.S.P. Combined with the
    delivery of Secures affidavit (which disingenuously purported to
respond
to the summary judgment motion), the change in the litigation landscape would
    have been obvious to K.S.P.

[19]

It was open to the motion judge to reject this
    proposition. The motion judge credited K.S.P.s counsel for his astuteness in
    realizing that something was amiss when Tallman served the notice of
    discontinuance. However, he observed, [b]ut a settlement can have any number
    of terms. As he explained:

In my view, in serving Secure'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.

Even if KSP'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.

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

[20]

We agree with the motion judge that an
    obligation of such importance cannot turn on hints offered by opposing counsel.
    This would leave the matter to guesswork, an especially hazardous situation
    where counsel is less experienced or when parties are self-represented.

[21]

Moreover, this submission does not sit well with
    the position expressed by Tallmans counsel at the time  i.e., that it was not
    legally required to disclose the settlement agreement. There was no evidence
    that service of the notice of discontinuance and the delivery of the Secure
    affidavit were meant to function as disclosure. Consequently, even if there
    were such a thing as functional disclosure in this context, in this case it
    would have amounted to unintentional functional disclosure. This is
    untenable. In reality, the existence of the settlement agreement only became
    apparent when the parties were in the process of implementing it.

[22]

Although counsel for K.S.P. suspected that a
    settlement had been reached, he had no idea about the terms of the settlement.
    As counsel for K.S.P. submitted on appeal, without disclosure of the agreement,
    he would not have known that the affidavit produced by Secure was a negotiated
    piece of evidence. Moreover, while the notice of discontinuance appeared to
    signal Secures departure from the litigation, Secure remained heavily invested
    in the case by virtue of its contractual obligation to assist Tallman  the
    release was being held in escrow, its delivery being contingent on Secures
    performance in its new role. All of this was unknown to K.S.P. until three
    weeks after Tallman and Secure signed their agreement.

[23]

Tallman submits that the motion judge erred by applying
Handley
(which involved a
Mary Carter
agreement) to the
Pierringer
-type
    of agreement in this case. We disagree. The motion judge quoted the following
    passage from para. 39 of
Handley
: 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 cooperative one
    (emphasis added). As the motion judge said, That describes exactly what has
    happened here.

[24]

More broadly, Mr. Curry submits that the litigation
    conduct in this case does not approach the level contemplated by
Handley
.
    He submits that
Handley
is aimed at rooting out shams, and
    correcting failures of justice. He contends that this case falls far short of
    that standard. He relies on the short period of time that elapsed between the
    settlement agreement being signed and its disclosure  just three weeks. He
    also relies on the motion judges finding that Tallmans counsel had not acted
    for nefarious reasons; at worst, they appeared to be oblivious to the
    obligation to immediately disclose the settlement agreement.

[25]

We agree with the motion judges rejection of
    this submission. He was aware that
Handley
involved a sham process
    that had been perpetuated for as long as five years. However, he found that the
    presentation of Secures affidavit was also a sham and studded with
    pretense. It was open to the motion judge to make these findings. As he noted,
    although the failure to immediately disclose a settlement agreement may
    adversely affect other parties to the litigation, judges may also be impacted. As
    he wrote:

I, for one, read the evidence before I read
    the parties factums. In preparing for the motion,
due to the misleading
    manner of presentation
, I would not have known at the outset,
as
    required
, that the defendant Secure was on the plaintiffs side pursuant to
    a settlement agreement that requires its support to the plaintiffs
    satisfaction. [Emphasis added.]

[26]

We also reject the submission that the
    three-week period between reaching the agreement and disclosing it was
    negligible and ought not to be caught by the immediate disclosure rule. The
    standard is immediate; it is not eventually or when it is convenient. As
    the motion judge said: The rules really cant be any clearer. Where an
    agreement involves a party switching sides from its pleaded position, it must
    be disclosed as soon as it is made. Here, Tallman and Secure attempted to
    implement the settlement agreement before disclosing it to K.S.P. More
    troubling, it is unclear on this record whether Tallman would have disclosed
    the agreement had K.S.P.s counsel not asked for it. Even then, it was
    disclosed for tactical reasons, not in observance of a legal obligation.

[27]

Lastly, Tallman submits that, to the extent that
    this case crossed the line in the
Handley
, it did not warrant a stay
    of proceedings. He relies on the fact that the missteps of Tallmans counsel
    were not taken in bad faith, the delay was comparatively brief, and K.S.P. suffered
    no prejudice as a result of what happened.

[28]

This argument was firmly rejected in
Aecon
,
    in which MacFarland J.A. held, at para. 16: Any failure of compliance amounts
    to an abuse of process and must result in consequences of the most serious
    nature for the defaulting party. Reinforcing this principle, in
Handley
,
    Brown J.A. confirmed that, [t]he only remedy to redress the wrong of the abuse
    of process is to stay the claim asserted by the defaulting, non-disclosing
    party: at para. 45. This remedy is designed to achieve justice between the
    parties. But it does more than that  it also enables the court to enforce and
    control its own process by deterring future breaches of this well-established
    rule.

Conclusion and Disposition

[29]

The appeal is dismissed. K.S.P. is entitled to
    costs in the amount of $25,000 inclusive of disbursements and HST.

Grant
    Huscroft J.A.

Gary
    Trotter J.A.

S.
    Coroza J.A.


