



COURT OF APPEAL FOR ONTARIO

CITATION: Handley Estate v. DTE Industries Limited, 2018 ONCA
    324

DATE: 20180329

DOCKET: C64227

Hoy A.C.J.O., Simmons and Brown JJ.A.

BETWEEN

Helen Handley, deceased, by her Estate Executor
    Sharon Kruger

Plaintiff (Respondent)

and

DTE Industries Limited,
H&M Combustion
    Services Ltd.
,
Geo. Williamson Fuels Ltd
.
    and Ultramar Fuels Ltd.

Defendants (
Appellant
) (
Respondent
)

and

Kawartha Lakes HVAC Inc., Don Park Inc. and SLM
    Toronto Inc.

Third Parties

Donald Dacquisto and Eric Zadro, for the appellant

Sean Dewart and Mathieu Bélanger, for the Lawyers Professional
    Indemnity Company, on behalf of the respondents

Heard: February 13, 2018

On appeal from the order of Justice Stephen T. Bale of
    the Superior Court of Justice, dated July 17, 2017, with reasons reported at
    2017 ONSC 4349.

BROWN J.A.:

I.

OVERVIEW

[1]

This appeal concerns whether the failure to disclose immediately an
    agreement between or amongst parties to a lawsuit that converts their
    adversarial relationship into a co-operative one ordinarily should result in
    the stay of the non-disclosing partys claim.

[2]

In this 2009 action, the plaintiff entered into litigation agreements
    with one of the defendants, H&M Combustion Services Ltd. (H&M). Under
    the 2011 agreement, H&M agreed to defend the action and commence a third
    party claim, which the plaintiff would fund. Under the 2016 agreement, H&M
    assigned all its interest in the lawsuit to the plaintiff, who indemnified
    H&M from any exposure in the litigation and undertook to prosecute the
    third party claim.

[3]

Neither the plaintiff nor H&M disclosed the agreements to the other
    parties immediately upon their execution. They were disclosed in a piecemeal
    fashion throughout 2016.

[4]

One of the defendants, Geo. Williamson Fuels Ltd. (Williamson), moved
    to stay the action on the basis that the plaintiff and H&M had failed to
    comply with the obligation of immediate disclosure set out in the decision of
    this court in
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.

[5]

The motion judge held that the 2011 and 2016 litigation agreements
    should have been disclosed. However, he refused to stay the action concluding,
    in effect, that the late disclosure of the agreements had not caused Williamson
    any prejudice.

[6]

Williamson appeals. I would grant the appeal. Having found that the
    agreements were of the type requiring immediate disclosure under the principles
    set out in
Aecon
, the motion judge erred in principle by failing to
    apply the remedy for such non-disclosure specified in
Aecon
 staying
    the claim of the non-disclosing party.


II.

THE HISTORY OF THE LITIGATION

[7]

In 2004, Helen Handley bought a new outdoor oil tank for her residence. She
    alleged that in 2007 she discovered that it had leaked, discharging several
    hundred litres of fuel oil into the surrounding soil. This litigation ensued.

[8]

In 2009, Ms. Handleys insurer, Aviva Insurance Company of Canada (Aviva),
    commenced this subrogated claim in the name of Ms. Handley against those
    involved: (i) in the sale and installation of the oil tank  DTE Industries
    Limited (DTE) and H&M; and (ii) in the delivery of fuel oil to the tank 
    Williamson and Ultramar Ltd. Since this is a subrogated claim, I will refer to
    Aviva as if it were the plaintiff throughout these reasons.

The 2011 Litigation Agreement

[9]

H&M had been dissolved in 2007. Aviva was aware of that fact; the
    statement of claim pleaded it. As well, H&M was not insured.

[10]

Aviva
    had not named as defendants in the main action one of the oil tank vendors in
    the supply chain, Kawartha Lakes HVAC Inc. (Kawartha Lakes), and its
    corporate successors, Don Park Inc. and SLM Toronto Inc. By the time it decided
    to sue Kawartha Lakes, the limitation period for the main action had expired.
    Aviva decided to explore initiating a third party claim against Kawartha Lakes.

[11]

Starting
    in the spring of 2011, as the deadline for issuing a third party claim approached,
    counsel for Aviva and H&M discussed striking a litigation agreement. Under
    the resulting August 10, 2011 agreement amongst Aviva, H&M, and H&Ms
    principal, Jim Richards (the 2011 Litigation Agreement), Aviva agreed to
    provide financial support to H&M to prosecute a third party claim. The key
    terms of the agreement were that:

(i)      H&M
    would defend the main action and commence the third party claim;

(ii)      Aviva
    would contribute $5,000 to cover H&Ms costs of prosecuting the third party
    claim through the examinations for discovery;

(iii)     Richards
    would revive H&M should that be necessary to prosecute the third party
    claim; and

(iv)     All
    communications between counsel for Aviva and H&M pertaining to the
    prosecution of the third party claim would be subject to common-interest privilege.

[12]

On
    August 24, 2011, H&M filed its statement of defence and cross-claim and
    issued the third party claim against Kawartha Lakes and its successors. H&M
    cross-claimed against Williamson, and Williamson cross-claimed against H&M.

[13]

At
    the time, neither Aviva nor H&M disclosed the 2011 Litigation Agreement to
    the other parties. Disclosure was not made until the fall of 2016.

The 2016 Litigation Agreement

[14]

The
    litigation moved slowly ahead. In May 2012, the third parties delivered
    statements of defence to the main action and third party action. They then sought
    security for costs from H&M.

[15]

In
    early 2013, H&M agreed to post security of $20,000 for costs through
    discoveries. Aviva provided H&M with the required funds, a fact not
    disclosed to the other parties.

[16]

Examinations
    for discovery were conducted throughout 2013 and 2014.

[17]

In
    January 2016, the third parties proposed a settlement to H&M, which
    forwarded the proposal to Avivas counsel advising it would await Avivas
    direction before responding. In the result, H&M rejected the settlement
    proposal.

[18]

In
    late February 2016, the third parties scheduled a motion to: (i) amend their
    defence to plead the expiration of the limitation period by reason of H&Ms
    status as a dissolved corporation; and (ii) increase the security for costs
    posted by H&M.

[19]

In
    early March, the court assigned a November 2016 trial date.

[20]

That
    activity led Aviva and H&M to conclude a further litigation agreement on
    March 7, 2016 (the 2016 Litigation Agreement), which was in two parts: (i) a letter;
    and (ii) an e-mail. Under the 2016 Litigation Agreement:

(i)

H&M assigned to Aviva all its rights in the action, including the
    rights to receive all proceeds from the third party claim;

(ii)

Aviva agreed to indemnify H&M and Richards against all costs and
    damages that might be awarded against H&M;

(iii)

Aviva would assume responsibility for defending H&M and prosecuting
    its third party claim;

(iv)

Aviva assumed responsibility for all reasonable costs and disbursements
    incurred by H&Ms counsel but reserved the right to appoint its own
    counsel; and

(v)

The parties would disclose the assignment to the other parties if
    required by law or reasonably necessary in the circumstances.

[21]

As
    a result, for all intents and purposes Aviva stepped into the litigation shoes
    of H&M.

The slow disclosure of the litigation agreements

[22]

On
    March 7, 2016, counsel for H&M advised the third parties that Aviva had
    undertaken to pay any costs assessed against H&M. No further disclosure of
    the terms of the 2011 and 2016 Litigation Agreements was made. However, that
    limited disclosure resolved the third parties motion for security for costs.

[23]

Later
    in March, counsel for Williamson made an overture to H&M to jointly retain
    a damages expert. H&M declined, disclosing it had assigned its rights in
    the third party proceeding to the plaintiff and that the interest of both the
    Plaintiff and H&M are aligned. At the end of March, Avivas counsel sent the
    other parties a copy of the part of the 2016 Litigation Agreement contained in
    the letter; the part contained in the e-mail was not sent.

[24]

Further
    correspondence ensued in April and May 2016, with counsel for the third parties
    pointing out to Aviva its obligation to disclose immediately any litigation
    agreement.

[25]

In
    early August 2016, Aviva produced the 2016 Litigation Agreement; the 2011 one
    was not disclosed. Yet more correspondence amongst counsel ensued.

[26]

The
    third parties moved to adjourn the trial and compel the delivery by Aviva and
    H&M of a further affidavit of documents containing a Schedule B that
    particularized the documents over which privilege was claimed. Avivas counsel
    thereupon delivered a proper affidavit of documents, which identified on
    Schedule B the 2011 and 2016 Litigation Agreements. The third parties motion
    settled, with Aviva and H&M agreeing to produce the Schedule B documents
    and waive any common interest privilege. Aviva ultimately produced all the
    litigation agreements by late October 2016.

[27]

At
    that point, Williamson and the third parties moved for an order staying the
    action on the basis that Aviva and H&M had failed to disclose immediately agreements
    that affected the litigation landscape, contrary to the principles set down
    by this court in
Aecon
.

[28]

The
    third party action settled on the eve of the motion hearing; only Williamsons
    motion to stay proceeded.

III.

THE REASONS OF THE MOTION JUDGE

[29]

Before
    the motion judge, Aviva conceded the 2016 Litigation Agreement should have been
    disclosed immediately upon completion. However, it submitted the 2011
    Litigation Agreement was merely a funding agreement that did not require
    disclosure. The motion judge disagreed, holding that the 2011 Litigation Agreement
    did not maintain adversity between Aviva and H&M and, therefore, should have
    been disclosed to all parties immediately upon completion.

[30]

Notwithstanding
    that finding, the motion judge refused Williamsons request for a stay of the
    action. He distinguished
Aecon
. In his view, since the litigation
    agreement in
Aecon
was between the plaintiff and the sole defendant,
    and the stay granted affected only third and fourth party claims,
Aecon
did not stand for the proposition that the claims against all parties to the litigation
    should automatically be stayed: at paras. 44-45.

[31]

Instead,
    the motion judge drew on this courts decision in
Abarca v. Vargas
,
    2015 ONCA 4, 123 O.R. (3d) 561, to hold that the principle of proportionality
    should inform the consideration of the remedy for the failure to disclose the
    2011 and 2016 Litigation Agreements. The motion judge appeared to conclude that
    Williamson suffered no prejudice from the delayed disclosure for two reasons:
    (i) as a supplier of the oil in the tank, and not the tank, Williamson was
    unaffected by the third party claim, which was against an entity in the tank
    supply chain (notwithstanding that H&M and Williamson had cross-claimed
    against each other); and (ii) there was no reason for Williamson to spend money
    litigating the third party claim because H&M had been a dissolved
    corporation throughout. In those circumstances, the motion judge concluded that
    a stay of the action against Williamson would not be an appropriate remedy.

IV.

THE ISSUE IN DISPUTE ON THIS APPEAL

[32]

The
    parties do not dispute the motion judges finding that the 2011 and 2016
    Litigation Agreements should have been disclosed immediately because they
    changed the adversarial relationship between Aviva and H&M.

[33]

Their
    dispute centres on the appropriate remedy for such non-disclosure. Williamson submits
    the principle in
Aecon
is clear: where such an agreement is not
    disclosed immediately, an abuse of process has occurred, with the result the
    claim of the defaulting party should be stayed. The motion judge erred in law
    in failing to grant a stay.

[34]

Aviva
    responds that a stay is a discretionary remedy. Accordingly, deference must be
    given to the motion judges exercise of his discretion not to stay the action
    in the particular circumstances of this case.


V.

ANALYSIS

The obligation of immediate disclosure

[35]

Since
    at least the 1993 decision in
Pettey v. Avis Car Inc.
(1993), 13 O.R.
    (3d) 725 (Gen. Div.), the law in Ontario has been clear that
Mary Carter-
type
    agreements
[1]
must be disclosed to the court and to the other parties to the lawsuit as soon
    as the agreement is made.

[36]

In
    the 2009 decision in
Laudon v. Roberts
, 2009 ONCA 383, 249 O.A.C. 72,
    at para. 39, leave to appeal refused, [2009] S.C.C.A. No. 304, this court
    repeated the obligation to disclose such an agreement to the court and to the other
    parties to the lawsuit as soon as it is concluded. That disclosure
    obligation, and its rationale, were explained by this court at para. 39 of its
    reasons:

The existence of a [
Mary Carter
agreement]
    significantly alters the relationship among the parties to the litigation. 
    Usually the position of the parties will have changed from those set out in
    their pleadings. It is for this reason that the existence of such an agreement
    is to be disclosed, as soon as it is concluded, to the court and to the other
    parties to the litigation.  The reason for this is well stated in [
Pettey
,
    at pp. 737-738]:

The answer is obvious. The agreement must be disclosed to
    the parties and to the court as soon as the agreement is made.
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.]

[37]

One
    year later in
Aecon
, this court considered an agreement between the
    plaintiff, Aecon, and the sole defendant, the City of Brampton, that capped the
    damages for which Brampton might be liable to Aecon. Those parties did not
    disclose their agreement to the third and fourth parties until several months
    after its conclusion. This court held that agreements which change entirely
    the landscape of the litigation must be disclosed immediately, stating, at para.
    13:

We do not endorse the practice whereby such agreements are
    concluded between or among various parties to the litigation and are not
    immediately disclosed.  While it is open to parties to enter into such
    agreements, the obligation upon entering such an agreement is to
immediately
inform all other parties to the litigation as well as to the court
The reason for this is obvious. Such agreements
    change entirely the landscape of the litigation
.
[Italics in
    original and underlining added.]

[38]

In
Aecon
, the failure of the plaintiff and defendant to disclose
    immediately their litigation agreement led this court to stay the third and
    fourth party proceedings.

Litigation agreements covered by the obligation of immediate
    disclosure

[39]

The
    obligation of immediate disclosure is not limited to pure
Mary Carter
or
Pierringer
[2]
agreements. The disclosure obligation extends to any agreement between or
    amongst parties to a lawsuit that has the effect of changing the adversarial
    position of the parties set out in their pleadings into a co-operative one:
Aviaco
    International Leasing Inc. v. Boeing Canada Inc
. (2000), 9 B.L.R. (3d) 99 (Ont.
    S.C.), at para. 23. To maintain the fairness of the litigation process, the
    court needs to know the reality of the adversity between the parties and
    whether an agreement changes the dynamics of the litigation or the
    adversarial orientation:
Moore v. Bertuzzi
, 2012 ONSC 3248, 110 O.R.
    (3d) 611, at paras. 75-79.

[40]

In
Aviaco
, at para. 23, the court formulated the question to pose to
    ascertain whether an agreement triggers the immediate disclosure requirement:

Do the terms of the agreement alter the apparent relationships
    between any parties to the litigation that would otherwise be assumed from the
    pleadings or expected in the conduct of the litigation?

[41]

In
    the present case, the motion judge rejected Avivas argument that the 2011 Litigation
    Agreement did not alter the adversarial orientation in the lawsuit between it
    and H&M. Aviva does not challenge that finding, and properly so. Although
    the 2011 Litigation Agreement was not a pure
Mary Carter
agreement, and
    while the terms of the 2011 and 2016 Litigation Agreements were not identical
    to those in the agreement at issue in
Aecon
, nevertheless they shared
    the same essential element: they changed the relationship between two parties from
    an adversarial one into a co-operative one.
As
    such, the 2011 and 2016 Litigation Agreements were ones that changed the
    litigation landscape.

The remedy for failing to disclose immediately an agreement
    that changes the litigation landscape

[42]

Aviva
    submits the
Aecon
decision did not lay down a general rule about the
    remedy a court should grant where a partys conduct amounts to an abuse of
    process because the party failed to disclose immediately an agreement that
    changed the landscape of the litigation.
Aecon
, it contends, must be
    confined to its facts, which differ from those in the present case. Aviva
    contends that in any case where a court finds that a party has committed an
    abuse of process, the court must engage in a case-specific proportionality
    analysis to craft an appropriate remedy, as was done in the
Abarca
decision. Not to do so, Aviva argues, would ignore the flexible application of
    the doctrine of abuse of process articulated by cases such as
Toronto
    (City) v. C.U.P.E., Local 79
, 2003 SCC 63, [2003] 3 S.C.R. 77.

[43]

I
    do not accept this submission.

[44]

First,
    the
Abarca
case did not involve a litigation agreement and did not
    discuss the consequences of a failure to disclose immediately such an
    agreement.

[45]

By
    contrast,
Aecon
squarely addressed the consequences that should flow
    from a specific kind of abuse of process  a partys 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.

[46]

Aecon
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 partys
    clear obligation (or, as argued by Aviva, whether the undisclosed litigation agreement
    somehow actually benefited the parties who knew nothing of its existence).

[47]

Moreover,
    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.

Conclusion

[48]

I
    conclude that the motion judge misdirected himself regarding the principles in
Aecon
.
    He erred by failing to apply
Aecons
remedy of staying the claim of
    the party that did not immediately disclose a litigation agreement. Given that
    misdirection, his discretionary decision is not entitled to deference in the
    circumstances:
Canada (Minister of Citizenship and Immigration) v. Tobiass
,
    [1997] 3 S.C.R. 391, at para. 87. The motion judge should have applied
Aecon
and granted the stay Williamson requested.

VI.

DISPOSITION

[49]

For the reasons set out above, I would allow the appeal, set aside the
    order of the motion judge, and grant an order staying Avivas action (the third
    party claim having settled).

[50]

In accordance with the agreement of the parties on costs, the
    respondents shall pay Williamson its costs of the appeal fixed at $10,000,
    inclusive of disbursements and HST, and its costs of the motion below fixed at
    $15,000, inclusive of disbursements and HST.

[51]

As to the remaining costs of the action, the parties advised they will
    attempt to agree upon them, failing which such costs will be assessed.

Released: DB Mar 29 2018

David Brown J.A.
I agree. Alexandra Hoy A.C.J.O.
I agree. Janet Simmons J.A.





[1]
A typical
Mary Carter
agreement contains the following features: (i) the
    contracting defendant guarantees the plaintiff a certain monetary recovery and
    the exposure of that defendant is "capped" at that amount; (ii) the
    contracting defendant remains in the lawsuit; (iii) the contracting defendant's
    liability is decreased in direct proportion to the increase in the
    non-contracting defendant's liability:
Pettey
, at p. 732;
Laudon
,
    at para. 36;
Moore v. Bertuzzi
, 2012 ONSC 3248, 110 O.R. (3d) 611, at
    para. 67.



[2]
Paul M. Perell & John W. Morden,
The Law of Civil Procedure in Ontario
,
    3d ed. (Toronto: LexisNexis Canada, 2017), at p. 762, describes the features of
    a
Pierringer
agreement as: (1) the settling defendant settles with the
    plaintiff; (2) the plaintiff discontinues its claim [against] the settling
    defendant; (3) the plaintiff continues its action against the non-settling [defendant]
    but limits its claim to the non-settling defendants several liability (a bar
    order); (4) the settling defendant agrees to co-operate with the plaintiff by
    making documents and witnesses available for the action against the
    non-settling defendant; (5) the settling defendant agrees not to seek
    contribution and indemnity from the non-settling defendant; and (6) the
    plaintiff agrees to indemnify the settling defendant against any claims over
    the by non-settling defendants.


