



COURT OF APPEAL FOR ONTARIO

CITATION: Waxman v. Waxman, 2022 ONCA 311

DATE: 20220421

DOCKET: C69398

Fairburn A.C.J.O., Paciocco and
    Sossin JJ.A.

BETWEEN

Morris Waxman as assignee of the
    Estate of I. Waxman & Sons Limited, Morris Waxman, and Solid Waste
    Reclamation Inc.

Plaintiffs (Appellants)

and

Chester Waxman, Warren Waxman,
    Sheldon Kumer, Dynamic Metal Trading Inc., Wayne Linton, Aaron Waxman, Waxman
    Industrial Services Corp., Waxman Realty Company Inc., Scrapcares Corporation,
    c.o.b. Scrap Cares,
Elko Industrial Trading Corp.
,
    and
Ahmed (Albert) Samee

Defendants (
Respondents
)

Earl Cherniak, William Pepall, Richard
    Swan, and Gideon Forrest, for the appellants Morris Waxman as assignee of the
    Estate of I. Waxman & Sons Limited, Morris Waxman, and Solid Waste
    Reclamation Inc.

Gordon Capern, Jean-Claude Killey, and Hailey
    Bruckner, for the respondents Elko Industrial Trading Corp., and Ahmed (Albert)
    Samee

Heard: March 18, 2022 by video conference

On appeal from the order of Justice Markus
    Koehnen of the Superior Court of Justice, dated March 23, 2021, with reasons
    reported at 2021 ONSC 2180.

Sossin J.A.:

[1]

This is an appeal from the order of the motion
    judge dismissing the appellants motion for summary judgment, and instead
    granting summary judgment to the respondents dismissing the action as against
    them, as well as granting the respondents motion for a permanent stay of the
    action as against them.

A.

Overview

[2]

The decisions on appeal arose out of two
    judgments of approximately $10,000,000 each that the appellant, the late Morris
    Waxman (here represented by his estate), obtained against his late brother
    Chester Waxman and the Waxman family company, I. Waxman & Sons Ltd. (the
    first Waxman company). After the judgment against him, Chester
[1]
entered into a scheme with his
    son Warren Waxman, grandson Aaron Waxman, and brother-in-law Sheldon Kumer to
    direct business away from the first Waxman company and towards a company
    started by Aaron known as Waxman Industrial Services Corp. (the second Waxman
    company). This scheme was intended to deprive Morris of the benefit of the
    judgment against Chester and the first Waxman company.

[3]

The appellants commenced an action in 2007
    against Chester, Warren, Aaron, Mr. Kumer, and others and amended their
    statement of claim in 2012 to name the respondents Elko Industrial Trading
    Corp. (Elko) and Elkos principal, the late Ahmed (Albert) Samee, as parties.

[4]

After the respondents discoveries were
    completed in early 2015, the action appeared, from the respondents point of
    view, to have gone dormant. They heard nothing from the appellants until
    November 2018, when the appellants advised Elko of having resolved their claims
    with several parties and provided a draft notice of motion for summary
    judgment. The draft notice referred to settlements the appellants had reached
    with Warren, Aaron, and Mr. Kumer. The settlements came as news to the
    respondents.

[5]

In December 2019, the respondents brought a
    motion to stay the action as against them for the appellants failure to
    disclose the settlements, which were alleged to have changed the landscape of
    the litigation so as to require immediate disclosure as set out in
Handley
    Estate v. DTE Industries Limited
, 2018 ONCA 324, 421 D.L.R.
    (4th) 636, at paras. 39, 45. In April 2019, the appellants moved for a summary
    judgment against the respondents. The motions were heard together, at which
    time the respondents, in turn, also requested a summary judgment against the
    appellants.

[6]

The appellants argue that the motion judge erred
    in granting summary judgment in favour of the respondents and in granting the
    respondents motion to stay the action. For reasons that follow, I would
    dismiss this appeal.

B.

Background

(1)

Facts

[7]

The relevant background facts may be briefly
    summarized.

[8]

Morris and Chester were for many years each 50
    percent shareholders and principals of the first Waxman company, a
    Hamilton-based scrap metal and recycling firm started by their father. After
    bringing his adult sons into the business, Chester arranged for large bonuses
    to be paid to himself and his sons without Morriss approval and authorized
    related-party transactions between the first Waxman company and companies owned
    by his sons.

[9]

Subsequently, as Morris was preparing for
    open-heart surgery, Chester got Morris to sign documents, the effect of which
    was to transfer Morriss interest in the company to Chester, and to enter into
    an unconscionable long-term property lease in favour of the first Waxman
    company, all without Morriss understanding or consent. Once Morris made it
    through his surgery, he sought to have Chester undo the effect of the
    documents. By the judgment of Sanderson J. in June 2002, Morris was restored as
    a 50 percent shareholder of the company and awarded damages, along with a
    constructive trust and tracing orders.

[10]

After the judgment was rendered, Chester,
    Warren, Aaron, and Mr. Kumer devised the scheme to divert business away from
    the first Waxman company, thereby decreasing its value and in turn decreasing
    the value of the judgment. The scheme involved having Chesters grandson Aaron
    start his own business, the second Waxman company, and having the suppliers
    stop selling to the first Waxman company and sell to the second company
    instead.

[11]

Elko is a scrap and metals broker that acted as
    a supplier to and a customer of the first Waxman company. Ahmed (Albert) Samee
    was the sole owner and director of Elko until his death in August 2017. The
    appellants alleged that Elko and Mr. Samee participated in the unlawful scheme
    to transfer the first Waxman companys supplier accounts to the second Waxman
    company and should therefore be liable under the principles of knowing receipt
    and knowing assistance. The respondents disputed the extent of Mr. Samees
    knowledge and participation in the scheme.

(2)

The action and the settlements

[12]

The chronology of events in the underlying
    action is as follows:

·

The appellants commenced this action in 2007,
    initially against Chester, Warren, Aaron, Mr. Kumer, Wayne Linton, and the
    second Waxman company.

·

The appellants settled with Chester in December
    2008, just before his death.

·

After further information about the scheme came
    to light, the appellants amended their statement of claim in March 2012 to name
    Elko and Mr. Samee as defendants.

·

Elko and Mr. Samee filed their defence in June
    2012.

·

Between September 2013 and February 2014, the
    appellants conducted additional discoveries of Aaron and Mr. Kumer and a
    discovery of Mr. Samee. Undertakings were then completed by August 2014.

·

From the respondents perspective, the action
    lay dormant from early 2015 until November 2018.

·

Meanwhile, in 2015, the appellants concluded
    settlement letters with Aaron, Warren, and Mr. Kumer. Each of Aaron, Warren,
    and Mr. Kumer accepted the terms of settlement shortly after receiving their
    respective settlement letters. The appellants argue that these acceptances led
    to only conditional settlement which they did not accept with Aaron until
    December 2017, with Warren until January 2018, and with Mr. Kumer until June
    2018.

·

In November 2018, the respondents first
    discovered the existence of these agreements when the appellants notified the
    respondents by email of having resolved claims over the last number of months
    against several other parties and provided them with a draft notice of motion
    for summary judgment, which referred to settlements the appellants had reached
    with Warren, Aaron, and Mr. Kumer.

·

The appellants did not give the respondents
    actual copies of the settlement agreements until December 20, 2019, by court
    order.

[13]

The terms of the settlement agreements were as
    follows:

a)

Warren would pay $1,000,000 to the appellants.
    Aaron would pay $900,000. Mr. Kumer would pay $300,000.
[2]
In exchange, each was released
    from any claims in the underlying action and Warren was, in addition, also
    released from any claims arising from Sanderson J.s 2002 judgment.

b)

Warren and Mr. Kumer agreed to provide evidence
    to the appellants by way of affidavits, examinations, and cross-examinations on
    the substance of the action.

c)

Although Aaron's settlement agreement did not,
    on its face, require evidence, he was nevertheless cross-examined as part of
    the settlement.

d)

Each of the settling defendants would provide an
    affidavit containing a statement of assets and would agree to an examination by
    the apppellants in aid of execution.

e)

The agreements also allowed the appellants to
    withdraw unilaterally from the settlements if they were not satisfied with the disclosure
    based on its content.

[14]

The settlements proceeded as follows:

a)

Mr. Kumers settlement letter is dated March 20,
    2015. He swore an affidavit on April 20, 2015.

b)

Warrens settlement letter is dated May 20,
    2015. He swore an affidavit on September 16, 2015, and was examined on June 27,
    2016.

c)

Aarons settlement letter is dated April 6,
    2015. He was examined on May 29, 2017.

[15]

The trial judge found that Mr. Kumer, Warren,
    and Aaron accepted the terms of settlement shortly after receiving their
    respective settlement agreements. The appellants have maintained that
    acceptance by the settling defendants led only to conditional settlements,
    which the appellants did not accept until December 2017 with respect to Aaron,
    January 2018 with respect to Warren, and June 2018 with respect to Mr. Kumer. According
    to the appellants, it is only when the settlements were accepted by them that
    the agreements became operative.

[16]

The appellants did not give the respondents
    actual copies of the settlement agreements until December 20, 2019, when they
    were ordered to do so by Hainey J. of the Superior Court of Justice.

C.

Analysis

(1)

Issues

[17]

The appellants raise two main grounds of appeal.
    First, they argue that the motion judge erred in granting summary judgment in
    favour of the respondents. Second, they argue that the motion judge erred in
    granting a stay of the action against the respondents.

[18]

As I am of the view that the analysis of the stay resolves the
    appeal, I turn to that question first. For the reasons that follow, I would
    dismiss the appeal of the stay. In light of this result, there is no need to
    examine the motion judges summary judgment decision.

(2)

The motion judge did not err in applying
Handley Estate

[19]

The appellants argue that the motion judge erred
    in interpreting and applying this courts decision in
Handley Estate
.

[20]

The motion judges imposition of a stay of proceedings in
    relation to the respondents indeed turned on his application of
Handley Estate
and the requirement that any agreement
    which changes the landscape of the litigation by altering the adversarial
    position of the litigants must be disclosed immediately: at paras. 39, 45.

[21]

Handley Estate
arose from a
    subrogated claim brought by the plaintiffs insurer (Aviva) for damages arising
    from a leaking oil tank at the plaintiffs home. The statement of claim named
    four defendants: H&M (which sold and installed the tank), DTE (which
    manufactured the tank), Williamson (which supplied the fuel) and Ultramar (the
    fuel wholesaler). The statement of claim alleged negligence and breach of
    contract and disclosed that H&M had been dissolved. The wholesaler of the
    tank, Kawartha HVAC, was not named as a defendant. Aviva then transferred the
    file to another law firm. The firm that assumed carriage learned that Kawartha
    HVAC had not been named as a defendant, and, by this time, the limitation
    period for doing so had expired. In light of that, Aviva, H&M, and
    H&Ms principal prior to its dissolution entered into a litigation funding
    agreement: Aviva would pay a lump sum to counsel for H&M to commence and
    prosecute a third-party claim against Kawartha HVAC through discoveries.
Aviva agreed to contribute $5,000 to the cost of prosecuting the
    third-party claim. The former principal of H&M agreed to revive H&M if
    necessary, and all communications between the plaintiff and H&M pertaining
    to the prosecution of the third-party claim would be subject to common-interest
    privilege.

This agreement was not disclosed.

[22]

The
motion judge in
Handley Estate
had
    rejected Avivas argument that the litigation agreement did not alter the
    adversarial orientation in the lawsuit between it and H&M. In affirming
    this finding, Brown J.A. applied the principles set out by this court in the
    earlier case of
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.

[23]

Importantly, Brown J.A. concluded, at para. 41,
    that while the agreement at issue in
Handley Estate
was not a Mary
    Carter agreement, or otherwise the same as the agreement at issue in
Aecon
,
    in both cases, they shared the same essential element: they changed the
    relationship between two parties from an adversarial one into a co-operative
    one. For this reason, Brown J.A. concluded that the litigation landscape had
    been changed and the duty of immediate disclosure triggered.

[24]

In the course of his analysis in
Handley
    Estate
, Brown J.A. set out the key principles of this kind of abuse
    of process that arises from a failure to disclose an agreement which changes
    entirely the litigation landscape, at para. 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.

[25]

In applying these principles as set out in
Handley
    Estate
to this case, the motion judge stated, at para. 29:

What must be disclosed are agreements that
    alter the relationship among the parties from those set out in the pleadings.
    The agreements at issue here does [sic] so.
The settlement clearly changed the relationship between the
    plaintiffs and the settling defendants from parties adverse in interest to
    parties who were cooperating
. That cooperation
    extended to providing affidavits and subjecting themselves to cross
    examinations. [Footnote omitted.] [Emphasis added.]

[26]

Subsequently, the motion judge returned to the
    question of how the settlement agreements at issue in this case changed the
    litigation landscape, at para. 49:

There is no doubt that the settlement here
    would have had a material impact on the litigation strategy employed by Elko
    going forward. At a minimum it might have considered a crossclaim against the
    settling defendants, sought the right to examine them for discovery and sought
    documentary production from them. While those rights might still be available
    to them, the failure to disclose information before Alberts death has
    seriously impaired Elkos ability to defend itself.

[27]

The motion judges finding with respect to the
    change to the litigation landscape was a question of mixed fact and law and is
    entitled to deference:
Housen v. Nikolaisen
, 2002 SCC 33, [2002] 2 S.C.R.
    235, at paras. 36-37.

[28]

The motion judge further found that the
    appellants had failed to provide a sufficient explanation for the delay in
    disclosure. While observing that it is not necessary to establish prejudice in
    order to enforce the rule in
Handley Estate
, the motion judge
    nonetheless made findings of prejudice in these circumstances given the
    disadvantage to the respondents caused by the appellants settlement agreements
    and the long delay between when the evidence from the settling defendants was
    gathered by the appellants and when it was eventually disclosed in this
    litigation.

[29]

In arguing that the motion judge erred in applying
Handley Estate
to the settlement agreements in this case,
    the appellants highlight the contingent nature of the agreements in this case,
    which set out that the settlements would only be confirmed once the defendants,
    Aaron, Warren, and Mr. Kumer, disclosed their assets and submitted to
    examination on their statement of assets to the satisfaction of the appellants.
    Warren and Mr. Kumer also agreed to submit to examinations under oath on their
    knowledge of the substance of the litigation, and, again, the settlements would
    take effect only if the appellants were satisfied by their evidence.

[30]

While the evidence from Warren and Mr. Kumer was taken in 2015,
    the appellants assert that the settlements were concluded only in 2017 for
    Aaron and 2018 for Warren and Mr. Kumer, the points in time when the appellants
    accepted that the conditions attaching to the settlement agreements had been
    met. At that point, those defendants were released from the action.

[31]

The appellants contend that a contingent settlement agreement is
    very different than the litigation agreement at issue in
Handley
    Estate
, as is the fact that the result of the settlement here was
    the settling parties removal from the action, as opposed to remaining in the
    action and cooperating with the plaintiffs.

[32]

The appellants rely on
Caroti

v. Vuletic
, 2021 ONSC 2778,
    as an example where a settlement agreement was held not to change the
    litigation landscape sufficiently to warrant the application of
Handley Estate
. In
Caroti
,
    Ricchetti R.S.J. stated, at paras. 53-54, that all settlement agreements change
    the litigation landscape to some extent, but only those that change the
    litigation landscape
entirely
fall within the
    rule from
Handley Estate

requiring
    immediate disclosure. Ricchetti R.S.J. concluded that the settlement agreement
    before him did not engage the rule in
Handley Estate
because the settling party agreed only to be a witness and provide truthful
    evidence in the ongoing litigation. He concluded, at para. 99, I am not
    persuaded that when a plaintiff discontinues against a co-defendant and then
    calls upon that co-defendant to be witness for the plaintiff changes the
    adversarial landscape.

[33]

In this case, by contrast, the settling defendants did not simply
    agree to be witnesses for the plaintiffs. Rather, they agreed to provide
    evidence in private to the appellants, in circumstances where the settlement
    would only be operative if the appellants were satisfied with the evidence. In
    my view, this agreement put in place financial incentives for the settling
    defendants to align themselves with the appellants by providing evidence that
    the appellants would judge to be helpful in continuing to prosecute the action
    against the respondents, and in doing so, changed the adversarial landscape. For
    this reason,
Caroti
is of little assistance.

[34]

The appellants also seek to distinguish this
    case from
Handley Estate
as the confidentiality clauses in the
    settlement agreements themselves precluded the disclosure of the agreements by
    any parties to it until and unless ordered by a court.

[35]

While the settling parties were free to agree to
    any terms they wished, including a private, parallel process to obtaining
    evidence from the settling defendants, such terms in no way derogate from the
    requirement of immediate disclosure confirmed in
Handley Estate
.

[36]

In sum, I do not accept the appellants
    submissions distinguishing this case from
Handley Estate
.

[37]

The rule from
Handley Estate
does not
    turn on contingencies in an agreement that must be met to fulfill the terms of
    that agreement or the confidential nature of the agreement. Rather, the key
    question for the court in applying
Handley Estate
is whether the
    agreement,
at the time it was entered into
, changed the litigation
    landscape and, in so doing, altered the adversarial position of the parties to
    one of cooperation. As indicated above, the motion judge found in this case
    that it did. I see no error in this finding.

[38]

Finally, even if the appellants were successful in arguing that
    the agreements only changed the litigation landscape once all the conditions of
    the settlement agreements were fulfilled, this would still have left an
    unacceptable delay in disclosing the agreements to the respondents.

[39]

This court made clear in
Handley Estate
and subsequent cases that the duty to disclose is
immediate
.
    That the respondents may have been alive to the settlement agreements at some
    earlier point  in this case, the appellants allege that a letter dated
    November 2, 2018, advised the respondents of the settlements  is of no
    assistance. The obligation is to disclose immediately, not simply to provide
    notice of the agreement, information about the agreement or what has been
    referred to as functional disclosure: see
Tallman Truck
    Centre Limited v. K.S.P. Holdings Inc.
, 2022 ONCA
    66
, at paras. 18-19.

[40]

In this case, disclosure of the terms of the settlement
    agreements, and evidence obtained as part of the settlement process, occurred
    on December 20, 2019, pursuant to an endorsement by Hainey J. Taking this date
    as the date of disclosure, the delay
in disclosing the
    agreement was
1.5 years for Mr. Kumer, and almost 2
    years for Warren and Aaron. Even if the earlier date of November 2018 were
    used, the delay still amounted to 5 months for Mr. Kumer and approximately 10
    months for Warren and Aaron.

On this record,
    there is no question that the appellants failed to immediately disclose the
    agreements.

(3)

The motion judge did not err in granting a stay

[41]

I turn now to the remedy.

[42]

The appellants argue that an automatic stay is a draconian
    remedy for abuse of process in a case such as this and that the motion judge
    should have exercised his discretion to redress the failure to disclose through
    other means.

[43]

The appellants further submit that while an automatic stay may be
    justified in the face of Mary Carter agreements that are not disclosed, in this
    case, the plaintiffs did nothing wrong and did not deceive or mislead anyone.
    They argue the motion judge erred by applying an automatic stay in these
    circumstances without considering the alternatives.

[44]

I disagree.

[45]

In
Aecon
, MacFarland J.A.
    stated, at para. 16:

The obligation of immediate disclosure is
    clear and unequivocal. It is not optional. Any failure of compliance amounts to
    abuse of process and must result in consequences of the most serious nature for
    the defaulting party.
Where, as here, the failure amounts
    to abuse of process, the only remedy to redress the wrong is to stay the Third
    Party proceedings and of course, by necessary implication, the Fourth Party
    proceedings commenced at the instance of the Third Party
. 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. [Emphasis added.]

[46]

Citing
Aecon
, the motion judge
    reiterated, at para. 44, 
The Court of Appeal described the
    obligation to disclose as clear and unequivocal and noted that its breach
    constituted an abuse of process. Only by imposing a stay is the court able to
    control and enforce its own process to ensure that justice is done.

[47]

I see no basis on the facts of this case to depart from the clear
    consequences for a breach of this principle set out by this court in
Aecon

and affirmed a number of
    times since then, including in
Handley Estate
,
    at para. 45, and most recently in
Tallman
, at para. 28
. In
Tallman
,
    after imposing the automatic stay as the only remedy appropriate for an
    undisclosed settlement agreement, the court added, at para. 28, 
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.

D.

Disposition

[48]

For these reasons, I would dismiss the appeal.

[49]

Having reviewed the costs submission of the parties, I would
    award $60,000, all-inclusive, to the respondents.

Released: April 21, 2022 J.M.F.

L.
    Sossin J.A.

I
    agree. Fairburn A.C.J.O.

I
    agree. David M. Paciocco J.A.





[1]

For ease of reference, I will be referring to the Waxman
    parties by their first names.



[2]

Mr. Kumer and his company
Dynamic Metal
    Trading Inc.
ended up paying $1 million in 2018 rather than the $300,000
    amount contemplated in the 2015 settlement letter.


