Undisclosed Settlements in Multi-Party Litigation: The Court of Appeal’s Zero-Tolerance Approach

Anisa Arra
Jun 25
3 min read

The Ontario Court of Appeal has repeatedly affirmed a strict and unwavering principle: where parties to an action enter into a settlement agreement that alters the adversarial posture of the litigation, that agreement must be disclosed immediately to the court and all other parties. Non-compliance with this obligation will be treated as an abuse of process, regardless of whether any actual prejudice can be shown.

This principle was reinforced in a series of 2022 appellate decisions, which leave no ambiguity that late disclosure is no disclosure, and litigation-altering agreements cannot remain confidential.

Disclosure Obligations: A Strict Standard

In Handley Estate v. DTE Industries Ltd., 2018 ONCA 324, the Court held that the failure to disclose a settlement agreement that created a cooperative relationship between parties who were previously adverse amounted to an abuse of process. The Court stated in clear terms:

“The requirement that a settlement agreement must be disclosed immediately means exactly what it says. This is not a matter of discretion, nor is it a matter of ‘context’, not of factual analysis.”

This holding built on prior decisions such as Aecon Buildings v. Stephenson Engineering

Ltd., 2010 ONCA 898, which established that the duty to disclose arises the moment an agreement affects the structure or dynamics of the litigation. Importantly, settlement privilege does not override this duty. Once the agreement alters the litigation landscape, whether through financial, strategic, or evidentiary consequences, it must be disclosed.

The ONCA Clarifications

The Court of Appeal expanded and affirmed this jurisprudence in four companion decisions:

Tallman Truck Centre Ltd. v. K.S.P. Holdings Inc., 2022 ONCA 66
Poirier v. Logan, 2022 ONCA 350
Tree of Knowledge International Corp. v. Luu, 2022 ONCA 322
Waxman v. Waxman, 2022 ONCA 293

These cases reinforce that:

The duty of disclosure is immediate, not within a reasonable time, not when convenient, but immediately upon execution.
The obligation is absolute, there is no discretion to delay or withhold disclosure based on confidentiality clauses or an absence of prejudice.
The remedy is a permanent stay of proceedings, even if the failure to disclose was inadvertent or corrected later.

In Tallman, the Court stayed the proceedings despite the agreement being disclosed only three weeks late, reiterating that the mere fact of non-disclosure, regardless of impact, was sufficient to engage the abuse of process doctrine.

Practical Implications for Counsel

Lawyers must approach partial settlements with heightened caution. Where the terms of a settlement agreement alter the adversarial alignment between parties, such as where a defendant agrees to testify against a co-defendant, where parties jointly participate in strategy or evidence production, or where cross-examinations and discovery obligations are reshaped, the duty to disclose arises immediately. As the Ontario Court of Appeal has repeatedly affirmed, the timing is not flexible and the duty is not discretionary.

Importantly, subsequent disclosure does not cure the breach. Once the agreement is reached and the duty arises, any delay, no matter how short, engages the doctrine of abuse of process. The court’s response has been that litigation cannot proceed on a foundation that has been tainted by concealment of material agreements affecting party dynamics.

Confidentiality clauses do not displace the disclosure obligation. In fact, courts have held that the duty of disclosure supersedes private contractual terms, and any effort to shield a litigation-altering agreement from scrutiny may itself compound the abuse.

Therefore, counsel should assume that any agreement which adjusts roles, responsibilities, or relationships among parties to an action must be disclosed immediately, with sufficient detail to allow the non-settling parties and the court to evaluate the impact on the fairness of the process.

The courts have drawn a hard line and it will be enforced. Strategic transparency is not merely advisable, it is mandatory.

Best Practices

To comply with this strict standard, counsel should:

Disclose any litigation-altering agreement promptly and in writing to all parties and the court;
Provide the material terms of the agreement, particularly those that impact the adversarial structure;
Be cautious when entering into side agreements or informal arrangements that may amount to cooperation.

Conclusion

The law in Ontario is settled: undisclosed litigation-altering agreements will not be tolerated. The obligation to disclose is immediate and mandatory. The courts have shown no willingness to soften this rule, even where the breach is brief or unintentional. Practitioners would be well-advised to prioritize full and timely transparency where partial settlements are reached.

For further guidance on disclosure obligations in complex or multi-party litigation, or to review the terms of a proposed agreement before execution, please contact a member of our Litigation group.

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