At our weekly firm meeting, Michael Kryworuk discussed the recent decision of the Court of Appeal in Tallman Truck Centre Limited v. K.S.P. Holdings Inc., 2022 ONCA 66. This matter involved an appeal of a successful motion to stay the plaintiff’s action that had been brought by one of the defendants, K.S.P. Holdings (“KSP”).
History of the Litigation:
The underlying claim arose from a complex real estate transaction. As the deal collapsed, the plaintiff, Tallman Truck Centre Limited (“Tallman”), sought to enforce a right of first refusal against KSP, and claimed damages alleging that KSP and the co-defendant, Secure Capital Advisors (“Secure”), had a leaseback agreement. Both KSP and Secure denied the existence of such an agreement in their pleadings.
Tallman brought a motion for summary judgement, which was scheduled for December of 2018. However, in the Spring of 2018, Tallman began settlement discussions with the defendant, Secure, following discovery and while materials were being prepared for the summary judgement motion.
After a month of negotiations, a settlement agreement between Tallman and Secure was reached, and formalized in writing on June 7, 2018. The agreement required Secure to provide an affidavit from the principal of Secure stating that a leaseback agreement did exist between Secure and KSP.
In return, Tallman agreed to discontinue the action against Secure. It was also negotiated that in the event Tallman’s summary judgement motion failed, Secure had a “continuing obligation to provide support and cooperation to Tallman throughout the litigation”.
Only if the summary judgement or the underlying matter were resolved in Tallman’s favour, would Secure receive the full and final release, which was held in escrow by Tallman’s counsel.
The settling defendant, Secure, then served the affidavit in what purported to be a responding motion record for Tallman’s summary judgment motion, but was in actual fact sworn in support of the motion.
The following day, Tallman began taking action to discontinue its action against Secure. Since pleadings had closed, the consent of KSP was required to discontinue the action against Secure.
Tallman’s counsel wrote to KSP’s counsel seeking this consent, but still did not disclose the concluded settlement agreement between Tallman and Secure.
By this point, KSP’s counsel began to suspect that Tallman and Secure had reached a settlement of some kind. KSP’s counsel wrote to Tallman’s counsel asking for confirmation. In their response, Tallman’s counsel ignored the query about the settlement agreement, and instead pressed KSP’s counsel to consent to the discontinuance of the action against Secure.
The settlement agreement between Tallman and Secure was finally disclosed to KSP on June 27, 2018, three weeks after it had been signed by the parties.
KSP then brought a motion seeking a stay of the proceeding, on the basis that the failure to disclose the settlement agreement between Tallman and Secure fundamentally changed the litigation landscape and constituted an abuse of process.
The motion judge granted the motion, and stayed the action. Tallman appealed this decision.
The Legal Test:
The court began its decision by re-examining the state of the law on this issue from the earlier ONCA decision in Handley Estate v. DTE Industries Limited, 2018 ONCA 324.
The court in Handley held that: “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 co-operative one”.
Furthermore, the Court in Handley determined that the appropriate remedy for a failure of the plaintiff and defendant to immediately disclose their settlement agreement was to stay the action. The court in Handley held that any failure to immediately disclose such a settlement agreement amounted to an abuse of process that must result in consequences of the most serious nature for the defaulting party.
Returning to the present case, both the motions judge and the Court of Appeal rejected the arguments of Tallman, and found that as the concealed settlement agreement between Tallman and Secure had the effect of changing the relationship between those parties from the adversarial relationship suggested by their pleadings to a cooperative one, it fell squarely within the ambit of what was required by Handley to be immediately disclosed to all parties.
The Court of Appeal and motion judge also rejected Tallman’s arguments that the actions of the parties, in this case, did not warrant a stay of the proceeding because there was no bad faith on the part of Tallman nor was there prejudice to KSP. The Court of Appeal held that remedy of staying the proceeding for the failure to disclose not only serves to achieve justice between the parties, but also helps deter future breaches of this well-established rule.
The Court of Appeal accordingly dismissed Tallman’s appeal, and upheld the stay of the action.
This decision primarily reaffirms earlier case law that if a settlement agreement occurs that changes the adversarial relationships between the parties or the nature of the litigation landscape, the agreement must be immediately disclosed to all parties. Furthermore, a failure to immediately disclose such an agreement may well result in the action itself being stayed.
We note that the Ontario Superior Court recently addressed this issue in March of 2021 in its decision, Poirier v Logan, 2021 ONSC 1633 (which we have previously summarized here). We understand that the appeal of the decision in Poirier is also now before the Court of Appeal. This issue may therefore receive additional attention from the Court of Appeal in the near future.
 Tallman Truck Centre Limited v. K.S.P. Holdings Inc., 2022 ONCA 66 at para 4.
 Handley Estate v. DTE Industries Limited, 2018 ONCA 324 at para 39.
 Ibid, at paras 42-46.
 Tallman, supra note 1, at paras 23-25.
 Ibid, at paras 26-28.