Failure to Promptly Disclose Partial Settlement Agreement Results in Dismissal of Action

The court’s decision in Poirier v. Logan, 2021 ONSC 1633, demonstrates the importance of promptly disclosing partial settlement agreements that change the adversarial orientation of the proceeding.

The plaintiff sued several parties. In October 2019, the plaintiff and one of the defendants entered into a settlement agreement wherein the action would be dismissed against that defendant and that defendant would provide a sworn affidavit. This affidavit contained evidence that assisted the plaintiff’s case.

Six months later, the plaintiff’s lawyer advised the co-defendants’ lawyers of the partial settlement.

Justice Perell noted that when a plaintiff settles with one or more co-defendants, and the settlement changes the adversarial orientation of the proceeding, such as when the settling co-defendant agrees to cooperate in the plaintiff’s prosecution of the case, the plaintiff must immediately disclose to the non-settling defendants: (a) that there is a settlement, and (b) the terms of the settlement that change the adversarial orientation of the proceeding.

A failure to do so is an abuse of process for which the only remedy is a dismissal of the proceeding.

Not all settlement agreements require immediate disclosure. Only settlement agreements that fundamentally alter the relationship among the parties, such that there has been an entire change in the landscape of the litigation, must be immediately disclosed.

Justice Perell also indicated that a settlement agreement by one litigant to cooperate with another litigant does not necessarily fundamentally alter the litigation landscape or the adversarial orientation of the litigation. The facts of each case need to be examined.

Nevertheless, Justice Perell stated that, as a practice point, there is little reason to not immediately disclose a settlement agreement. It is better to be safe than sorry.

In the case at bar, Justice Perell noted that the settling defendant was not a fringe player. He was a potentially culpable party who was being let out of the action. He agreed to assist the plaintiff in the case against the co-defendants by providing the affidavit.

The defendants had previously agreed to “hold their crossfire” on the crossclaims until later in the litigation. The fact that the settling defendant decided to cooperate with the plaintiff was a fundamental change in the litigation landscape.

Therefore, Justice Perell held that the settlement agreement had to be immediately disclosed. Since the plaintiff did not do so, the action was dismissed.