Written by Leilani Karr, Associate

In Skymark Finance Corporation v. Ontario, 2023 ONCA 234, the Ontario Court of Appeal reiterated an important lesson to plaintiffs involved in multi-party litigation: disclose your settlements or face a stay of proceedings.

The appellant, Skymark Finance Corporation entered into Minutes of Settlement with Lorraine Smith, a central defendant in two related actions brought by Skymark. As part of the settlement Ms. Smith agreed to assist Skymark in its case against the other defendants by providing an affidavit and agreeing to give evidence consistent with her affidavit during the discovery process. In effect, by virtue of the settlement Ms. Smith went from a party adverse in interest to Skymark to an ally. 

Skymark waited eight months before disclosing the Minutes of Settlement to the non-settling defendants, and only after being threatened with an abuse of process motion.

The motions judge found that the Minutes of Settlement changed the entire litigation landscape. Because it was not disclosed immediately, he stayed the action in favour of all of the remaining parties. Skymark appealed. 

The Court of Appeal, in upholding the motion judge’s opinion, reiterated the necessity of a plaintiff immediately disclosing any settlement agreement that fundamentally changes the litigation landscape or face a stay of proceedings against the remaining defendants. 

The question, then, is what “fundamentally changes the litigation landscape”? The Court of Appeal confirmed that the settlement need not affect all the remaining defendants equally, or even all of them. In this case, as would be the case in many actions, it was sufficient that the act of settling with one defendant increased the risk faced by the remaining defendants.  The Court of Appeal noted further that, as an alternative option to immediate disclosure, Skymark could have sought the direction of the court. As it did neither, the stay was upheld.

Although Skymark is an Ontario case, it reiterates principles that have been similarly held in British Columbia (e.g. Kim v 1048656 B.C. Ltd., 2023 BCSC 192, where disclosure is required where the agreement affects a party’s position “in a way that is different than that revealed by the pleadings”) and Alberta.

The takeaway in all jurisdictions is that any partial settlement in a multi-party litigation is likely to significantly change the litigation landscape and should be disclosed immediately.