The rule requiring "immediate disclosure" of settlement agreements that "entirely change the litigation landscape" has been the subject of much discussion among lawyers in Ontario. Although some cases have indicated possible flexibility in the meaning of "immediate", the most recent pronouncement from the Superior Court in Peninsula Employment v Castillo ("Peninsula Employment"), 2025 ONSC 1121, indicates that there is no tolerance for any deviation from the immediacy requirement.
Below, we review this decision and consider its implications for the immediate disclosure rule.
Legal Background
In Ontario, settlement agreements reached between some but not all parties must immediately be disclosed to non-settling parties if the agreement "entirely changes" the litigation landscape.1 Failure to disclose such an agreement amounts to an abuse of process, and the only remedy is to stay the claim brought by the defaulting, non-disclosing party.2
Understandably, this lack of discretion in remedy has greatly troubled lawyers in Ontario, and a number of attempts have been made to overturn the rule (so far, without success).
Nevertheless, the Courts have occasionally demonstrated a degree of flexibility in determining whether the rule has been breached. For example, in Kingdom Construction Limited v Perma Pipe Inc., 2023 ONSC 4776 ("Kingdom Construction"), the Superior Court held that the disclosure rule should be applied purposively, and that determining whether a disclosure was sufficiently "immediate" is fact dependent. The Court ultimately held (in obiter) that the disclosure at issue – which had been made twenty-seven days after the litigation agreement was entered into – was sufficient.3
Factual Background
In Peninsula Employment,the non-settling defendant ("Castillo") sought an order staying the action for abuse of process because the plaintiff did not make timely disclosure of the settlement agreements it reached with three defendants (the "Settling Defendants"), where the Settling Defendants agreed to cooperate with the plaintiff in advancing its claims.4
The plaintiff entered into a settlement agreement with one of the Settling Defendants on September 12, 2024,5 but Castillo was not notified until eight days later.6
Subsequently, the plaintiff entered into separate settlement agreements with the two remaining Settling Defendants on September 24, 2024.7 Castillo was not notified until twelve days later.8
Castillo argued that these agreements had fundamentally changed the nature of the litigation landscape, but that the plaintiff had failed to immediately disclose them.9
The Ontario Superior Court's Decision
The Superior Court was clear that any failure to immediately disclose the settlement agreement would amount to an abuse of process and would result in serious consequences for the litigation.10 As a result, despite the relatively short period between the completion of the settlement agreements and their disclosure, the Court found that the disclosure had not been 'immediate' within the meaning of the rule and permanently stayed the action.11
Commentary
Lawyers must be extremely diligent to ensure that settlement agreements that change the litigation landscape are disclosed immediately upon their completion. As demonstrated by this case, Courts may take a zero-tolerance approach to this rule, creating draconian consequences for clients. This, in turn, substantially increases the risk of solicitor's negligence claims.
Footnotes
1. Skymark Finance Corporation v Ontario, 2023 ONCA 234 at para 46.
2. CHU de Québec-Université Laval v Tree of Knowledge International Corp, 2022 ONCA 467 at para 55; Tallman Truck Centre Limited v KSP Holdings Inc, 2022 ONCA 66 at para 28; Skymark Finance Corporation v Ontario, 2023 ONCA 234 at para 47.
3. Kingdom Construction Limited v Perma Pipe Inc, 2023 ONSC 4776 at para 51. This decision was unsuccessfully appealed to the Ontario Court of Appeal in Kingdom Construction Limited v Perma Pipe Inc, 2024 ONCA 593 at para 6, but the Court of Appeal specified that "nothing in these reasons should be taken as endorsing the motion judge's approach to whether the disclosure was immediate or adequate" at footnote 2.
4. Peninsula Employment v Castillo, 2025 ONSC 1121 at para 1.
5. Ibid at para 3.
6. Ibid at para 4.
7. Ibid at para 5.
8. Ibid at para 6.
9. Ibid at para 7.
10. Ibid at para 11.
11. Ibid at paras 19, 21, and 38.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
