Court of Appeal Overturns Handley Estate Decision
In Ontario, it is well-established that litigants must promptly disclose partial settlement agreements. Otherwise, they risk facing adverse consequences. Rule 49.14 of the Rules of Civil Procedure was amended in June of 2025 to codify the requirement to disclose partial settlements. It sets out a variety of remedies that the Court may impose in the event of a failure to disclose.
Prior to that amendment to the Rules, Courts regularly held that a failure to disclosure a settlement that specifically changed the adversarial position of parties into a co-operative one must result in a stay of the non-disclosing party’s claim. This rule was prescribed by the Court of Appeal in Handley Estate v. DTE Industries Limited, 2018 ONCA 324. In the recent case of Smialek et al. v. Status Construction Ltd. et al., 2025 ONSC 5229, the Honourable Justice Paul B. Schabas held that Rule 49.14 did not override or alter the remedy that the Court ought to apply in the face of non-disclosure of a settlement that changes the adversarial position of parties into a co-operative one. In those cases, the non-disclosing party’s claim would still presumably be stayed.
Notwithstanding the Court’s signal from the Smialek et al. decision, the Court of Appeal has now firmly overturned the Handley Estate decision in the recent case of 1086289 Ontario Inc. (Urban Electrical Contractors) v. Welland (City), 2026 ONCA 352. Going forward, the Court is no longer required to stay a party’s claim if they fail to disclose a partial settlement agreement, even one that changed the adversarial position of parties into a co-operative one. The Court will instead have discretion to fashion an appropriate remedy, based on factors such as whether the non-disclosure results in unfairness, prejudice, oppression, or otherwise undermines the integrity of the administration of justice. This approach is more harmonious with the provisions of Rule 49.14.
The Handley Estate Decision
The Ontario Court of Appeal’s decision in Handley Estate v. DTE Industries Limited, 2018 ONCA 324, was an authoritative decision on the disclosure of partial settlement agreements. The Ontario Court of Appeal had ruled that 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 must be disclosed immediately. Importantly, it also ruled that the only appropriate remedy in the face of such non-disclosure is to stay the claim of the non-disclosing party. The Court summarized a paragraph 45 key principles that emanated from prior case law:
- The obligation of immediate disclosure of agreements that change entirely the landscape of the litigation is clear and unequivocal – they must be produced immediately upon their completion.
- The absence of prejudice does not excuse the late disclosure of such an agreement.
- Any failure of compliance amounts to abuse of process and must result in consequences of the most serious nature for the defaulting party.
- The only remedy to redress the wrong of the abuse of process is to stay the claim asserted by the defaulting, non-disclosing party. Why? Because sound policy reasons support such an approach.
Rule 49.14
On June 16, 2025, Rule 49.14 was amended to codify the requirement of immediate disclosure of partial settlement agreements. Rule 49.14 applies to partial settlement agreements broadly. It is not limited to agreements that necessarily change parties’ adversarial positions into cooperative ones. Rule 49.14 (7) specifically sets out the various remedies that the Court may grant in the event of a breach of the disclosure requirements under Rule 49.14:
- make an order for costs, regardless of the outcome of the proceeding;
- order or permit further examinations for discovery, to be conducted at the plaintiff’s expense;
- order additional disclosure or production of documents;
- strike out all or part of a party’s evidence, including any affidavit made by the party;
- adjourn a hearing or other step that permits or requires the attendance of the parties;
- stay the proceeding; or
- make such other order as is just.
The Smialek et al. Decision
The interaction between Rule 49.14 and Handley was addressed in Smialek et al. v. Status Construction Ltd., 2025 ONSC 5229. The Court found that the plaintiffs failed to make proper immediate disclosure of an agreement which had the effect of changing entirely the landscape of the litigation. On the issue of what remedy to apply, the plaintiffs argued that given the broad range of remedies available under Rule 49.14, the Court was no longer bound to stay the plaintiffs’ claim.
The Court rejected the plaintiff’s argument. Although it acknowledged that a stay is a harsh and drastic result, it held that Rule 49.14 does not overrule or change the remedy applied in the Handley Estate decision, in the face of settlements that change the adversarial landscape.
The Smialek et al. decision signaled that the Court would continue to apply the strict rule from Handley Estate despite the emergence of Rule 49.14.
The 1086289 Ontario Inc. Decision
Notwithstanding the Court’s signal in Smialek et al., the Court of Appeal has now firmly overturned the Handley Estate decision. In 1086289 Ontario Inc. (Urban Electrical Contractors) v. Welland (City), 2026 ONCA 352, the Court of Appeal concluded that Handley Estate was wrongly decided. A stay is no longer a mandatory remedy for the non-disclosure of partial settlement agreements that change the adversarial position of parties into a co-operative one. Going forward, the Court should instead apply ordinary abuse of process principles in determining the appropriate remedy for non-disclosure of any partial settlement agreement. This will require a contextual and discretionary assessment, directed to whether the non-disclosure results in unfairness, prejudice, oppression, or otherwise undermines the integrity of the administration of justice. The determination of whether there has been an abuse of process, and the selection of an appropriate remedy, are matters for the informed discretion of the Court, to be exercised in light of all of the relevant circumstances. This approach can now be applied harmoniously with the provisions of Rule 49.14.
If you require advice or assistance navigating partial settlement agreements, please contact any member of our litigation team for more information.
About the Author: Stéphane MacLean joined Soloway Wright as a litigation associate in December 2024. He attended law school at the University of Ottawa and articled at a full-service firm in Toronto. He carries on a general litigation practice with an emphasis on commercial disputes.
