Disclosing Litigation Agreements
The Court of Appeal issued reasons on March 29, 2018 detailing the obligations of parties when entering into litigation agreements. The decision in Handley Estate v. DTE Industries is both a reminder and cautionary tale that provides a nice roadmap of things to do and not to do when entering into these kinds of agreements as part of a litigation strategy. The decision is a must read for those involved in litigation where Pierringer, Mary Carter or other litigation agreements are employed.
In Handley, the plaintiff was a subrogating insurer in an oil spill claim. They failed to name one of the oil tank vendors in the supply chain. Because the limitation period had passed by the time it became apparent that the vendor was a necessary party, the plaintiff entered into a funding agreement with one of three defendants which required that defendant to issue a third party claim against the ‘missed’ vendor. In return the plaintiff would fund a finite portion of the cost of the third party action. The agreement was not disclosed to the other defendants. The plaintiff and the same defendant entered into a second agreement several years later which effectively saw the subrogating insurer step into the shoes of that defendant by way of an assignment of that defendant’s rights in the third party action. The existence of the second agreement was subsequently disclosed but not immediately. The plaintiff was eventually compelled to disclose the fact and details of the first agreement as well.
One of the other defendants who was not a party to the agreement brought a motion to stay the action on the basis that the plaintiff had failed to disclose the initial agreement and failed to disclose the subsequent agreement in a timely manner. The Court Of Appeal agreed, noting that agreements which ‘change entirely the landscape of the litigation’ must be disclosed immediately and that a failure to do so amounts to an abuse of process. There are sound policy reasons for this rule. The rules of our litigation process do not provide for trial by ambush or other ‘gotcha’ litigation strategies but rather embrace transparency and full disclosure. Procedural fairness requires that parties adhere to those principles. As the court noted, any agreement that has the effect of ‘changing the adversarial position of the parties set out in their pleadings into a cooperative one’ must be disclosed immediately to the other parties.
If there is any doubt about which side of the line to fall on when faced with disclosing litigation agreements the outcome in this case (which to some might appear Draconian) should make that decision an easy one.