When the Dust Settles: New Ontario Rules Affecting Settlements in Force Today

With all the talk about Civil Rules Review, and the deadline for comment on the Phase 2 paper today, some may have overlooked that new amendments to Rules 49 and 7 affecting settlements come into force today. Here are the highlights.

Disclosure of Partial Settlement: Rule 49 Amendments

Ontario courts have required parties in multi-party litigation to promptly disclose to the court and to non-settling parties partial settlement agreements that change the litigation landscape in a way that alters the dynamics of the litigation. Failure to do so has resulted in severe consequences for some litigants including stays of proceedings against the non-settling defendants: Aecon Buildings v. Stephenson Engineering Limited, 2010 ONCA 898, at paras. 13, 15-16; Skymark Finance Corporation v. Ontario, 2023 ONCA 234, 1, at paras. 46-47, 53; Kingdom Construction Limited v. Perma Pipe Inc., 2024 ONCA 593.

Newly created Rule 49.14 codifies aspects of the common law and sets deadlines for disclosure of any partial settlement agreement. A “partial settlement agreement” is defined as any written or unwritten settlement agreement where: (a) at least one plaintiff and at least one defendant are parties to the agreement; (b) at least one defendant is not a party to the agreement; (c) the agreement does not settle the proceeding in its entirety, although it may be settled in its entirety as between some parties, and the parties to the agreement intend that the proceeding will continue to some extent; and (d) the agreement is binding on the parties to the agreement, subject to the requirements of judicial approval under Rule 7.08, if applicable. There is no requirement that the partial settlement agreement change the litigation landscape or alter the dynamics of the litigation.

Under Rule 49.14(4), plaintiffs must promptly disclose the terms (excluding monetary value) of a partial settlement agreement to all non-settling parties, either immediately, if a hearing has started, or otherwise within seven days.

Rule 49.14(5) requires that the agreement be recorded using new Form 49E, served on all parties, and filed with proof of service.

Rule 49.14(6) makes clear that confidentiality agreements cannot override the disclosure requirements.

Rule 49.14(7) provides that courts can impose penalties for non-compliance with the Rule, including costs, further discovery, striking evidence, adjournments, stays, or any other appropriate order. It will remain to be seen what remedies are imposed for non-compliance. The guidance in the existing jurisprudence will likely remain instructive.

Rule 49.01.1 provides that the amended Rule 49 applies to actions, applications and, with necessary modifications, motions, counterclaims, crossclaims and third or subsequent party claims. However, Rule 49.14(3) provides that the partial settlement rules do not apply to applications for judicial review under Rule 68.

Judicial Approval for Parties Under Disability

For parties under disability, a partial settlement agreement must receive judicial approval under Rule 7.08, and the litigation guardian must inform all parties within seven days of filing for court approval.

If the judge approves the agreement, the judge may modify disclosure requirements, and the guardian must notify all parties within seven days of approval.

Until a ruling is made, no party may take steps that could prejudice another party, and the terms of the agreement cannot be disclosed except as permitted by Rule 7.08.

Under Rule 49.14(9) and (10), the litigation guardian must seek court direction on whether and how to disclose the settlement amount, in order to prevent double recovery and ensure compliance with legal requirements.

For parties with no disability, the usual disclosure rules continue to apply, maintaining transparency and fairness, while these amendments provide extra judicial oversight and protection for vulnerable parties.

New Safeguards for Parties Under Disability: Rule 7.08 Amendments

Tighter Judicial Oversight:

Currently, settlements or judgments related to appointing a guardian under the Substitute Decisions Act, 1992 do not require a judge’s approval. Now, under subrule 7.08(2.1), most judgments involving a person under disability will need judicial approval, with only settlements in guardianship matters being exempt.

Rule7.08(5) allows judges to order full, unredacted materials to be shared with the Children’s Lawyer or Public Guardian and Trustee for independent review.

Streamlined Approval Process:

Rule 7.08(3.1) allows litigation guardians to apply for judicial approval without notice to other parties. Supporting materials need not be served unless a judge orders otherwise.

Rule7.08(4)(0.a) requires a table of contents listing all documents and exhibits by nature, date, and identifier, making submissions clearer and easier to navigate.

Enhanced Confidentiality:

Rules 7.08(4.2) and (4.3) require lawyers to redact or omit any information in the motion or application record that is subject to solicitor-client privilege or could, if disclosed, prejudice the person under disability before filing. The presiding judge will still receive the complete, unredacted version, which will not form part of the court file.

Rule 7.08(4.4) allows motions to be heard in writing such that parties do not need to appear or file a factum unless a judge orders otherwise, speeding up approvals and protecting privacy.

Additional Amendments:

• Rule 49.01 rewords its introductory portion for clarity, ensuring consistent terminology before listing definitions.
• Rule 49.02(1) allows any party in a legal proceeding to serve an offer to settle one or more claims on another party using Form 49A. (Currently, Rule 49.02(2) extends the rules on settlement offers to motions).  Rule49.02(2) is revoked and the rules on settlement offers no longer automatically apply to motions.
• Rule 49.03 allows settlement offers to be made at any time, but if made less than seven days before a hearing, the cost consequences under Rule 49.10 will not apply. The updated wording clarifies its application to any legal proceeding, not just to hearings.
• Rule 49.10(3) places the burden of proof on the party claiming cost benefits who must show that the judgment is as favorable or more/less favorable than the settlement offer, and the revised language ensures this applies to all legal proceedings.

Marina Sampson and Byron Shaw are partners in the McCarthy Tetrault Litigation and Dispute Resolution Group.  Vivienne Zhang is a summer student.  Please reach out to us with any questions on these amendments.