Executive Summary: Key Legal and Evidentiary Issues

• Appeal dismissed due to failure to immediately disclose a settlement agreement that altered the litigation landscape.

• Cityzien granted a 15-year lease to its lawyer, John Faraci, for $1/year as repayment for legal fees, leading to Rosemont’s challenge.

• Rosemont and Cityzien finalized a settlement on August 5, 2021, but did not inform Faraci until August 17, 2021.

• Motion judge ruled the delayed disclosure violated the rule requiring immediate notice of settlements that change litigation dynamics.

• Court rejected Rosemont’s argument that a 12-day delay constituted “immediate” disclosure in the circumstances.

• The settlement’s subsequent unenforceability did not absolve Rosemont’s disclosure obligation once it believed the agreement was binding.

Facts of the case

Rosemont Management Inc. and McCaul Leasehold Management Limited (collectively referred to as “Rosemont”) had agreed to sell their leasehold interest in an apartment building on McCaul Street in Toronto to Cityzien Properties Limited (“Cityzien”). John Faraci, Cityzien’s lawyer, became involved in the matter when Cityzien, acting as interim property manager prior to closing, granted him a 15-year lease on an apartment unit for $1 per year. This was done as repayment for legal fees Cityzien owed him.

The transaction between Rosemont and Cityzien ultimately did not close, leading both parties to file legal applications against each other. Rosemont also named Mr. Faraci in its application, seeking, among other relief, an order invalidating his lease. In July 2021, Rosemont and Cityzien began negotiating a settlement, which was finalized on August 5, 2021. As part of the agreement, Cityzien agreed to support Rosemont’s claim against Faraci, and expressed interest in suing him as well.

Rosemont cross-examined Faraci on August 5, 2021, but did not inform him of the settlement until August 17, 2021—12 days later. In April 2024, two motions were heard: Rosemont’s motion to enforce the settlement, and Faraci’s motion to stay Rosemont’s application as an abuse of process. The motion judge ruled in Faraci’s favour, staying the application and finding the delayed disclosure violated procedural fairness.

The court’s decision and reasoning

The Ontario Court of Appeal dismissed Rosemont’s appeal and upheld the motion judge’s decision. The court reaffirmed the principle that settlements between some parties that significantly alter the litigation landscape must be immediately disclosed to all other parties. The motion judge applied this principle based on the timeline: the settlement was finalized on August 5, 2021, but not disclosed to Faraci until August 17.

The court clarified that the judge’s finding did not impose a duty to disclose negotiations, only the finalized settlement. While the motion judge noted that the litigation landscape had changed by July 30, 2021, he explicitly based his decision on the failure to disclose after the agreement was signed on August 5.

Rosemont argued that a 12-day delay was “immediate in the circumstances,” but the court held that “immediate” must be interpreted strictly. Citing precedent, the court emphasized that “immediate” does not mean “eventually” or “when convenient.” Moreover, Rosemont’s counsel was found to have been less than candid in communications during this period, further undermining its position.

Lastly, Rosemont contended that since the settlement was later ruled unenforceable, it could not have changed the litigation landscape. The court rejected this argument, stating that the duty to disclose attaches when a party believes a binding settlement exists, regardless of later outcomes. Rosemont acted on the assumption that the settlement was valid and thus was bound by the obligation to disclose it promptly.

The appeal was dismissed, and the court awarded costs of $10,000 to Faraci as the successful party.