Executive Summary: Key Legal and Evidentiary Issues

• Whether Walsh Construction was required to immediately disclose its $5 million settlement with the City of Toronto to Gowing and Zurich.

• Applicability of the abuse of process doctrine for failure to disclose a settlement in separate but related litigation.

• Determination of whether the Walsh–City settlement changed the adversarial landscape of concurrent legal actions.

• Relevance of subcontract clauses limiting Gowing’s entitlement to amounts recovered by Walsh from the City.

• Distinction between claims against Gowing/Zurich and claims against the City in terms of legal and factual basis.

• Evaluation of whether the disclosure obligation extends to non-parties in the settled action under Ontario jurisprudence.

Facts of the case

In Gowing Contractors Ltd v. Walsh Construction Company Canada, 2025 ONSC 2671, the dispute arose from a large infrastructure project at the Ashbridge’s Bay Wastewater Treatment Plant. The City of Toronto entered into a prime contract with Walsh Construction Company Canada (WCC) in 2013. Walsh, in turn, subcontracted part of the mechanical work to Gowing Contractors Ltd., which was backed by a performance bond issued by Zurich Insurance Company Ltd.

The project experienced significant delays. By 2019, Gowing filed a lien claim for $15.8 million, alleging cost overruns and delays. Concurrently, Walsh launched two separate actions: one against Gowing for $10 million in damages alleging breach of contract and delay, and another against Zurich for indemnification under the performance bond. Separately, Walsh also filed a $10 million claim against the City of Toronto in 2020 for project delays, some of which it attributed to Gowing.

On October 28, 2021, Walsh and the City reached a confidential settlement for approximately $5 million. Walsh did not immediately disclose this settlement to Gowing or Zurich, even though parts of Gowing’s claim were included in the delay claim Walsh submitted to the City. Disclosure only occurred during mediation in late 2022. Gowing and Zurich argued that the failure to disclose amounted to an abuse of process, seeking to strike Walsh’s pleadings and stay the related actions.

Legal reasoning on abuse of process and disclosure

The court addressed whether Walsh's delayed disclosure of its settlement with the City constituted an abuse of process that would justify dismissing its claims. Associate Justice Wiebe reviewed Ontario case law, particularly Poirier v. Logan, Handley Estate, and Aecon Buildings, which establish that a party must immediately disclose any settlement that "entirely changes the litigation landscape." This usually applies when the settlement alters adversarial relationships—such as when one party “switches sides” or agrees to cooperate against a former co-defendant.

Here, the court acknowledged that precedent typically limits this disclosure requirement to parties within the same action. While Gowing and Zurich were not parties to the Walsh–City litigation, they argued that the City action was functionally connected to their own disputes with Walsh due to subcontract “pay-if-paid” clauses that linked their entitlements to whatever Walsh recovered from the City.

The judge ultimately rejected this argument, concluding that the settlement with the City did not alter the adversarial dynamics between Walsh and Gowing/Zurich. There was no evidence of cooperation between Walsh and the City against Gowing, nor any clause in the settlement agreement suggesting such coordination. The settlement, in the judge’s view, concerned different legal issues: the City’s alleged project mismanagement versus Gowing’s alleged performance deficiencies.

Outcome

The motion by Gowing and Zurich to strike Walsh’s pleadings and stay the proceedings was dismissed. The court found that the non-disclosure of the settlement did not constitute abuse of process, as it did not fundamentally alter the litigation landscape. The ruling also emphasized that while the “immediate disclosure” doctrine is powerful, it should be applied cautiously and only in clear cases. Walsh remained entitled to proceed with its actions, and the parties were encouraged to resolve costs, with Walsh considered the successful party.