Executive Summary: Key Legal and Evidentiary Issues

• Timeliness of disclosure of the Pro Rata settlement agreement between Plenary and Johnson Controls was challenged by the defendants.

• The impact of the Pro Rata Agreement on the adversarial orientation and litigation landscape was scrutinized.

• Application and retrospective effect of the new Rule 49.14 regarding disclosure of partial settlements was considered.

• The appropriateness of a permanent stay as a remedy for alleged late disclosure was debated.

• The court evaluated whether the action should be discontinued and if costs should be awarded.

• Determination of reasonable costs for the successful parties was addressed.

Background facts

This case arises from the expansion of Milton District Hospital, for which Plenary Health Milton LP (“Plenary”) contracted PCL Constructors Canada Inc. (“PCL”) to design and build the project. PCL, in turn, engaged several subcontractors. Plenary also contracted Johnson Controls to provide facility management and maintenance for 30 years. After project completion, a drainage pipe failure led to disputes over responsibility: Johnson Controls claimed a construction defect, while PCL attributed the issue to operational failure.

Johnson Controls initiated a notice of dispute and later a notice of arbitration against PCL. Plenary issued a statement of claim but did not serve it immediately, aiming to preserve claims against subcontractors. Meanwhile, PCL and its subcontractors entered a tolling and cooperation agreement regarding Johnson Controls’ claims, which was not disclosed to Plenary until much later. Most claims were pursued in arbitration, with Plenary and the subcontractors not parties to that process, though Plenary agreed that the sanitary pipe claims could be arbitrated.

The settlement and disclosure dispute

During 2022–2023, parties discussed moving the arbitration claims into the court action, resulting in drafts of a Transfer Agreement. In July 2023, PCL learned of a settlement (the “Pro Rata Agreement”) between Plenary, Johnson Controls, and Plenary’s insurer, which limited Plenary’s recovery to PCL and subcontractors, excluded Johnson Controls from prosecution, and provided for sharing of proceeds. PCL received a redacted copy of the agreement on July 27, 2023, and the subcontractors were informed in September 2023.

The moving defendants (excluding Johnson Controls) argued that Plenary failed to disclose the Pro Rata Agreement promptly, seeking a permanent stay of the action. They relied on the legal principle from Aecon Buildings v. Stephenson Engineering and related cases, which require immediate disclosure of any settlement that alters the litigation landscape, with failure constituting an abuse of process.

Discussion of policy terms and legal framework

The court examined whether the Pro Rata Agreement changed the adversarial orientation or litigation landscape. The agreement’s key clauses limited Plenary’s claims to PCL and subcontractors and set out the sharing of any recovery. However, the agreement was conditional on the dispute being transferred from arbitration to the court action, which had not occurred. The action itself had been effectively stayed, with little procedural progress.

A significant legal development was the introduction of Rule 49.14, which now requires disclosure of any partial settlement agreement regardless of its effect on the litigation landscape and provides courts with broader discretion regarding remedies for non-disclosure. The court considered whether this new rule should apply retrospectively, ultimately finding that while the timing and disclosure requirements should not be retroactively imposed on Plenary, the expanded remedial discretion could be applied.

Court’s findings and outcome

The court found that Plenary and Johnson Controls made timely disclosure of the Pro Rata Agreement, given the context and the inactive status of the litigation. Disclosure to PCL occurred within 37 minutes of execution, and the subcontractors were kept apprised through PCL. The court determined that the Pro Rata Agreement did not change the litigation landscape since the action remained stayed and the dispute continued in arbitration.

As a result, the motion for a permanent stay was dismissed. The court also addressed a cross-motion by Plenary to discontinue the action without costs but deferred a final decision on that issue pending further submissions. Regarding costs, the court awarded Plenary $17,354.09 and Johnson Controls $13,732.89, finding these amounts reasonable compared to those sought by the moving defendants.

In summary, Plenary and Johnson Controls were successful in resisting the stay motion, and costs were ordered in their favor in the specified amounts. No permanent stay was granted, and the action remains open pending further directions on discontinuance.