STATUTORY UPDATES
Changes to Disclosure Obligations for Partial Settlement Agreements (Rule 49.14 of the Rules of Civil Procedure) Mark Omenugha, Associate (Toronto)
On June 16, 2025, Rule 49.14 of the Rules of Civil Procedure was amended to establish a new statutory regime regarding the disclosure of partial settlement agreements. Rule 49.14 now sets out the requirements for parties’ disclosure of a partial settlement agreement and lists remedies that the court may impose for failure to disclose.
It’s important to note that these obligations are not new. Cases such as Pettey v. Avis Car Inc., 13 OR (3d) 725, 1993 CanLII 8669 and Laudon v. Roberts, 2009 ONCA 383 have addressed the disclosure obligations.
Counsels typically refer to the Court of Appeal’s decision in Aecon Buildings v. Stephenson Engineering Limited, 2010 ONCA 898 (“Aecon”) which held that, if a settlement substantially alters the litigation landscape, the settling parties must disclose the agreement to the non-settling parties and to the court immediately. A failure to do results in an automatic stay of the proceedings against the non-settling parties, even in the absence of prejudice.
The approach in Aecon was most recently following by the Court of Appeal in Handley Estate v. DTE Industries Limited, 2018 ONCA 32 (“Handley”). The Court of Appeal in Handley also clarified that a party may move before the court for direction if they are unsure if a partial settlement agreement has the effect of changing the litigation landscape.
Rule 49.14 codifies the already existing regime. However, there are some key differences between the common law regime and Rule 49.14.
Common Law vs Rule 49.14
Disclosure Requirement
In the common law regime, parties to a partial settlement agreement are only required to disclose the settlement agreement if it changed the litigation landscape in a significant way. Under Rule 49.14, parties to a partial settlement agreement must disclose the settlement agreement no matter what impact it has on the litigation landscape.
Timing of Disclosure
In the common law regime, parties to a partial settlement agreement are required to disclose the settlement agreement immediately. Rule 49.14 provides different obligations depending on the stage of litigation. For instance, if the proceeding has commenced then the parties must disclose the settlement agreement immediately. If the proceeding has not commenced, the parties must disclose the settlement agreement on the earlier of either 7 days following the date the agreement was reached, or before a party takes a further step in the proceeding.
Remedy of Breach of Disclosure Obligation
Finally, under the common law regime, a breach of the duty to disclose resulted in a permanent stay of the action. Rule 49.14 now grants the court with broad discretion on what remedies to impose. These include:
a. make an order for costs, regardless of the outcome of the proceeding;
b. order or permit further examinations for discovery, to be conducted at the plaintiff’s expense;
c. order additional disclosure or production of documents;
d. strike out all or part of a party’s evidence, including any affidavit made by the party;
e. adjourn a hearing or other step that permits or requires the attendance of the parties;
f. stay the proceeding; or
g. make such other order as is just.
Both Regimes Survive
Despite Rule 49.14 creating a new statutory regime, the Superior Court has recently found that both regimes will co-exist for the time being.
In Smialek et al. v. Status Construction Ltd. et al., 2025 ONSC 5229 (“Smialek”), a group of defendants brought a motion to stay a proceeding against them on the grounds that the plaintiffs had breached the disclosure obligations set out in Handley. The Superior Court was tasked with determining whether the disclosure of the settlement was sufficient, and if not, whether the action should be stayed.
The Superior Court found that the disclosure of the settlement was not sufficient and ordered the action stayed in keeping with Handley. The plaintiffs in the action requested a lighter remedy, citing the existence of Rule 49.14. They argued that Rule 49.14 provides for a broader range of remedies and that the Superior Court is no longer bound by Handley.
The Superior Court held that Rule 49.14 applies to any partial settlement agreement, but does not specifically mention a partial settlement agreement that changes the adversarial landscape. In these cases, the remedy in Handley remains appropriate.
Comments
Parties should be aware that the court may still utilize the Handley approach despite the existence of Rule 49.14. Until Smialek is heard by the Court of Appeal, it would be prudent for parties to be aware that the remedies available for the breach of a partial settlement agreement vary.
For matters involving any partial settlement agreement, the court will rely on Rule 49.14. However, the court will continue to utilize the Handley approach for partial settlement agreements that change the litigation landscape. With that in mind, parties should follow disclosure obligations strictly on the understanding that the court may still order a stay.
CASE COMMENTARIES
1- Chang Xin Construction v. 2049390 Ontario Inc., 2025 ONSC 7290
Khalil Mechantaf, Counsel, Q.Arb (Toronto)
This case involves a lien action arising from the reconstruction of a three‑storey commercial building in Toronto owned by the defendant, 2049390 Ontario Inc. The plaintiff, Chang Xin Construction, was retained to perform the construction work, which included design modifications to add a third storey. Disputes emerged regarding, among others, scope of completion, design changes, and whether the plaintiff had abandoned the contract. Before the contractual completion deadline, the defendant terminated the contract, and the plaintiff preserved a lien for unpaid amounts.
The plaintiff maintained that its lien was valid and timely in the amount of $174,182.86, representing unpaid base contract work and additional costs for revised drawings. The plaintiff further alleged that the defendant breached the contract by terminating it without justification.
The defendant asserted that the plaintiff breached the contract by suspending work and causing delays, counterclaiming for damages exceeding $2.5 million, including costs to rectify alleged deficiencies, liquidated damages for delay, and lost rental income, and argued that the additional costs claimed by the plaintiff were not compensable.
The issues before the Court included whether the scope of the plaintiff’s completion of its works under the contract and costs thereof, and whether the additional costs claimed by the plaintiff were compensable as extras.
Decision
The Court held that the plaintiff’s lien was valid and timely in the amount of $110,514.00 and awarded judgment for breach of contract in the same amount, together with pre‑judgment interest. The remainder of the plaintiff’s claim and the defendant’s counterclaim were dismissed.
With regard to scope of work performed and payment thereof, the contract provided for a payment schedule by way of percentages of the contract value for milestones achieved by the plaintiff, until occupancy. The evidence before the court confirmed that the Plaintiff had achieved stage 3 of the payment schedule, relating to footing and foundation. In light of such works passing inspection by the City of Toronto, plaintiff was awarded 27.5% of the contract value based on the terms of the payment mechanism.
With regard to additional costs claimed by the plaintiff beyond the payment schedule, such as revised permit drawings, these were deemed contemplated as being part of the contract base price and were previously included in the plaintiff’s quotation.
Comments
This decision is a reminder that payment schedules in construction contracts, when suitable in the circumstances, can be one of the most efficient payment mechanisms that provide certainty to the parties, and clarity to a court or an arbitration tribunal, as to what the parties had intended. It also avoids the need to deploy more complex valuation methods of works performed, and costs incurred by a contractor in performing such work, which can be costly. Any reliance on the earned contract value based on the actual state of completion, or any other complicated mathematical method, is not sustainable in light of a clear payment mechanism agreed by the parties.
Furthermore, the fact that the actual cost of preparing drawings exceeded the estimate is immaterial and cannot be considered as compensable extras. Such excess is nothing but an inherent risk to a fixed price contract, unless the excess was unforeseeable, or clearly fell outside the scope of work. Given that every stage of the works required such drawings to be in place, the parties should have devised a limited scope of work that excluded such items had they intended to price them separately.
2- James D. Taylor Holdings Ltd. v. WJ Groundwater Canada Limited, 2025 ONSC 7243
Khelan Soogrim, Associate (Toronto)
The moving party sought damages following the repudiation of an Agreement of Purchase and Sale (“APS”), bringing a summary judgment motion alleging that the Defendant’s repudiation caused a $900,000 loss, calculated as the difference between the APS price and the resale price. They claimed the resale was an arm’s length transaction reflecting fair market value and sought additional damages for carrying costs, legal fees, and property taxes. The court granted summary judgment indicating that the moving party acted reasonably in mitigating its damages, and calculated damages as the difference between the APS price and the resale price, along with property taxes and legal fees.
The Plaintiffs, James D. Taylor Holdings Ltd. and James Darcy Taylor, (“Plaintiffs”) were owners of a commercial property located in the Town of Port Perry, Ontario (the “Property”). The Property was listed for sale for $2.5 million. On January 19, 2022, the Defendant, WJ Groundwater Canda Limited, and the Plaintiffs, executed a conditional APS, for the purchase of the Property for the sum of $2,400,000. The conditional APS provided the Defendant with 14 days, later extended by 7 days, to inspect the Property. Before the final inspection period expired, the Defendant waived the condition and provided a further $50,000 deposit.
The Agreement also provides for an initial deposit to be paid to and held by the Plaintiffs’ realtor, in the sum of $50,000, and for a closing date of April 15, 2022. However, four days before closing, the Defendant terminated the APS, citing zoning restrictions that did not permit their intended use of the Property. There is no dispute that the Defendant repudiated the APS, but the assessment of damages was.
The Plaintiffs promptly re-listed the Property with the same agent and on the same terms which it was listed when the Defendant made its offer in January 2022. On May 13, 2022, the Plaintiffs received a conditional offer for $1,928,000. The amount was later negotiated to $2,110,000 but became void when the buyer did not waive conditions. After receiving no further offers, the Plaintiffs successively reduced the listing price to $2,450,000 in July 2022, $2,300,000 in October 2022, and, upon their agent’s advice, to $1,500,000 on January 19, 2023. On January 20, 2023, the day after the Property was listed at the reduced price, the Plaintiffs received an offer to purchase the Property for $1,500,000. This was the first offer the Plaintiffs had received since September 2022. The Plaintiffs provided a counteroffer to the prospective buyer of $1,540,000, but the prospective buyer refused to increase its offer. The Plaintiffs accepted the $1,500,000 offer on January 24, 2023. The sale closed on March 22, 2023.
The Plaintiffs allege that their claims for damages should be the price the Defendant agreed to pay within the original APS, minus the re-sale price. The Plaintiffs are relying on the re-sale price, which they say was an arm’s length sale to a third party after months on the market and reflects the fair market value at the time of the sale. The Defendant disagreed and filed an expert appraisal report indicating that in January 24, 2024, when the Property was re-sold, the market value of the Property was $2,240,000.
Three central issues were before the court:
(i) Did the Plaintiffs take reasonable steps to mitigate their damages following the Defendant’s repudiation of the APS?
(ii) Was the resale of the Property an improvident sale below market value?
(iii) What is the appropriate measure of damages in this case?
Decision
The Plaintiffs’ motion for summary judgment was granted.
The Court found that the Plaintiffs acted reasonably in mitigating their damages by re-listing the Property promptly and reducing the price after months of unsuccessful marketing. The resale price of $1.5 million was deemed the best evidence of the Property’s market value at the time of sale.
The resale of the Property was not an improvident sale below market value. The Defendant failed to provide evidence of specific shortcomings in the Plaintiffs’ sale process or demonstrate that alternative steps would have resulted in a higher resale price. The Defendant’s expert appraisal critiqued the Plaintiffs’ valuation but did not address the reasonableness of the Plaintiffs’ marketing efforts.
The damages were calculated as the difference between the APS price and the resale price, plus recoverable carrying costs, less the deposit retained by the Plaintiffs. Damages were awarded in the amount of $808,898.69, after deducting the deposit paid by the Defendant.
Comments
In a repudiation of a sale contract, the Plaintiff will always have a duty to mitigate its damages. Specifically in the context of failed real estate transactions, the plaintiffs owe a duty to the defendants to mitigate their losses through resale. The plaintiffs bear the initial onus of proving their losses. Thereafter, where a Defendant alleges that the Plaintiff failed to mitigate its damages, the Defendant bears the onus to prove on a balance of probabilities, both that the plaintiff failed to make reasonable efforts to mitigate, and that mitigation was possible.
In this case, the court was satisfied with the Plaintiffs’ mitigation efforts, in that they reasonably tried to re-list and sell the Property as soon as the APS was breached with the Defendant. By contrast, the court was not satisfied with the Defendant’s argument that the Plaintiff failed to appropriately mitigate their damages. The Defendant provided no critique of or comment on the Plaintiffs’ sales process.
If the plaintiffs acted reasonably from the date of the breach to the date of the resale, then the measure of damages will be the difference between the two sales prices. Thus, it was appropriate for the Plaintiff to be awarded damages based on the difference between the amount that the Defendant agreed to within the APS, and the re-sale price.
3- Bot Construction et al. v. Minister of Transportation, 2025 ONSC 6184
Neslisah Borandi, Articling Student (Toronto)
The case concerns an appeal from an arbitral award respecting a highway construction project in which Minister of Transportation (“MTO”) contracted with Bot Group of Construction Companies (“Bot”) to expand the Highway 69. The contracted works required Bot to blast rocks which were then used for constructing road embarkments and other purposes. Significant quantities of blasted excess rock remained at the end of construction (“Excess Rock”) which Bot was required to manage and dispose of. Bot alleged that the Excess Rock was unexpected and claimed for management and disposal costs.
Holding that the Excess Rock was not contemplated in the contract and that its quantity was unforeseeable at the time of tendering, the Arbitrator awarded Bot over $14 million in damages.
MTO appealed the award pursuant to section 45 of the Arbitration Act, 1991, SO 1991, c. 17, arguing that the Arbitrator disregarded evidence and contractual provisions showing that Excess Rock management was included in the contract price and erred in finding the Excess Rock unanticipated. Specifically, MTO maintained that the arbitrator failed to give meaning to a special provision referred as “Rock Spec” which is of higher precedence in the contract documents. MTO also argued that the Arbitrator failed to analyze over drilling by Bot’s subcontractor as the cause of Excess Rock and that the Arbitrator’s damage calculation was flawed due to an overstatement of the Excess Rock.
Decision
The Ontario Superior Court of Justice (SCJ) dismissed the appeal and upheld the award on both liability and calculation of damages. The SCJ held that questions of law attract a correctness standard, whereas all other findings are reviewable only for palpable and overriding error. It observed that the issues raised on this appeal are matters of mixed fact and law and, in the absence of an extricable question of law, they are subject to this latter standard.
The SCJ held that the Arbitrator correctly interpreted the contract, finding that the contract documents neither addressed nor anticipated the Excess Rock. The SCJ observed that the Arbitrator did not fail to consider the Rock Spec, rather he found that it addressed a smaller quantity of surplus rock than the Excess Rock and was silent on further amounts. Factually, having found no palpable and overriding errors, SCJ deferred to the Arbitrator’s findings as to the cause of Excess Rock. Lastly, on the issue of damages, the SCJ held that the calculation was based on actual cost of managing rather than unit costs and rejected the pro-rata reduction proposed by MTO.
Comments
This case highlights the importance of precise and comprehensive drafting in construction contracts. It illustrates that both arbitrators and reviewing courts will treat contractual silence as meaningful when applying the terms of the agreement to the facts in dispute. As such, where contract documents address only defined quantities of surplus material, the absence of provisions dealing with larger amounts may result in the financial responsibility for such excess being imposed on the owner.
On the standards of review for arbitral awards, SCJ’s approach emphasizes the well-established jurisprudence that appellate bodies must avoid reweighing the evidence assessed by the arbitrator. By emphasizing that judicial intervention is appropriate only where an error is both obvious and outcome‑determinative, the SCJ strengthens the finality and reliability of arbitration.
4- James and Farmhouse Investments Inc. v. Fuse Strategy Partners, 2025 ONSC 7209
Gabriella Swanson, Articling Student (Toronto)
The Applicants, the corporation Farmhouse Investments Inc. and its principal, Stephen James (“Farmhouse” and “Mr. James”), were business partners with the Respondent, Fuse Strategy Partners (“Fuse”), a firm specializing in pension management advice. At the center of the dispute is a partnership agreement (the “Agreement”) between the parties, which contained non-solicitation and confidentiality clauses. The Applicants withdrew from the partnership in November 2022, during which they allegedly solicited clients and used confidential information in violation of the Agreement. The Respondent initiated arbitration, as per the Agreement’s arbitration clause, alleging breaches of fiduciary duties and contractual obligations.
In September 2024, through arbitration the Applicants were found to have breached these duties and were ordered to pay damages to the Respondents as disgorgement of profits for breaches of fiduciary duty and contract in the amount of $2,214,192.74. The Applicants then appealed this award and sought to have the claim dismissed. The Agreement stipulated that arbitration would “finally resolved” disputes between parties. As such the key issue was whether the Applicants were permitted to seek an appeal under section 45(1) of the Arbitration Act when the Agreement implied that an arbitration decision would be final.
Decision
The court ruled that the arbitration clause in the Agreement barred any appeal, denying leave to appeal and granting the Respondent’s application to enforce the clause. The Agreement was clear that disputes would be “finally resolved” by arbitration, clearly excluding appeals. This aligns with contractual interpretation principles and the parties’ drafting intent to resolve disputes efficiently through arbitration. Despite this conclusion, the court did consider if there had been any significant errors of law during arbitration to protect against the miscarriage of justice. Ultimately, the court found that the Arbitrator evaluated the evidence appropriately and based the decision on proper legal principles, supporting the award to the Respondents. The Applicants did not demonstrate any significant errors of law. As such the court enforced the arbitration award under s. 50(3) of the Arbitration Act.
Comments
Des Rosiers J. noted in her reasons that the right to appeal is a cornerstone of our justice system, as it upholds procedural fairness and acknowledges the reality that decision-makers, being human, are capable of error. Denying the opportunity to appeal may risk perpetuating miscarriages of justice. That said, in this matter, both parties were sophisticated and had negotiated a detailed commercial partnership agreement, each represented by legal counsel during its drafting. Given this context and the clear, conclusive language of the arbitration clause, it is evident that the parties intended for disputes to be settled promptly and efficiently through arbitration. Interpreting the phrase “finally resolved” as anything less than conclusive would contradict fundamental contract law principles. The key takeaway for the construction industry and other sectors is to draft contractual terms with intention. What is written will bind you, whether to your advantage or not. While arbitration offers benefits, those wishing to retain a right to appeal must ensure the agreement is expressly drafted to preserve that right or agree on arbitration rules that includes a waiver of right of recourse, such as Article 35(6) of the ICC Rules of Arbitration.
5- Dependable Mechanical Systems Inc. v. Concord Adex Developments Corp., 2026 ONSC 21
Rita Taggar, Articling Student (Toronto)
This case concerns a motion brought by Concord Adex Developments Corp. (“Concord”) and Reliance Construction Toronto Inc. (“Reliance”) under s. 44(5) of the Construction Act seeking to reduce the lien security posted in connection with several claims for lien registered by Dependable Mechanical Systems Inc. (“DMSI”). While the parties had resolved earlier issues relating to subtrade claims and security for costs, the remaining dispute centered on whether the substantial cost‑escalation portions of DMSI’s liens on Block 22 and Block 15 had any reasonable basis. The court was required to address three issues: (1) whether DMSI gave sufficient contractual notice of delay‑related escalation costs; (2) whether DMSI waived its right to pursue escalation claims through a January 13, 2023 email promising not to seek further support beyond $9 million in Gratuitous Payment Agreements; and (3) whether there was any reasonable evidentiary foundation for the quantum of DMSI’s escalation claims.
DMSI performed mechanical work under fixed‑price subcontracts for several Concord condominium projects, including Block 22 and Block 15. These contracts prohibited price increases due to inflation and required written notice within seven working days of any delay giving rise to a claim. The projects experienced substantial delays, particularly Block 22, where the expected completion date shifted by more than two years. DMSI attributed significant increases in labour, materials, and equipment to these delays.
On October 27, 2022, DMSI emailed Concord explaining that progress on Blocks 22 and 15 was far behind schedule and that DMSI was incurring large cost overages. It warned that it could not continue without financial assistance. Discussions followed, supported by DMSI’s financial disclosure, which led Concord to provide $9 million in “gratuitous payments” across four projects. During these discussions, DMSI’s principal, Rajesh Ahuja, emailed on January 13, 2023, stating that DMSI would not seek additional escalation support beyond the $9 million. Concord later made the payments, and DMSI issued preferred shares as security.
Despite this, DMSI continued to experience financial strain. In 2024, Concord directly paid approximately $3.5 million to suppliers to keep the work progressing. Eventually, DMSI withdrew labour, and Concord terminated it from all projects. DMSI responded by registering multiple claims for lien, including over $28 million on Block 22 and more than $5.6 million on Block 15. Security was posted to vacate these liens. The moving parties sought to reduce that security by removing the escalation components, alleging DMSI lacked contractual notice, had waived its rights, and could not substantiate the claimed amounts.
Decision
The court dismissed the motion. On notice, the court found that the October 27, 2022 email could reasonably constitute written notice of delay and intent to seek compensation. While it did not specify all details, both sides were aware of significant project delays through numerous schedule updates. The moving parties did not establish when the delay giving rise to escalation commenced, making it inappropriate to conclude on this record that notice was untimely or inadequate.
Regarding the January 13, 2023 email, the court held that it was unclear whether the statement constituted a binding contractual promise or a waiver. The later Gratuitous Payment Agreements did not reference such a condition, and Concord’s subsequent conduct (particularly its additional escalation‑related payments in 2024) suggested it did not treat the email as a definitive bar to future claims. The effect of the email remained a factual issue requiring trial‑level analysis.
On quantum, although DMSI relied on a modified total‑cost approach and lacked tender documents, it supplied invoices for equipment and materials and provided labour‑hour information supported by applicable collective agreements. The moving parties submitted no expert evidence challenging causation or the methodology. The court emphasized that a motion under s. 44(5) is not a substitute for a lien trial and will not resolve complex factual disputes. The evidence did not clearly demonstrate that the lien was excessive or unfounded.
Comments
This decision underscores the high threshold required to reduce lien security under s. 44(5) of the Construction Act. The court will not resolve complex factual issues involving delay, causation, waiver, or quantitative analysis on such a motion. Unless the lien is plainly without foundation, security will not be reduced. The case also highlights the importance of formalizing any commitments relating to escalation, as informal statements made during financial negotiations may not preclude later claims unless clearly documented and consistently relied upon.
