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I. Overview
Multi-party civil litigation can give rise to a situation where one or more parties resolve their disputes by way of agreement, while the proceeding continues against those parties who have not settled. These “partial settlement agreements” are a routine feature of complex litigation.
Since 2018, Ontario courts had been bound by a strict rule established by the Court of Appeal – commonly referred to as the “Handley Estate Rule” – which required immediate disclosure of partial settlement agreements that changed the adversarial landscape of the litigation. Failing to disclose the partial settlement agreement promptly would result in an automatic stay of proceedings. The rule generated significant controversy, prompting the enactment of Rule 49.14 of the Rules of Civil Procedure, which came into force on June 16, 2025. However, questions remained about the interaction between the new rule and the Handley Estate Rule.
In a landmark decision released May 19, 2026, a five-judge panel of the Ontario Court of Appeal unanimously overturned the Handley Estate Rule.1 The Court found that “[t]he rule has proven to be unduly rigid, capable of producing disproportionate outcomes, and a source of uncertainty and satellite litigation. The continued application of this rule would impede the principled development of the law governing abuse of process.”2
II. The Former Handley Estate Rule
The rule stemming from the 2018 decision, Handley Estate v. DTE Industries Limited3, required that, where parties enter into a partial settlement agreement that changes the “adversarial landscape” of the litigation, the agreement must be disclosed immediately to the non-settling parties and to the court. Failure to do so was treated as an abuse of process. Prejudice did not need to be shown, and a stay of proceedings was the mandatory remedy to be imposed by the Court.
The entire proceeding would be stayed, no matter what the circumstances were, no matter whether anyone was actually harmed, and with no exceptions.
The Handley Estate Rule had been criticized widely for a few reasons:
- It was inflexible and disproportionate
The rule departed from the fundamental principles governing the doctrine of abuse of process, which requires a contextual and discretionary assessment directed to whether the impugned conduct results in unfairness, prejudice, oppression, or otherwise undermines the integrity of the administration of justice. The Handley Estate Rule, by contrast, mandated both a finding of abuse of process and the imposition of the most severe remedy, without regard to the circumstances of the case.4 - It did not require proof of harm
Under the Handley Estate Rule, the party seeking a stay did not need to prove that the failure to disclose had actually caused them any prejudice. - It became a tactical weapon
The Handley Estate Rule had become a “trap for the unwary” and a tool for those who would seek to take advantage of minor slips and inadvertent non-compliance. The rule’s sole focus on the plaintiff’s failure to disclose ignored broader issues of unfairness in the litigation, including the defendant’s own conduct.5 - It generated its own litigation
The Handley Estate Rule generated a host of unnecessary litigation. The Court of Appeal alone heard nearly a dozen cases dealing with the Handley rule between 2022 and 2024. In this way, the rule had done the exact opposite of securing “the just, most expeditious and least expensive determination of every civil proceeding on its merits.”6 - It created uncertainty
The obligation to disclose had been unclear, both in terms of what types of agreements triggered the disclosure obligation and, once triggered, what terms of the agreements needed to be disclosed.7
III. The Ontario Court of Appeal Decision
Against this backdrop, the Court of Appeal seized the opportunity presented by four grouped appeals to definitively resolve the status of the Handley Estate Rule. In 1086289 Ontario Inc. (Urban Electrical Contractors) v. Welland (City)(“Welland“), the Court overruled the Handley Estate Rule and restored the ordinary abuse of process principles to cases involving the non-disclosure of partial settlement agreements. The Court confirmed that Rule 49.14 is consistent with this revised common law approach. Under this framework, the determination of whether there has been an abuse of process, and the selection of an appropriate remedy, are matters for the informed discretion of the court, to be exercised in light of all of the relevant circumstances.8
This is a fundamental change. A stay of proceedings is no longer an automatic remedy. Courts must now look at the full picture and respond proportionately.
Courts must now apply the same two-step analysis that already existed under the abuse of process doctrine:
Step 1: Was there an abuse of process?
Neither the question of whether there has been an abuse of process, nor the question of remedy, is determined by categorical considerations. The question of whether there has been an abuse of process depends upon a host of factors, including the existence of prejudice, and the impact of the conduct on the repute of the justice system.9 The Court confirmed that, “[i]n the civil context, abuse of process can arise where there is re-litigation of issues, multiplicity of proceedings, vexatious conduct, abusive pleadings, or self-help remedies, to name a few examples.”10
Step 2: What remedy is appropriate?
Where an abuse of process is established, the remedy must be fashioned in accordance with the principle of proportionality. A stay of proceedings remains available, but only in the “clearest of cases”11, where the prejudice to a party or to the integrity of the judicial process is such that no lesser remedy would suffice. In other cases, courts retain the discretion to impose a range of remedies responsive to the circumstances.12
A range of remedies is now available, including orders for costs, further examinations for discovery, striking out evidence, adjourning a hearing, staying the proceedings, or making any other order that is just.13
i. Appeal Routes Clarified
The Court also provided important practical guidance on appeal routes under the new framework. Orders granting a stay of proceedings are final orders, appealable as of right to the Court of Appeal. By contrast, orders imposing remedies short of a stay, orders declining to grant a stay, and findings that Rule 49.14 has not been breached are generally interlocutory orders, appealable to the Divisional Court with leave.
IV. Application to the Individual Cases
The Court applied its new framework to the four grouped appeals, providing practical guidance on how the revised abuse of process analysis operates in different factual contexts.
In Welland, the settling parties delayed disclosure of a partial settlement agreement by approximately one month. The motion judge had refused a stay under the Handley Estate Rule, finding that the agreement did not significantly alter the litigation landscape. The Court of Appeal allowed the appeal and remitted the matter for a fresh hearing, as the motion had been argued entirely within the Handley Estate framework and the question of prejudice – now a central consideration – had never been addressed by the parties or the motion judge.14
In Evertz, the appellant settled with a co-defendant but disclosed the settlement agreement only in a piecemeal fashion over eight months, while making misleading representations to the court about the scope of the agreement’s terms. The Court of Appeal upheld the stay of proceedings, finding that the appellant’s misleading of the court, combined with the burden of unnecessary litigation and the unacceptable delay, was sufficient to ground a finding of abuse of process. The Court held that this was one of the “clearest of cases” warranting a stay, and that no lesser remedy would be appropriate given the severity of the misconduct.15
In Howran, the plaintiffs entered into a cooperation agreement with family member defendants in a motor vehicle accident case. The essential terms of the agreement had been shared with the non-settling defendant municipality as early as 2017, and the municipality was kept apprised of negotiations as they progressed. The Court of Appeal found that, in the absence of any prejudice or unfairness to the municipality, there was simply no basis to invoke the doctrine of abuse of process.16
In Thrive, the appellants failed to disclose a settlement agreement with one defendant for over a year. The motion judge found an abuse of process but expressly stated that a stay was “not the remedy that I would have imposed if I had any discretion to impose a different one.” The Court of Appeal allowed the appeal, set aside the stay, and remitted the matter to the motion judge for a discretionary assessment of the appropriate remedy, illustrating the proportionate, case-specific analysis that the new framework contemplates.17
V. Significance of the New Framework
This decision is significant for anyone involved in multi-party civil litigation in Ontario.
For plaintiffs and defendants alike, the risk of having an entire case wiped out due to an inadvertent disclosure delay is now greatly reduced.
For litigation strategy, parties entering partial settlements must still comply with clear disclosure obligations, but the consequences of imperfect compliance are now proportionate to the actual harm caused.
The law governing undisclosed partial settlement agreements is restored to a principled and flexible footing.
While the rigid consequences of the old Handley Estate Rule are gone, the obligation to disclose partial settlements remains very real. Parties should:
- Disclose partial settlement agreements promptly, within seven days of reaching agreement, or before taking any further step in the proceeding (whichever comes first), as required by Rule 49.14;
- Disclose all non-monetary terms of any settlement; and
- Seek legal advice before entering into any partial settlement in ongoing multi-party litigation.
Footnotes
1. 1086289 Ontario Inc. (Urban Electrical Contractors) v. Welland (City), 2026 ONCA 352 [Welland].
2. Welland, para 5.
3. 2018 ONCA 324.
4. Welland, para 4.
5. Welland, para 44.
6. Welland, para 45.
7. Welland, para 43.
8. Welland, para 6.
9. Welland, para 26.
10. Welland, para 24.
11. Welland, para 29.
12. Welland, para 166.
13. Welland, para 37.
14. Welland, paras 88 – 90.
15. Welland, paras 108 – 110.
16. Welland, paras 127 – 128.
17. Welland, paras 146 – 147.
The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.
© McMillan LLP 2025
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