Executive Summary: Key Legal and Evidentiary Issues

• Plaintiff delayed disclosure of settlement agreements with three co-Defendants who became cooperating witnesses.

• Non-disclosure violated the rule from Handley Estate and related cases, which require immediate disclosure of agreements changing adversarial positions.

• Court found the delay constituted an abuse of process and ordered a permanent stay of the action.

• Castillo also argued that digital documents seized under an Anton Piller Order were inaccessible and lacked crucial metadata.

• Court acknowledged the production issue but deemed it moot due to the stay being granted.

• Castillo was awarded partial indemnity costs of $45,000, not full indemnity, due to absence of Plaintiff malintent and prior cost orders.

Background and key allegations

On July 4, 2024, Peninsula Employment Services Ltd. initiated litigation against Marc Castillo, his firm Castillo HR Consulting Inc., and other parties, alleging misappropriation of intellectual property and a conspiracy to misuse confidential materials. The Plaintiff secured an Anton Piller Order ex parte, allowing it to seize digital evidence from Castillo’s residence in British Columbia. Justice Brownstone issued the order and appointed Cassels Brock & Blackwell LLP as the Independent Supervising Solicitor (ISS) to manage the seizure process.

Settlement agreements and delay in disclosure

Between September 12 and 24, 2024, the Plaintiff entered into settlement agreements with Defendants Anita Crawford, Erika Saclayan, and Nikki Mathews. Each agreed to cooperate with the Plaintiff by producing documents, swearing affidavits, and testifying without summons. Despite this, Peninsula did not immediately disclose these agreements to Castillo. The Crawford settlement was disclosed eight days after execution; the Saclayan and Mathews settlements were disclosed twelve days after.

Castillo argued that these settlements transformed the co-Defendants from adversaries into cooperating witnesses, significantly altering the litigation dynamics. He moved for a stay of proceedings, citing breach of the disclosure obligation under Handley Estate v. DTE Industries Limited and related authorities. The Court confirmed that disclosure of such agreements must be made immediately upon execution, regardless of whether prejudice is proven.

Court’s analysis and stay of proceedings

Justice Morgan found the Plaintiff’s delay in disclosure to be a clear breach of procedural fairness. He emphasized that the agreements required full and immediate disclosure because they changed the adversarial posture of the parties. The failure to disclose deprived Castillo of the opportunity to assess his position and strategy. Citing the Court of Appeal’s zero-tolerance approach, the Court concluded that the only appropriate remedy was a permanent stay of proceedings. The Court noted that while there was no evidence of malintent, the timing alone was sufficient to establish abuse of process.

Secondary issue: anton piller production concerns

As an alternative to the stay motion, Castillo sought further and better production of approximately 1 to 4 million seized documents. He argued that the ISS had failed to deliver the files in a readable format, specifically excluding metadata essential to verifying document origin and use. The Court acknowledged that the ISS had not complied with its disclosure duties under Justice Brownstone’s order. However, since the action was stayed, no direction was issued beyond observing that full, readable access, including metadata, would have been required.

Costs decision and outcome

After the stay, Castillo sought $201,398.29 in costs. Justice Morgan declined to revisit the earlier cost-sharing arrangement tied to the Anton Piller Order and Comeback Order. He also noted that only half of the recent motion pertained to the successful stay argument, while the rest concerned moot disclosure issues. The Court awarded Castillo $45,000 in partial indemnity costs, rejecting a substantial indemnity award due to the absence of bad faith by the Plaintiff and recognizing that the stay itself was a sufficient sanction for the disclosure failure.

Conclusion

The Ontario Superior Court of Justice permanently stayed the action due to delayed disclosure of cooperation agreements with former co-Defendants. The case highlights the strict enforcement of procedural fairness rules governing settlement disclosures and affirms the court’s commitment to transparency and integrity in litigation. While production issues related to digital evidence were noted, they became irrelevant in light of the stay. The Court’s cost ruling balanced procedural sanctions with considerations of fairness and proportionality.