Partial Settlements in Construction Disputes: What the End of the Handley Rule Means for Construction Litigants

Partial settlements are frequently used to narrow those disputes. A contractor may settle with a subcontractor, but not the owner. An owner may resolve claims against one project participant while continuing to pursue others. These agreements can significantly alter the course of a lawsuit.

Until recently, these settlements also carried a serious risk. Under Ontario’s long-standing “Handley Rule,” a failure to promptly disclose these partial settlements could result in a stay of the party’s claims, effectively barring the party from pursuing them, regardless of whether the failure to disclose caused any actual prejudice.

In 1086289 Ontario Inc. (Urban Electrical Contractors) v. Welland (City), 2026 ONCA 352 (“Welland”), the Court of Appeal overturned that rule and replaced the automatic stay with a more flexible approach that gives judges greater discretion when disclosure obligations are missed.

For anyone navigating multi-party Construction Act disputes, the shift delivers much-needed procedural fairness, but it also brings strict new compliance rules the industry cannot afford to ignore.

Here’s what contractors and construction professionals need to know.

From Automatic Stays to a More Flexible Approach

For eight years, Handley Estate made the failure to promptly disclose a partial settlement agreement potentially fatal to a party’s remaining claims. It did not matter whether the delay was inadvertent or whether the non-settling parties suffered any prejudice. The only remedy available was a stay of the settling party’s remaining claims.

Now, a stay remains available, but is reserved for only the "clearest of cases" where the prejudice to another party, or to the integrity of the justice system, cannot be addressed through a less severe remedy.

At the same time, disclosure obligations have become more clearly defined. Rule 49.14 of the Rules of Civil Procedure now requires qualifying partial settlement agreements to be disclosed within seven days.

Where that deadline is missed, courts are no longer limited to a single remedy. Depending on the circumstances, they may impose:

• cost consequences;
• additional documentary production;
• further examinations for discovery;
• restrictions on evidence; or
• in serious cases, a stay of proceedings.

The result is a more proportionate approach. Judges can now tailor remedies to the circumstances of each case rather than imposing the same outcome in every situation.

The Welland Construction Dispute

Not every partial settlement agreement triggers a disclosure obligation. The key question is whether the settlement changes the parties’ positions in the litigation. The Welland appeal provides a useful example.

The dispute arose from a construction project completed in preparation for the 2022 Canada Summer Games. Like many construction disputes, the litigation involved multiple project participants, including the owner, the architect, the general contractor and a subcontractor.

The City of Welland reached settlement agreements with the contractor and subcontractor while continuing to pursue claims against the project's architect, RDH. The agreements were not disclosed to RDH for approximately one month. Under the previous Handley framework, that delay may have prevented the City from continuing its claims. The Court of Appeal reached a different conclusion. It found that the settlement agreements did not materially change the parties' positions in the litigation because the City and the settling parties had already been advancing claims against RDH before the settlements were reached. In other words, the settlements did not fundamentally alter who was aligned against whom in the litigation.

What This Means for Construction Act Litigation

For parties involved in Construction Act litigation, the recent decision shifts the focus away from technical non-compliance and toward actual prejudice. Courts now have greater flexibility to respond proportionately when disclosure obligations are missed.

That does not mean parties can afford to be complacent. Rule 49.14 imposes a strict seven-day disclosure deadline, and courts retain an improved ability to impose meaningful procedural and financial consequences where parties fail to promptly disclose the existence of partial settlement agreements to all parties involved in the legal proceeding.

The Bottom Line

Partial settlements remain an important tool in complex construction disputes, but parties cannot lose sight of the disclosure obligations that accompany them.

While the Ontario Court of Appeal has moved away from the rigid Handley Rule, parties that fail to comply with their disclosure obligations may still face significant procedural and financial consequences.

Contractors, owners and suppliers involved in multi-party Construction Act proceedings should ensure settlement agreements are reviewed promptly and any disclosure obligations are addressed without delay.

HOW WE CAN HELP

RAR Litigation regularly advises owners, general contractors, subcontractors, suppliers and consultants involved in complex Construction Act disputes, including lien actions, breach of trust claims, delay disputes and other forms of multi-party litigation. Our team can help assess settlement strategies, manage disclosure obligations and navigate litigation risk at every stage of a dispute.

Contact us for strategic advice, risk assessment, and litigation representation.