Mary Carter Agreements in Ontario: What They Are, When Disclosure Is Required, and How Courts Respond

Date: June 8, 2026

The term "Mary Carter agreement" originates from a 1967 Florida case, but the arrangement it describes is a recognized and regulated part of Ontario litigation. When one defendant in a multi-party lawsuit settles with the plaintiff while remaining a party to the proceedings, with their financial exposure linked to the outcome for the non-settling defendants, the result is a hidden shift in the alignment of the parties that Ontario courts have addressed directly.

The leading Ontario authority is Pettey v. Avis Car Inc., 1993 CanLII 8669 (ON CTGD), a decision of the Ontario Court General Division that remains the primary Canadian precedent on Mary Carter agreements. This article explains what Mary Carter agreements are, what Pettey decided, what disclosure is required, and the strategic implications for plaintiffs and defendants in Ontario commercial litigation.

The Ontario rule
Mary Carter agreements are not void in Ontario, but they require immediate mandatory disclosure to the court and all parties. Courts have broad discretion to impose procedural safeguards to prevent distortion of the trial process.

The terms of the agreement, excluding the dollar amounts and gratuitous self-serving language, must be disclosed as soon as the agreement is made. Disclosure of the monetary amounts is within the court's discretion. The Law Society of Ontario's Rules of Professional Conduct independently require lawyers to disclose these arrangements immediately.

What is a Mary Carter agreement?

A Mary Carter agreement is a partial settlement in multi-party litigation with four defining features, as identified in Pettey drawing on American case law:

  • The settling defendant guarantees the plaintiff a minimum monetary recovery, capping their own maximum exposure at that amount
  • The settling defendant remains in the lawsuit as a named party rather than being dismissed
  • The settling defendant's net liability decreases in direct proportion to any increase in the non-settling defendants' liability
  • Traditionally, the agreement was kept secret from the other parties and the court

The financial structure of the agreement creates an immediate and significant conflict of interest. Because the settling defendant's net payment decreases as the other defendants' liability increases, the settling defendant has a direct financial incentive to see the plaintiff's damages assessed as high as possible and the non-settling defendants found as liable as possible. A party who started on the defence side of the case is now financially aligned with the plaintiff against their former co-defendants, while still appearing on the record as a defendant.

It is this hidden change in alignment that makes disclosure mandatory. The non-settling defendants are entitled to know that a co-defendant has effectively, if not formally, switched sides.

The Canadian precedent: Pettey v. Avis Car Inc. (1993)

Pettey v. Avis Car Inc., 1993 CanLII 8669 (ON CTGD)

The case arose from a serious motor vehicle accident in Barrhead, Alberta involving an Ontario couple on their honeymoon. There were five defendants: Avis Car Inc. (vehicle owner), Douglas Pettey (driver), Reuben Transport Ltd. (owner of the tractor trailer), Claude St. Yves (driver of the tractor trailer), and the Town of Barrhead. On the second day of trial, the plaintiffs entered into a Mary Carter agreement with Avis Car and Douglas Pettey. The remaining defendants immediately moved for a stay of proceedings on the grounds that the agreement was an abuse of process and void as against public policy.

Justice Ferrier dismissed the motion. The agreement was not void, but it required immediate disclosure and procedural safeguards. Because the settling defendants had a financial incentive to maximize the plaintiff's damages award, the court ordered that they could not cross-examine on quantum of damages without leave of the court. A sealed copy of the full agreement, including the dollar amounts, was filed as a court exhibit.

What Pettey decided

Justice Ferrier's decision established the following principles for Mary Carter agreements in Ontario, which remain authoritative:

Not automatically void Mary Carter agreements are not void as against public policy in Ontario and do not constitute champerty or maintenance. Each agreement must be assessed on its specific terms rather than condemned categorically.
Immediate disclosure required The agreement must be disclosed to all parties and to the court as soon as it is made, not at some later stage. Procedural fairness requires that the non-contracting defendants know immediately so they can adjust their litigation strategy and cross-examination.
Terms must be disclosed All terms of the agreement, except dollar amounts and gratuitous self-serving language, must be disclosed. The court must know the full structure of the arrangement to properly control its process.
Dollar amounts at court's discretion Whether the monetary amounts must also be disclosed is within the court's discretion. In Pettey, the court declined to review the dollar amounts but required a sealed copy to be filed as an exhibit available to the court if needed.
Procedural safeguards mandatory Courts must impose safeguards to prevent distortion of the trial. In Pettey, the settling defendants were prohibited from cross-examining on quantum of damages without leave, because the agreement gave them a financial incentive to inflate the damages award.
Professional conduct rules apply Commentary 4 to Rule 10 of the Law Society of Ontario's Rules of Professional Conduct independently requires lawyers to disclose these arrangements immediately. The Law Society specifically enacted this commentary to address Mary Carter agreements.
The Law Society of Ontario's Rules of Professional Conduct expressly require disclosure of Mary Carter agreements. Commentary 4 to Rule 10 states that a lawyer who has made or is party to an agreement whereby a plaintiff is guaranteed recovery notwithstanding the judgment of the court shall forthwith reveal the existence and particulars of the agreement to the court and to all parties. This is an independent professional obligation that exists alongside the court's procedural rules.

Why the financial structure creates unfairness without disclosure

The mechanical effect of a Mary Carter agreement's financial structure is worth understanding concretely, because it illustrates why the disclosure obligation is so important.

Justice Ferrier used a clear example in Pettey. Suppose the settling defendants guarantee the plaintiff $3 million. The court assesses damages at $6 million and apportions liability equally between the settling and non-settling defendants. The non-settling defendants pay $3 million. The settling defendants, having guaranteed $3 million, now recover $1.5 million from the plaintiff (their proportionate share of the $3 million paid by the non-settlers), leaving their net payment at $1.5 million rather than the full $3 million they guaranteed.

The higher the court's damages assessment, and the more liability attributed to the non-settling defendants, the lower the settling defendants' net exposure. This is why, without procedural safeguards, a settling defendant operating under a Mary Carter agreement has a financial incentive to present the most expansive possible case on damages and to press the hardest for findings of fault against their former co-defendants.

The non-settling defendants are conducting a trial against a party who appears to be on the other side of the table from the plaintiff but is in fact financially aligned with them. Without disclosure, they have no way to account for this in their litigation strategy, their cross-examination, or their settlement analysis.

Involved in multi-party litigation in Ontario or BC?

Whether you are a plaintiff considering a Mary Carter agreement, a non-settling defendant who has just learned about one, or a party assessing your disclosure obligations, Achkar Law can advise on your position and the procedural steps required.

Speak With a Commercial Litigator Or call us: 1-800-771-7882

Strategic considerations for plaintiffs and defendants

For plaintiffs considering a Mary Carter agreement

A Mary Carter agreement guarantees a minimum recovery while preserving the right to pursue larger damages against the remaining defendants. It also shifts the settling defendant's litigation resources toward supporting the plaintiff's case. The trade-off is that the arrangement must be disclosed immediately and the court will impose safeguards that constrain how the settling defendant can participate in the remaining proceedings. Counsel must be prepared for the procedural implications of disclosure before the agreement is signed.

For settling defendants

A Mary Carter agreement caps exposure while preserving cross-claims against co-defendants. The settling defendant retains an interest in the outcome and can continue pursuing indemnity against the non-settling defendants. However, the court will likely impose restrictions on examination rights, particularly on quantum of damages, because of the financial conflict of interest the agreement creates. The full terms of the arrangement will be disclosed to the court and all parties immediately.

For non-settling defendants

A non-settling defendant who discovers that a co-defendant has entered a Mary Carter agreement should seek immediate legal advice. The agreement fundamentally changes the dynamics of the proceeding: a party who appeared to be on the same side is now financially aligned with the plaintiff. The non-settling defendant may seek disclosure of the full terms, apply for procedural safeguards, and adjust their litigation strategy, cross-examination approach, and settlement analysis accordingly.

Disclosure timing and professional obligations

Disclosure must happen immediately upon the agreement being made, not at the next convenient procedural step. Lawyers have independent professional obligations under the Law Society of Ontario's Rules of Professional Conduct to make this disclosure. A failure to disclose promptly exposes the parties and their counsel to adverse cost awards, loss of credibility with the court, and potential professional discipline consequences.

Mary Carter agreements and Ontario's disclosure rules in context

The Pettey decision should be read alongside Ontario's broader framework of settlement disclosure obligations in multi-party litigation. The principle that a partial settlement which could alter the course of ongoing litigation must be disclosed immediately applies beyond Mary Carter agreements specifically. Any arrangement where a settling party remains in the proceedings and their interests have shifted must be disclosed to preserve the integrity of the adversarial process.

For a full treatment of settlement disclosure obligations in Ontario litigation, including the consequences of non-disclosure and how courts respond to withheld agreements, see our related guide on failure to disclose a settlement agreement during litigation.

Just learned a co-defendant has entered a settlement agreement while remaining in the litigation?

You are entitled to disclosure of the arrangement's terms immediately. If disclosure has not been made, you can bring a motion to compel it. The terms of the agreement will affect your litigation strategy, cross-examination rights, and settlement analysis. Get advice immediately.

Call: 1-800-771-7882 Speak With a Litigator

Practical takeaways

Mary Carter agreements are not void in Ontario. Pettey v. Avis Car Inc. confirmed they are valid provided they are disclosed immediately and the court imposes appropriate procedural safeguards.
The terms of a Mary Carter agreement must be disclosed to the court and all parties as soon as the agreement is made. Disclosure of the dollar amounts is at the court's discretion.
The Law Society of Ontario's Rules of Professional Conduct independently require lawyers to disclose Mary Carter arrangements. This is a professional conduct obligation, not just a procedural one.
Courts will impose procedural safeguards to address the financial conflict of interest the agreement creates. In Pettey, the settling defendants were prohibited from cross-examining on quantum of damages without leave of the court.
A non-settling defendant who discovers a co-defendant has entered a Mary Carter agreement should seek immediate legal advice. The arrangement changes the dynamics of the entire proceeding and must be factored into litigation strategy and settlement analysis.
Failure to disclose a Mary Carter agreement carries the same consequences as failing to disclose any material settlement in ongoing litigation: cost awards, loss of credibility, and potential dismissal of the proceedings.

Frequently asked questions

What is a Mary Carter agreement?

A Mary Carter agreement is a partial settlement in multi-party litigation where one defendant settles with the plaintiff but remains a named party. The settling defendant caps their financial exposure in exchange for an arrangement where their net liability decreases as the non-settling defendants' liability increases, giving them a financial incentive to see the non-settlers found liable and the plaintiff's damages assessed as high as possible. The name comes from a 1967 Florida case but the arrangement is recognized and governed by Ontario law.

Are Mary Carter agreements legal in Ontario?

Yes. In Pettey v. Avis Car Inc., 1993 CanLII 8669 (ON CTGD), the Ontario Court confirmed that Mary Carter agreements are not automatically void as against public policy and do not constitute champerty or maintenance. Each agreement is assessed on its specific terms. They are valid provided they are disclosed immediately and the court imposes appropriate procedural safeguards to prevent distortion of the trial process.

Does a Mary Carter agreement have to be disclosed in Ontario?

Yes, immediately. The terms of the agreement, except dollar amounts and gratuitous self-serving language, must be disclosed to all parties and to the court as soon as the agreement is made. Disclosure of the monetary amounts is within the court's discretion. The Law Society of Ontario's Rules of Professional Conduct also independently require lawyers to disclose these arrangements immediately upon their formation.

What procedural safeguards do Ontario courts impose?

Courts have broad discretion to impose safeguards to prevent distortion of the trial process. In Pettey, the settling defendants were prohibited from cross-examining on quantum of damages without leave of the court, because the agreement gave them a financial incentive to maximize the plaintiff's damages award. Courts may also reorder proceedings, adjust examination rights, and take other steps to preserve procedural fairness for the non-settling defendants.

What is the difference between a Mary Carter agreement and a regular settlement?

In a regular settlement, the settling defendant is dismissed from the proceeding entirely. In a Mary Carter agreement, the settling defendant remains a named party, continues to participate in the trial, and retains a financial interest in the outcome. This creates a hidden alignment between the plaintiff and the settling defendant that the non-settling defendants are entitled to know about, which is why immediate disclosure is required.

Involved in multi-party litigation where a partial settlement has been reached?

Whether you are a plaintiff considering a Mary Carter arrangement, a settling defendant assessing your disclosure obligations, or a non-settling defendant who has just learned about an agreement, the next steps require careful legal judgment. Achkar Law advises businesses, organizations, and individuals across Ontario and British Columbia on commercial litigation strategy, multi-party proceedings, and settlement disclosure obligations.

Call us at 1-800-771-7882 or fill out the form below and we will be in touch.