A Mary Carter agreement is a settlement agreement between a
plaintiff and defendant in which the defendant remains an active
party to the litigation and the claim also proceeds against other
parties. Since the defendant continues to participate in
the action, the appearance is conveyed that the defendant is still
liable to the plaintiff, contrary to the reality of the
settlement. For this reason courts have always insisted
that a Mary Carter agreement be immediately disclosed to all
parties. But what happens if it isn't?
The Ontario Court of Appeal faced that situation in this case.
The general contractor, Aecon, sued the owner, the City of
Brampton, for damages due to the delay in the construction
project. The City blamed the consultant for the
delay. The consultant blamed the sub-consultants.
Before the action was commenced, Aecon and the City settled
Aecon's claim on the basis that Aecon would only recover from
the City the amount that the City recovered from the
While the settlement was effectively made before the action was
commenced by Aecon against the City, it was reduced to writing the
day after that action was commenced. Once the action was
commenced, the City claimed over against the consultant and the
consultant claimed over against the sub-consultants.
Aecon and the City remained active parties in the litigation,
but the settlement agreement was not immediately disclosed to the
consultant or sub-consultants who only discovered it later through
other sources and demanded that it be produced.
The Court of Appeal held that the delay in the disclosure of the
settlement agreement amounted to an abuse of process, even though
the disclosure did occur before the affected parties were required
to plead. The agreement had only been produced several
months after its existence was discovered by the consultants and
when it was specifically requested.
The Court said that the only way for it to control its own
process, in order to ensure that Mary Carter agreements are
immediately produced, was to dismiss the City's claim
against the consultant and thereby the further claims by the
consultant against the sub-consultants. Permitting the
litigation to proceed without disclosure of the agreement rendered
"the process a sham and amounts to a failure of justice"
in the Court's view.
This decision is a reminder of the drastic remedies available to
the Courts if litigation is conducted unfairly. While
Mary Carter agreements are most often used in personal injury or
medical malpractice actions, they can also be used to settle
construction litigation. When they are, the parties must
be scrupulous to ensure that the agreement is immediately
disclosed. Otherwise, any further claims in the action
may well be dismissed.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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