Canada: Supreme Court Clarifies Financial Terms Need Not Be Disclosed In Partial Settlements Of Multi-Party Litigation

In its June 21, 2013 decision in Sable Offshore Energy Inc. v. Ameron International Corp., 2013 SCC 37, the Supreme Court of Canada clarified that the financial terms in partial settlements of multi-party litigation need not be disclosed to the non-settling parties who remain in the litigation, absent exceptional circumstances. The decision provides much needed clarification of the scope of settlement privilege, and further underscores the importance the Court places on facilitating early resolution of disputes in a busy and often overburdened judicial system.

In Sable Offshore Energy (Sable), the plaintiff sued multiple defendants who had supplied it with paint intended to prevent corrosion of Sable's offshore facilities. Sable subsequently entered into a "Pierringer Agreement" with some of the defendants. A Pierringer Agreement is a form of arrangement that permits a plaintiff to settle with some defendants in multi-party litigation where a settlement cannot be reached with all. The settling defendants are then able to extricate themselves from the litigation. Non-settling defendants are protected by having their potential liability expressly limited to their proportionate share, and by continuing to have access to the settling defendants' evidence. Yet prior to the Supreme Court's decision, there had been conflicting case law from lower courts as to whether non-settling defendants were entitled to know the dollar amount of the settlements with the settling defendants.

The Supreme Court unanimously held that the financial terms of the settlement need not be disclosed, absent exceptional circumstances. It clarified that the doctrine of "settlement privilege", which protects from disclosure documents and concessions made during settlement discussions, applies not just to the negotiation stage but to the terms of the settlement itself. The rationale for the privilege is that parties will be more likely to settle if they have confidence from the outset that their negotiations will not be disclosed. In doing so, the Court noted that early resolution of litigation is always to be encouraged, in order to facilitate parties resolving disputes on their own terms rather than adding to the load of an already overburdened court system.

The Court accepted that departures from this general protection may be warranted in exceptional situations where the interest in promoting settlement is outweighed by some other public interest. These countervailing instances may include allegations of misrepresentation, fraud or undue influence, and  preventing a plaintiff from being overcompensated. However, the Court held that in the majority of cases, the ability of non-settling defendants to continue to fairly proceed with defending litigation would, at most, be marginally compromised by not knowing the settlement amounts.

With respect to Sable in particular, the Supreme Court held that there was no tangible prejudice created by withholding the amounts of the settlements since the court order approving the settlement included additional protections for the non-settling defendants. This included a requirement that the plaintiffs get production of all relevant evidence from the settling defendants and make this evidence available to the non-settling defendants on discovery and a requirement that, with respect to factual matters, there be no restrictions on the non-settling defendants' access to experts retained by the settling defendants.

This decision demonstrates that the Supreme Court is alive to the importance of encouraging settlement in multi-party litigation. It is also welcome news for defendants who may wish to extricate themselves early from complex, multi-party proceedings without risking the terms of settlement being made public.

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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