Construction disputes are often complex, and may involve a large number of defendants with greatly varying degrees of exposure. In this circumstance, "smaller players" with minimal exposure or parties who simply want the certainty of a negotiated settlement may wish to settle with the plaintiff, however other defendants may not want to do so. Over the years, the Courts have approved a variety of arrangements to encourage partial settlements in multi-party litigation. The most common of these is what is known in British Columbia as a "B.C. Ferry Agreement", and in Alberta and Ontario as a "Pierringer Agreement". Though the names are different, the basic structure of these agreements is the same.
In brief, a B.C. Ferry or Pierringer Agreement provides a mechanism for a plaintiff to settle claims against some, but not all, of the defendants, while preserving the plaintiff's right to pursue the non-settling defendants and at the same time insulating the settling defendants from being brought back into the litigation through third party proceedings. This type of agreement generally includes the following elements:
- The plaintiff accepts a defined sum in full satisfaction of its claim against one or more of the defendants;
- The plaintiff discontinues the action as against the settling defendants and gives a covenant not to sue the settling defendants;
- The liability of the settling and non-settling defendants is segregated through an amendment to the plaintiff's pleadings to waive any right to claim from the non-settling defendants any portion of damages that the Court might ultimately assign to the settling defendants at trial.
Once this type of agreement is implemented, the non-settling defendants are only jointly liable for their collective proportionate share of liability, and therefore they cannot assert claims for contribution and indemnity as against the settling defendants. Since the non-settling defendants cannot be required to pay more than their proportionate share of damages, the settling defendants are effectively insulated from being brought back into the litigation through third party claims.
Given the frequent use of these types of agreements in multi-party lawsuits, particularly construction claims, it is not surprising that there has been significant litigation over these agreements. A number of recent decisions have focused on the question of whether these agreements have to be disclosed to the other parties to the litigation, and if so, whether the requirement to disclose extends to disclosing the actual amounts paid by the settling defendants.
The Courts' answer to the first question has generally been "yes". In one of the leading cases on this issue, Amoco Canada Petroleum Co. v. Propak Systems Limited1, the Alberta Court of Appeal confirmed that partial settlement agreements in multi-party actions must be disclosed to all other parties to the litigation prior to trial, and that the terms of the agreement should also be disclosed to the Court.
The answer to the second question has proved more vexing. While Courts in Alberta and British Columbia have generally held that the actual settlement amounts were not relevant and thus not subject to disclosure, it was not until July 2013 that the Supreme Court of Canada provided a definitive answer. The Court's decision in Sable Offshore Energy Inc. v. Ameron International Corp.2 confirmed that, absent "exceptional circumstances", the amount the settling parties paid does not have to be disclosed to the remaining non-settling defendants.
In Sable, the plaintiff entered into a Pierringer agreement to settle the action against some, but not all, of the defendants, and disclosed the terms of settlement to the non-settling defendants but withheld the actual amounts paid. The nonsettling defendants took the position that they were entitled to know the amounts paid by the settling defendants, but Sable claimed settlement privilege over the information. The trial court sided with Sable, but the Nova Scotia Court of Appeal took the opposite view and ordered the amounts disclosed.
In ruling that the settlement amounts were privileged and did not have to be disclosed, the Supreme Court placed great emphasis on encouraging resolution of disputes before trial, and that the public interest in facilitating settlement outweighed any interest the non-settling defendants might have in learning the settlement amounts. In coming to its decision, the Court also confirmed that the "content of successful negotiations" is protected by settlement privilege and not subject to disclosure. While the Court held that settlement privilege may be displaced if some overriding public interest in disclosure is shown, this will likely only apply in very rare cases.
The decision by the Supreme Court in Sable brings some welcome certainty to this area of law. Plaintiffs and defendants in multi-party litigation can enter into settlement negotiations with the assurance that any financial arrangements they may make will not have to be disclosed to the other parties except in very narrow or unusual circumstances. This assurance of confidentiality is often a key requirement for successful settlement negotiations in complex cases.
1. 2001 ABCA 110
2. 2013 SCC 37
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