On January 29, 2016, the Supreme Court of British Columbia issued reasons for judgment in Northwest Waste Solutions v. Accili, 2016 BCSC 115. The case provides important guidance to litigants in multi-party litigation where a plaintiff has agreed to cap or limit a defendant's liability, but the defendant remains a party to the action while the plaintiff focuses its efforts on the other defendants. These types of arrangements, often called "Mary Carter-type" agreements, have been the subject of much judicial commentary in British Columbia and elsewhere in Canada.
In this case, the plaintiff had commenced legal proceedings against Super Save Disposal Inc. ("Super Save") and several individual defendants, all of whom were former employees of the plaintiff. The plaintiff alleged that Super Save had induced the employees to breach their employment contracts with the plaintiff. After the litigation was commenced, one of the individual defendants, Michael Lamb, commenced employment with another company controlled by the plaintiff. The plaintiff agreed that it would pay Mr. Lamb's legal costs of defending the action and would not enforce any judgment against Mr. Lamb. The plaintiff did not immediately disclose the existence of this arrangement to the other defendants. When Super Save became aware of the arrangement, it brought an application to strike the plaintiff's Notice of Civil Claim on the basis of non-disclosure of the arrangement.
Super Save relied on a decision of the Ontario Court of Appeal which expressed in the strongest terms the obligation to disclose arrangements of this nature, as they "change the landscape of the litigation" and may jeopardize a fair trial. Super Save alleged that the failure to disclose the arrangement immediately amounted to an abuse of process.
The plaintiff conceded that the agreement should have been disclosed immediately after it was made. The issue before the judge, therefore, was the appropriate remedy. The plaintiff submitted that dismissal of its action was not an appropriate sanction in the circumstances, as plaintiff's counsel had taken responsibility for the failure to disclose and the failure was not deliberate but rather resulted from a misapprehension of the law on the part of plaintiff's counsel. In addition, the agreement in this case did not contain any evidentiary agreements which might have distorted the evidence at trial, and minutes of Mr. Lamb's evidence had been provided so that all parties were on an equal evidentiary footing.
Mr. Justice Affleck accepted that the plaintiff's failure to disclose was made based on an honest belief by plaintiff's counsel that there was no obligation to disclose. He also found that there was no irreparable prejudice to Super Save's ability to defend the action. Accordingly, he declined to strike out the plaintiff's action.
Despite the outcome, the decision underlines that the British Columbia Courts have clearly accepted the principle that the parties to a Mary Carter-type agreement have an immediate obligation to disclose it to the non-settling parties. In another case, the Court might very well conclude that the remedy of striking the action entirely is justified. Where plaintiffs enter into such agreements, they are well-advised to ensure that disclosure of the agreement is made immediately upon its conclusion so that there can be no suggestion that the right to a fair trial has been irredeemably prejudiced.
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.
