Introduction
A Pierringer agreement allows one or more defendants in a multiparty legal proceeding to settle with the plaintiff and withdraw from the litigation. This then leaves the remaining defendants responsible only for the losses they actually caused.
Fundamentally, a Pierringer agreement is a private contract between a plaintiff and one or more (but not all) of the defendants in an action. The agreement is designed to allow the defendants that are party to the Pierringer agreement (the settling defendants) to settle the plaintiff's claims against them and withdraw from the litigation.
There is no joint liability with the settling defendants, but non-settling defendants may be jointly liable with each other.1 The remaining defendants are left with their "proportionate share" of the damages. Hence Pierringer agreements can properly be characterized as a "proportionate share settlement agreement." 2
The Requirements of Pierringer Agreements as set out in Case Law
In Paragraph 14 of Amoco Canada Petroleum Co. v. Propak Systems Ltd., the Alberta Court of Appeal describes the elements of a Pierringer agreement:
[14] To the extent that a proportionate share settlement agreement completely removes the settling defendants from the suit, it is like a conventional settlement agreement that brings all outstanding issues between the settling parties to a conclusion. Proportionate share settlement agreements, therefore, typically include the following elements:
1. The plaintiff receives a payment from the settling defendants in full satisfaction of the plaintiff's claim against them;
2. In return, the settling defendants receive from the plaintiff a promise to discontinue proceedings, effectively removing the settling defendants from the suit;
3. Subsequent amendments to the pleadings formally remove the settling defendants from the suit; and
4. The plaintiff then continues its suit against the non-settling defendants.3
Overcompensation Principle/Double Recovery
An important aspect to keep in mind is that a plaintiff who participates in an action where a Pierringer agreement is involved will not be able to be overcompensated by the settling and non-settling parties.
The Ontario Court of Appeal decision of Louden v. Roberts brought this practice to a halt. The Ontario Court of Appeal found that the amount of a settlement is deducted after trial from the verdict. The Court of Appeal found that the principles of double recovery prevent the claimant from recovering twice.4 The decision quoted from the UK decision of Bryanston Finance Ltd. v. de Vries, where Lord Denning stated:
The right solution nowadays is for any sum paid by one wrongdoer under the settlement to be taken into account when assessing damages against the other wrongdoer.5
Privilege/Disclosure
In Sable Offshore Energy Inc. v Ameron International, The Supreme Court of Canada was asked to consider whether the dollar amounts paid by the settling defendants under a Pierringer agreement must be disclosed.
The Court held that it need not be disclosed.6 The overriding policy consideration that persuaded the Supreme Court appears to have been the desire to promote settlement.
The Supreme Court of Canada determined that the settling defendant need not disclose the quantum of settlement to the non-settling defendant. Justice Abella of The Supreme Court of Canada wrote:
[27] It is, therefore, not clear to me how knowledge of the settlement amounts materially affects the ability of the non-settling defendants to know and present their case. The defendants remain fully aware of the claims they must defend themselves against and of the overall amount that Sable is seeking. It is true that knowing the settlement amounts might allow the defendants to revise their estimate of how much they want to invest in the case, but this, it seems to me, does not rise to a sufficient level of importance to displace the public interest in promoting settlements.
Justice Abella went on to explain:
[28] The non-settling defendants also argued that refusing disclosure impedes their own possible settlement initiatives since they are more likely to settle if they know the settlement amounts already negotiated. Perhaps. But they may also, depending on the amounts, arguably come to see them as a disincentive. In any event, theirs is essentially a circular argument that the interest in subsequent settlement outweighs the public interest in encouraging the initial settlement. But the likelihood of an initial settlement decreases if the amount is disclosable.
[29] Someone has to go first, and encouraging that first settlement in multiparty litigation is palpably worthy of more protection than the speculative assumption that others will only follow if they know the amount. The settling defendants, after all, were able to come to a negotiated amount without the benefit of a guiding settlement precedent. The non-settling defendants' position is no worse. As Smith J. noted in protecting the settlement amount from disclosure in Bioriginal Food & Science Corp. v. Gerspacher, 2012 SKQB 469 (Sask. QB):
... imperfect knowledge is virtually always the case in settlement negotiations. There are always knowns and known unknowns ... [para. 33].
In Sable, The Supreme Court of Canadaexplained that it was true that knowing the settlement amounts might allow the defendants to revise their estimate of how much they wanted to invest in the case, but this did not rise to a sufficient level of importance to displace the public interest in promoting settlements.
It is worth noting that in Moore v Burtuzzi, the Court explained that while settlement discussions are typically covered by settlement privilege, with Pierringer agreements, the settling parties are eventually obliged to disclose the existence of a settlement agreement where the agreement changes the adversarial orientation of the lawsuit or the court needs knowledge of the settlement in order to maintain the fairness of the process.7
The Settling Defendants No Longer Participate in the Action
Following the execution of a Pierringer agreement, the Settling Defendants have very little reason to continue to participate in the action. The lack of participation by the Settling Defendants may result in a procedural disadvantage for the non-settling defendants. To minimize this, protections for non-settling defendants can be incorporated into the agreement itself or imposed by way of a court order.
For example, in Sable, the Supreme Court of Canada highlighted that:
The court order approving the settlement required 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.8
Leading Case Law
The following paragraphs will discuss leading case law on the subject of Pierringer agreements.
Sable Offshore Energy Inc. v Ameron International
Sable remains the leading authority on Pierringer agreements. Sable sued a number of parties, including suppliers and applicators of paint, alleging that the paint had failed to prevent corrosion. Sable entered into a Pierringer agreement and settled with all defendants except for two, Ameron and Amercoat.
The Pierringer agreement left the remaining non-settling defendants responsible only for their proportionate share of the loss. All of the terms of the Pierringer Agreements were disclosed to the non-settling defendants, with the exception of the amounts paid by the settling defendants.
Sable agreed to disclose the settlement amounts to the trial judge once the liability of the non-settling defendants had been determined. The non-settling defendants applied for disclosure of the amounts paid by the settling defendants. The application for disclosure of the settlement amounts was initially dismissed by the lower court.
The Nova Scotia Court of Appeal reversed this decision and held that awareness of the settlement amounts was fundamental for the non-settling defendants to know the case they had to meet.
As discussed previously, the Supreme Court allowed Sable's appeal and held that the amounts paid by the settling defendants were subject to settlement privilege and could not be disclosed. The Supreme Court's decision stressed the importance of settlement privilege in promoting and achieving settlements.
The Supreme Court explained that in some circumstances, it would be appropriate to disclose settlement amounts in Pierringer Agreements to non-settling defendants. For example, a non-settling defendant seeking disclosure of settlement amounts must establish that there is a public interest in disclosing settlement amounts which overrides the public interest in promoting settlement.
The Supreme Court accepted that knowing settlement amounts where there is a partial settlement could provide a tactical advantage to non-settling defendants as this knowledge would permit non-settling defendants to consider how much they want to invest in a case. However, this tactical advantage did not outweigh the public interest in encouraging settlement.
Amoco Canada Petroleum Co. v. Propak Systems Ltd., 2001 ABCA 110
In Amoco Canada Petroleum Co. v. Propak Systems Ltd, the plaintiff brought an action against the defendants for damages for negligence and breach of contract. The defendants claimed contribution and indemnity from third, fourth, and fifth parties. The parties entered into a Pierringer Agreement to settle all claims between and among the parties except for matters of several liabilities of the defendant Propak Systems Ltd to the plaintiffs.
The Court of Appeal went on to discuss claims for contribution and indemnity from non-settling defendants and wrote:
15 There is, however, an added complication that a proportionate share settlement agreement must address. As a result of third-party proceedings, settling defendants are almost always subject to claims for contribution and indemnity from non-settling defendants for the amount of the plaintiff's loss alleged to be attributable to the fault of the settling defendants. Before the settling defendants can be released from the suit, some provision must be made to satisfy these claims.
16 This obstacle is overcome by including an indemnity clause in which the plaintiff covenants to indemnify the settling defendants for any portion of the damages that a court may determine to be attributable to their fault and for which the non-settling defendants would otherwise be liable due to the principle of joint and several liabilities. Alternatively, the plaintiff may covenant not to pursue the non-settling defendants for that portion of the liability that a court may determine to be attributable to the fault of the settling defendants. It is the latter approach that prevails in the agreement at issue in this suit, but in either case, the goal of the proportionate share settlement agreement is to limit the liability of the non-settling party to its several liabilities.
The Court of Appeal made reference to other Canadian cases in which proportionate share settlement agreements have been considered. The Court explained that these cases attempt to balance the right to settle against the right to pre-trial disclosure.
Amoco referred to a decision of the British Columbia Court of Appeal known as British Columbia Ferry Corp. v. T & N plc.9 There, the British Columbia Court of Appeal decided that the non-settling defendants could not maintain a claim for contribution or indemnity against third parties that had settled with the plaintiffs, pursuant to the terms of a proportionate share settlement agreement.
However, the Court allowed the non-settling defendants to maintain a claim for a declaration to determine the degree to which the plaintiff's damages were attributable to the settling defendants. The Court, therefore, permitted the action for declaratory relief to remain, keeping the settling defendants in the lawsuit for the purely procedural purpose of allowing the non-settling parties access to pre-trial procedural rights.
Amoco explained with regard to this BC Ferry decision that:
23 The court concluded that the non-settling defendants would be prejudiced in establishing the fault of the third parties and thus in maintaining their own defence if they did not retain the benefit of full pre-trial procedural rights against the settling parties: at 302. The decision is based on the proposition that it would be "manifestly wrong if a private accord between the plaintiff and third party could work to deprive a defendant of the ability to establish an element of proof essential to a just resolution of the action": at 302 (emphasis added).
24 The difficulty with the B.C. Ferry's approach is its emphasis on the potential prejudice a non-settling party might suffer. Indeed, it is likely that a non-settling party will always be able to allege some possible disadvantage when it remains as the sole target for liability after other parties abandon the litigation. That is true whether a partial settlement occurs during the course of litigation or even before an action is launched. The B.C. Ferry's approach would seem to permit an action for declaratory relief to be maintained for purely procedural purposes against anyone who settled, whether or not they were ever a named party to the litigation, and even though there was no possibility that they might be liable.
MacNeil v Kajetanowicz, 2019 NSCA 35
In MacNeil v Kajetanowicz, the plaintiff, through his litigation guardian, commenced an action against two hospitals and a neonatologist. The plaintiff settled with both hospitals in a Pierringer agreement before trial, and the neonatologist became the only defendant at trial.
The plaintiff's theory against the neonatologist did not depend on the fault of the settling defendants, whereas the neonatologists' defence theory relied on the failures of the hospitals (the settling defendants).
An issue that arose, in this case, was whether the plaintiff had the burden to prove the negligence of both hospitals (the settling defendants).
Despite the fact that the plaintiff settled with both hospitals, the trial judge instructed the jury that "the burden remains upon the plaintiff to prove that each of these settling hospitals is negligent." After this charge, the jury found the neonatologist was not negligent, and the trial judge dismissed the claim. The plaintiff appealed.
The Nova Scotia Court of Appeal explained that the trial judge erred in law by instructing the jury that the burden rested with the plaintiff. The Court of Appeal went on to conclude that the burden of proving negligence of the settling defendants was on the non-settling defendant, the neonatologist, not the plaintiff. As a result, the appeal was allowed, and a new trial was ordered.
As mentioned, the neonatologist's theory of defence rested "squarely" on alleging the negligence of both hospitals. The neonatologist became the party that asserted a proposition (i.e. that the hospitals were negligent in their treatment of the plaintiff), so the burden of proving the negligence of both hospitals transferred to him.
The decision explained that after a Pierringer Agreement settlement, the plaintiff's interest was to minimize the fault of the settling defendants and increase the apportionment of the fault for the non-settling defendants.
This decision made reference to Sable as well as an American article which provides an interesting discussion on his point. The Nova Scotia Court of Appeal wrote:
In Sable, Abella J. noted that the Canadian approach to Pierringer Agreements rests on American "foundations" and cited as authority Professor Knapp's article, "Keeping the Pierringer Promise: Fair Settlements and Fair Trials" (1994) 20 Wm. Mitchell L. Rev. 1. Professor Knapp's article, pp. 44-45, says:
Following a Pierringer settlement, a plaintiff no longer has any incentive to prove the settling defendant's fault. Recalling our hypothetical with the bowling plaintiff, assume that the plaintiff settles with the ball-return manufacturer. The jury will consider the manufacturer's fault in its special verdict, and the plaintiff has an interest in seeing that the percentage of fault allocated to the manufacturer is as small as possible...
Following the Pierringer settlement between the plaintiff and the ball return manufacturer, the bowling alley [the remaining defendant] has an incentive to prove the manufacturer's fault, and the bowling alley wants the jury to allocate as large a share of fault as possible to the manufacturer because this will work to reduce the bowling alley's own share of fault...
In other words, a Pierringer release does more than simply give the bowling alley owner the incentive to prove the fault of the manufacturer. The Pierringer settlement transfers to the remaining defendant the burden to prove the settling defendant's fault. If the remaining defendant fails to meet that burden, the trial court can direct a verdict against the settling defendant and strike that defendant's name from the special verdict list of parties to whom the jury will allocate fault.
Footnotes
1. Sable Offshore Energy Inc v Ameron International Corp, 2013 SCC 37.
2. Mary Carter and Pierringer Agreements: Characteristics, Differences, and Pitfalls 2014 J. Can. C. Construction Law. 43.
3. Amoco Canada Petroleum Co. v. Propak Systems Ltd., 2001 ABCA 110
4. Loudon v Roberts, 2009 ONCA 383
5. Bryanston Finance Ltd. v. de Vries, [1975] 2 All E.R. 609 (Eng. C.A.)
6. Sable Offshore Energy Inc. v Ameron International, 2013 SCC 37.
7. Moore v Burtuzzi, 2012 ONSC 3248.
8. Sable at para 24.
9. British Columbia Ferry Corp. v. T & N plc (1995), 27 C.C.L.T. (2d) 287 (B.C. C.A.).
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.
