On June 21, the Supreme Court of Canada confirmed that settlement privilege plays an important role in the promotion of out-of-court settlements and should not be interfered with lightly. At issue in Sable Offshore Energy Inc. v Amercon International Corp.1 was whether the dollar amounts of partial settlements in multi-party litigation should be disclosed to non-settling defendants. The court unanimously held that the information was privileged and should not be disclosed.
Sable Offshore Energy Inc. is the owner of several offshore structures and onshore gas processing facilities in Nova Scotia. Alleging that the paint used on its structures had failed to prevent corrosion, Sable brought lawsuits against various contractors, suppliers and insurers. Sable’s lawsuits against a number of defendants were settled pursuant to so-called Pierringer2 agreements. In accordance with these agreements, the settling defendants withdrew from the litigation, leaving the non-settling defendants responsible for their own share of liability only. The terms of the Pierringer agreements – with the exception of the settlement amounts – were disclosed to the non-settling defendants.
A non-settling defendant brought an application seeking disclosure of the settlement amounts. Although the Nova Scotia Supreme Court dismissed the application, an appeal to the Nova Scotia Court of Appeal was allowed. According to the Court of Appeal, the settlement amounts were relevant and disclosure was necessary to protect the non-settling defendants’ fundamental right to know the case to meet. The Supreme Court of Canada disagreed and reversed the Court of Appeal’s judgment.
The Supreme Court of Canada, per Abella J., recognized that settlement privilege – which covers communications entered into between parties with the intent to settle litigation – plays an important role in encouraging settlements. The court further confirmed that the privilege applies with equal force to successful and unsuccessful settlement negotiations. Since the amount of a settlement is a key component of successful negotiations, it necessarily falls within the scope of the privilege.
The court further confirmed that settlement privilege is a class privilege that gives rise to a presumption of inadmissibility. Settlement privilege is not, however, absolute and the presumption of inadmissibility may be displaced by showing that a competing public interest in disclosure outweighs the public interest in encouraging settlement. In the court’s view, the non-settling defendants had failed to raise anything beyond a tactical interest in disclosure. Of significance to the court was the fact that, in its view, the Pierringer agreements preserved the non-settling defendants’ substantive and procedural rights. In particular, the non-settling defendants would have access to relevant documents and evidence in possession of the settling defendants. Pursuant to the agreements, the non-settling defendants’ liability would be several rather than joint, and limited to their actual share of the loss. Finally, to guard against the risk of overcompensation, Sable agreed to disclose the settlement amounts to the trial judge after a finding of liability.
The judgment in Sable Offshore Energy Inc. v Amercon International Corp. reinforces settlement privilege in Canadian law. In view of the critical importance of settlements to the effective administration of justice, a party seeking access to information protected by settlement privilege must point to some overriding public interest in disclosure. Mere assertion, without cogent demonstration, of an interference with a party’s rights is unlikely to suffice.