The Supreme Court of Canada released its decision in Sable Offshore Energy Inc. v. Ameron International Corp., 2013 SCC 37 on June 21, 2013, concluding that financial terms of settlements need not be disclosed in multi-party cases. The unanimous decision written by Justice Abella provides guidance on the impact of “Pierringer Agreements” and confirms the importance of settlement privilege in encouraging out-of-court settlements.

THE FACTS AND JUDICIAL HISTORY

Sable sued a number of parties including suppliers and applicators of paint for its equipment, alleging that the paint had failed to prevent corrosion. Sable settled with all defendants except for two, Ameron and Amercoat. It entered into Pierringer Agreements with the settling defendants. Pierringer Agreements allow one or more defendants to settle with a plaintiff and withdraw from the litigation, leaving the remaining non-settling defendants (in this case Ameron and Amercoat) responsible only for their proportionate share of 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.

THE DECISION OF THE SUPREME COURT OF CANADA

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 stresses the importance of settlement privilege in promoting and achieving settlements. Settlement privilege protects communications made during the course of negotiations, regardless of whether or not a settlement is achieved. Parties to a lawsuit are more likely to settle if they know from the outset that their communications cannot be disclosed. The Supreme Court held that settlement privilege also applies to the amount negotiated in a settlement as this reflects the “admissions, offers and compromises made in the course of negotiations.”

The Supreme Court acknowledged that there are exceptions to settlement privilege. In some circumstances, it would be appropriate to disclose settlement amounts in Pierringer Agreements to non-settling defendants. 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, for instance in cases of fraud, misrepresentation, undue influence and where there is a risk of the plaintiff being overcompensated. In this last respect, the Supreme Court approves the notion that at the end of a trial against non-settling defendants, the settlement amount received should be disclosed to avoid any overpayment of the plaintiff’s damages. In this case, the Supreme Court was satisfied that there was no such overriding public interest. The non-settling defendants were aware of all the terms of the Pierringer Agreements, except the settlement amounts paid, had access to all the relevant documents and evidence in the possession of the settling defendants, and had assurance that they would only be held liable for their portion of the damages.

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. As the Supreme Court stated, “Someone has to go first,” and, with this decision, the Supreme Court is encouraging that first settlement in multi-party litigations. The decision also shows the Supreme Court’s preference for mechanisms designed to foster settlement.