Introduction

In a recent case, a settlement agreement was concluded between the plaintiff and several defendants that were parties to the claim, which included an allocation of liability and the amount of damages. As a result, the claim against the settling defendants was dismissed.

The state, which was a co-defendant in the proceeding, decided not to participate in the settlement as it wished to proceed the litigation in court with the plaintiff. Since the remaining defendants were eliminated from the claim as a result of the settlement, the state filed a motion requesting permission to send a third-party notice to the settling defendants. The state's motion was declined by the district court and it appealed to the Supreme Court.

The Supreme Court determined that as the defendant had chosen not to participate in the settlement agreement, it was not entitled to send a third-party notice to the defendants that had settled the claim due to a lack of a cause of action as it was agreed in the settlement agreement that the plaintiff would claim only the damages relative to the remaining defendants' liability.

Facts

The plaintiff filed a claim against five defendants for compensation for the damages she had suffered as a result of a jet ski accident. The plaintiff and four of the five defendants (the settling defendants) had reached a settlement agreement. However, the fifth defendant – the state – did not agree to settle.

The parties to the settlement filed a motion to the court requesting to dismiss the claim against the settling defendants, after which the plaintiff would proceed with the claim only for the damages caused by the state.

Following the motion's submission, the state requested the court's leave to send a third-party notice to the settling defendants, despite the fact that the deadline to send the notice had elapsed.

The district court declined the state's motion and the state therefore filed a motion for leave to appeal with the Supreme Court.

The state argued that since the settling defendants had been struck out from the claim, it was entitled to file a notice against them. It further argued that under the circumstances the notice against them was justified.

On the other hand, the plaintiff and the settling defendants argued that the state's motion should be declined, as its sole purpose was to drag the settling defendants back into the claim. It was further argued that the implication of re-joining settling defendants may deter parties from reaching a settlement, as they will still face the risk of being brought back into the proceedings by means of a third-party notice.

Supreme Court decision

The Supreme Court declined the state's appeal, stating that the plaintiff had clarified that the proceedings against the state would relate only to the state's liability, and that any liability attributed to the settling defendants would be deducted. Hence, any judgment would take into account only the state's share in the damage. Therefore, the state would not bear any liability that exceeded its relative share and, as such, would not have any cause of action against the settling defendants.

Therefore, in a partial settlement between the two parties, while reserving the right of claim against additional parties, the plaintiff would be entitled to sue additional parties, as long as the share of any settling party was deducted from its claim. Subsequently, the settling defendant would be protected not only against the plaintiff's claim, but also against claims from the parties that had not settled.

The court further stated that by not recognising the option of partial settlements, parties would be deterred from reaching a settlement, as they would still be at risk of continuing litigation relating to the claim despite the settlement.

Therefore, the court concluded that as the settlement agreement guaranteed that the party which did not settle would not have a right of claim against the settling defendants, there was no justification to allow it to send them a third-party notice.

Comment

This judgment solves a problem often faced by parties to a tort claim, in which one co-defendant objects to a settlement offer and the negotiations are halted as the agreeing defendants fear being exposed as a third party by the objector. The courts – which consider settlements of claims as desirable for both parties and the courts – now have guidance from the Supreme Court, which is a binding instance, to prohibit objectors from frustrating claim settlements (even partially).

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