Corporations can have the misfortune of being caught up in a hotly contested lawsuit by determined plaintiffs against well-funded defendants which are not interested in settlement but are seeking a final determination after a lengthy trial. The ongoing litigation can be a drain on the time, resources and energy of corporations which are peripheral to the main dispute, and have little to gain in the litigation.

Borden Ladner Gervais LLP has crafted a new settlement vehicle that caps the liability of the settling defendant and provides opportunities for it to get out of the litigation before trial. This settlement vehicle has been approved by the Superior Courts of Ontario and Quebec, in the context of an ongoing class action.

Various courts have declared an overriding public interest in encouraging the pre-trial settlement of civil lawsuits. The promotion of settlements is especially beneficial in complex, costly, multi-party litigation. The courts recognize that such litigation can only be resolved, or narrowed to a manageable number of issues and parties, through a series of partial settlements. This settlement vehicle is one way to do that.

Partial settlements have often used one of two settlement vehicles: the so-called “Mary Carter” settlement (named after an American case against a paint company) and “proportionate share” settlement agreements.

In a Mary Carter settlement, the settling defendant pays an agreed settlement amount, but remains in the lawsuit. Its liability is capped at the settlement amount. The settling defendant has the opportunity to claw back some of its settlement payment, if the liability of the non-settling, and now target, defendants exceeds an agreed amount. This vehicle may be unacceptable to a settling defendant. While it does offer the opportunity to the claw back of some of the settlement amount, it also requires the settling defendant to remain involved in the lawsuit. This can be a drain on its time, resources and funds.

In a proportionate share settlement, the settling defendant pays an agreed settlement amount and the lawsuit is dismissed against it, permitting it to leave the litigation. The plaintiff continues the lawsuit against the non-settling defendants, but only for their individual liabilities. The court must assess those individual liabilities. Usually, the remaining defendants argue that the settling defendant is the one responsible for the plaintiff’s loss. The plaintiff defends the conduct, and minimizes the role and responsibility, of the settling defendant. This vehicle offers a strategic advantage to the remaining defendants. It may therefore be unacceptable to the plaintiff.

The settlement vehicle recently negotiated by Borden Ladner Gervais responds to the settlement requirements of the plaintiff and settling defendant, and the perceived inadequacies of these conventional vehicles. The liability of the settling defendant is capped at the agreed settlement amount it pays. The settling defendant remains in the lawsuit only if one of the remaining defendants attempts to apportion fault against it. In that case, the settling defendant defends the lawsuit on the basis that the remaining defendants are responsible for the plaintiff’s loss. In other words, the ongoing participation of the settling defendant is limited to defending its own conduct, and that only if it the remaining defendants attempt to apportion liability against it. The settling defendant will leave the lawsuit if the remaining defendants do not try to apportion liability against it. The agreement therefore provides a settling defendant with a cap on liability, limited involvement in the ongoing lawsuit and the prospect of the complete dismissal of the lawsuit against it.

This settlement vehicle was negotiated in the context of a class action. The courts of Ontario and Quebec determined the settlement was fair, reasonable and in the best interests of the plaintiff class. This conclusion was based on several factors, including the early factual record, the factual and legal defences available to the settling defendant, the recommendations of a neutral mediator and the fact that settlement negotiations were hard fought and protracted.

The courts’ approval of this settlement vehicle demonstrates that the courts will not restrict their approval to traditional settlement forms, but are prepared to examine the detail of new settlement vehicles and exercise the overriding public interest in encouraging pre-trial settlement of complex, multi-party litigation.