In Sable Offshore Energy Inc v Ameron International Corp(1) the Supreme Court of Canada held that the settlement amounts contained in Pierringer agreements need not be disclosed to the remaining non-settling defendants in multi-party disputes. The decision in Sable is significant because the Supreme Court adopted a robust application of settlement privilege as it relates to the quantum of settlement. In order to qualify as an exception to settlement privilege, a party must demonstrate that the basis for disclosure outweighs the policy in support of promoting settlement.(2)
The plaintiff, an owner of gas processing facilities, commenced actions against several defendants for damages related to the paint system used for corrosion protection on its structures. The plaintiff entered into three Pierringer agreements, which left the non-settling defendants – Ameron International Corporation and Amercoat Canada – responsible only for their proportionate share of liability.
Pierringer-style settlement agreements originated in the United States and permit:
"one or more defendants in a multi-party proceeding to settle with the plaintiff and withdraw from the litigation, leaving the remaining defendants responsible only for the loss they actually caused. There is no joint liability with the settling defendants, but non-settling defendants may be jointly liable with each other."(3)
Although the terms of the Pierringer agreements were disclosed to Ameron and Amercoat, the settlement amounts were deliberately withheld. The plaintiff maintained that the quantum of settlement was subject to settlement privilege. The non-settling defendants filed an application to compel disclosure of the amounts paid under the partial settlement arrangements. The chambers judge dismissed the application and concluded that the public interest supported keeping the settlement amounts confidential. The Nova Scotia Court of Appeal overturned the decision of the chambers judge and ordered that the settlement amounts be disclosed as they could affect the amounts otherwise payable by the non-settling defendants.
The issue before the Supreme Court was whether the amount of money paid by the settling defendants should be disclosed to Ameron and Amercoat, or whether the amounts were subject to settlement privilege. Justice Abella, writing on behalf of the court, determined that the settlement amounts were protected by settlement privilege and therefore did not have to be revealed to the non-settling defendants.
Settlement privilege promotes the mutually acceptable resolution of disputes. Settlement preserves judicial resources and avoids the prohibitive cost and uncertainty of litigation. In general, these are desirable public policy objectives. Settlement negotiations will be more productive if the parties operate under the knowledge that their discussions cannot subsequently be disclosed.
The court referred to the House of Lords' decision in Rush & Tompkins Ltd v Greater London Council(4) for the following propositions:
"First, although the privilege is often referred to as the rule about 'without prejudice' communications, those precise words are not required to invoke the privilege. What matters instead is the intent of the parties to settle the action... Any negotiations undertaken with this purpose are inadmissible."(5)
"although most cases considering the 'without prejudice' rule have dealt with the admissibility of communications once negotiations have failed, the rationale of promoting settlement is no less applicable if an agreement is actually reached."(6)
The court also cited Brown v Cape Breton (Regional Municipality),(7) which underscored the notion that a principled approach to the law of settlement privilege does not merit a distinction between settlement negotiations and the settlement itself.(8) In other words, the content of successful negotiations is within the scope of settlement privilege.
However, the court acknowledged that there are exceptions to settlement privilege where:
"a competing public interest outweighs the public interest in encouraging settlement... These countervailing interests have been found to include allegations of misrepresentation, fraud or undue influence... and preventing a plaintiff from being overcompensated."(9)
The non-settling defendants argued that knowledge of the settlement amounts was required for them to conduct their litigation. The court determined that "no tangible prejudice [was] created by withholding the amounts of the settlements which can be said to outweigh the public interest in promoting settlements".(10) In fact, the non-settling defendants received all of the non-financial terms of the Pierringer agreements at issue. They had access to the relevant documents in the possession of the settling defendants and obtained assurance that they would not be held liable for more than their proportionate share of damages. Furthermore, the plaintiff agreed to disclose the settlement amounts at the end of the trial so that the non-settling defendants had the opportunity to establish a right to set-off once liability had been determined.
The non-settling defendants did not require information about the settlement amounts in order to present their case. Although knowledge of the amounts might have allowed the non-settling defendants to reconsider the cost of litigation, that alone did not serve to displace the interest in fostering settlements.(11) In the context of a multi-party dispute, for example, the prospect of an initial or partial settlement decreases if the quantum is disclosable. The court recognised that:
"[s]omeone has to go first, and encouraging that first settlement in multi-party 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."(12)
The Supreme Court's decision in Sable demonstrates that settlement amounts contained in Pierringer agreements are subject to settlement privilege. An exception to the privilege may be appropriate in situations involving misrepresentation, fraud or undue influence, or where necessary to prevent a claimant from receiving over-compensation. In any event:
"[a] proper analysis of a claim for an exception to settlement privilege does not simply ask whether the non-settling defendants derive some tactical advantage from disclosure, but whether the reason for disclosure outweighs the policy in favour of promoting settlement."(13)
For further information on this topic please contact Norm Emblem or Ara Basmadjian at Dentons Canada LLP by telephone (+1 416 863 4511), fax (+1 416 863 4592) or email (email@example.com or firstname.lastname@example.org).
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