A major concern for the legal profession in Canada today is access to justice. More and more there is unequal access to the justice system with the poorest people suffering the most from rising legal costs. Any measures that may counteract this trend are welcome. The recent Supreme Court of Canada (SCC) decision in Sable Offshore Energy Inc. v. Ameron Interantional Corp., 2013 SCC 37 (Sable) is step in the right direction.

Background

Sable Offshore Energy Inc. (Sable) is an oil company with onshore and offshore facilities in Nova Scotia. It purchased protective paint and hired contractors to apply the paint to the surface of these facilities. The paint failed to prevent corrosion as promised, and Sable brought three lawsuits against several defendants. The lawsuit that is subject to this appeal was against the supplier of the paint as well as twelve other contractors and applicators responsible for applying the paint coatings. Sable was alleging negligence, negligent misrepresentation, and breach of collateral warranty.

One of the defendants settled with Sable and entered into a Pierrenger Agreement (the “Agreement” - named for the 1963 Wisconsin case of Pierringer v Hoger, 124 NW 2d 106 (Wis. 1963)). Effectively the Agreement released the settling defendant from all liability in return for a settlement amount. The terms of the Agreement insured that the remaining non-settling defendants, if found liable, would only be liable in proportion to the damage they actually caused. Sable amended its statement of claim against the non-settling defendants to reflect this change. The Agreement also provided that all the relevant evidence in the possession of the settling defendants would be given to the plaintiffs and be discoverable by the non-settling defendants; however the final negotiated settlement amount would not be disclosed.

The non-settling defendants applied for disclosure of the settlement amounts. Sable claimed the amounts were subject to settlement privilege. The trial judge found that the non-settling defendants were not entitled to disclosure of this information, however the decision was overturned by the Court of Appeal which ordered the amounts disclosed. Sable appealed to the SCC.

SCC’s Decision and Reasoning

The SCC’s analysis began with exploring the benefits of settlements. The SCC summarized these benefits citing Sparling v Southam Inc. (1988), 66 OR (2d) 225 (HCJ) (at para. 11):

“[The settlement of lawsuits] promotes the interest of litigants generally by saving them the expense of trial of disputed issues, and it reduces the strain upon an already overburdened provincial Court system” [p. 230].

Settlement privilege has its roots in the common law rule that “without privilege” communications made in the course of settlement negotiations are inadmissible. As the SCC pointed out (at para.13), “[t]he settlement privilege created by the ‘without prejudice’ rule was based on the understanding that parties will be more likely to settle if they have confidence from the outset that their negotiations will not be disclosed”. Open negotiations are more effective than negotiations where each side is unwilling to share information for fear of reprisal.

The SCC pointed to the decision in Rush v Tompkins Ltd. v Greater London Council, [1988] 3 All ER 737 (HL) which confirmed that “settlement privilege extends documents and communications expressly designated to be ‘without privilege’ [and] is no less applicable if a decision is reached” (at paras. 14-15). Furthermore, the SCC endorsed the view that settlement privilege “did not justify a distinction between settlement negotiations and what was ultimately negotiated” and “[s]ince the negotiated amount is a key component of the ‘content of successful negotiations’[…]it too is protected by the privilege (at paras. 17-18).

It was acknowledged by the SCC that there are exceptions to settlement privilege: a defendant must be able to show that a competing public interest outweighs the public interest in encouraging settlement (at para. 19). In other words, “the reason for disclosure [must] outweigh the policy in favour of promoting settlement” (at para. 30).

In this case the non-settling defendants argued that they needed the settlement amounts to effectively present their case. They also argued that refusing disclosure impedes their own settlement initiatives since they are more likely to settle if they know the settlement amounts already negotiated. The Court rejected these arguments for the following reasons (at paras. 27-28):

  1. The non-settling defendants remain fully aware of the claims they must defend against and the overall amount that the Plaintiff was seeking;
  2. The interest in subsequent settlement does no outweigh the public interest in encouraging the initial settlement, but the likelihood of an initial settlement decreases if the amount is disclosable.

Conclusion

There is an overriding public interest in favour of maintaining settlement privilege that promotes negotiated settlements. By maintaining and endorsing settlement privilege the SCC is encouraging more efficient and less costly settlement of disputes, thus improving access to justice for all Canadians. This decisions was certainly a small but nonetheless important step in the right direction to a more effective, more efficient and less costly justice system in Canada.