The Supreme Court of Canada recently clarified the law with respect to the extent of disclosure that must be made in settling multi-party litigation.
In the case of Sable Offshore Energy Inc. v. Ameron International Corp. (2013 S.C.C. 37), the court unanimously held that the settling defendants in a "Pierringer Agreement" did not need to disclose the amounts that they had settled for the non-settling defendants.
In this case, Sable undertook an ocean project and built several offshore structures and onshore gas processing facilities in Nova Scotia. A number of defendants, including Ameron, supplied Sable with paint for parts of the Sable structures. Sable brought three law suits against Ameron and 12 other defendants, alleging that the paint failed to prevent corrosion.
Sable subsequently entered into three Pierringer Agreements with some of the defendants. A Pierringer Agreement allows 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. As part of the agreements, Sable agreed to amend its statement of claim against the non-settling defendants to pursue them only for their share of liability. All the relevant evidence in the possession of the settling defendants would, in accordance with the agreements, be given to the plaintiff and be discoverable by the non-settling defendants.
Ameron and another defendant, Amercoat Canada, did not settle. All the terms of the Pierringer Agreements were disclosed to Ameron and Amercoat except the amounts that had been agreed upon. The settlement agreements were approved by the court. Ameron brought an application for disclosure of the settlement amounts paid under the Pierringer Agreements. Sable took the position that the amounts were subject to settlement privilege. The application judge agreed. However, the Nova Scotia Court of Appeal overturned that decision and ordered that the amounts be disclosed.
The Supreme Court of Canada unanimously allowed Sable's appeal and ordered that it need not disclose the settlement amounts to Ameron and Amercoat, the non-settling defendants.
Justice Abella, writing for the court, held that the settlement amounts were covered by settlement privilege.
Justice Abella further held - Settlement privilege promotes settlements. Parties will be more likely to settle if they have confidence from the outset that their negotiations will not be disclosed. Settlement privilege covers settlement negotiations whether or not a settlement is reached. Since the negotiated amount is a key component of the "content of successful negotiations", reflecting the omissions, offers and compromises made in the course of negotiations, it too was protected by the privilege.
Justice Abella held that there are, inevitably, exceptions to the privilege. To come within those exceptions a defendant must show that on balance "a competing public interest outweighs the public interest in encouraging settlement". For example, those countervailing interests have been found to include allegations of misrepresentation, fraud or undue influence as well as preventing a plaintiff from being overcompensated.
In this case, the settlements negotiated, i.e. Pierringer Agreements, were developed in the United States to address obstacles in settling complex multi-party litigation. Under a Pierringer Agreement, the plaintiff's claim was only extinguished against those defendants with whom it settled; the claims against the non-settling defendants continued. The settling defendants were assured that they could not be subject to a contribution claim from the non-settling defendants who would be accountable only for their share of liability at trial.
In Canada, the courts have included additional protections for non-settling defendants such as requiring that they be given access to the settling defendants evidence. In addition, the agreements in this case specified that their non-financial terms would be disclosed to the court and the non-settling defendants.
The non-settling defendants received all the non-financial terms of the Pierringer Agreements. They have access to all the relevant documents and other evidence that was in the settling defendants possession. They have also the assurance that they would not be held liable for more than their share of damages. In addition, Sable agreed that at the end of the trial, once liability had been determined, it would disclose to the trial judge the amounts it settled for.
As a result, should the non-settling defendants establish a right to set-off in this case, their liability for damages would be adjusted downwards if necessary to avoid over-compensating the plaintiff. With all those protections in place, Justice Abella did not see how knowledge of the settlement amounts would materially effect the ability of the non-settling defendants to know and present their case.
She held that a proper analysis of the claim for an exception to settlement privilege does not simply ask whether the non-settling defendants derived some tactical advantage from disclosure, but whether the reason for disclosure outweighs the policy in favour of promoting settlement. She found that there was little harm in denying disclosure of the settlement amounts in this case.