Confusion Surrounding Pierringer Agreements In Canada Are Settled

Until recently, in Canada, there was a lack of consensus across the provinces regarding whether the settlement figure in Pierringer agreements was required to be disclosed. A Pierringer agreement is a type of settlement agreement whereby the plaintiff settles a claim with one or more co-defendants in an action while reserving the right to proceed against other non-settling co-defendants for the loss they actually caused. In the recent decision of Sable Offshore Energy Inc. v. Ameron Internationl Corp., 2013 SCC 37, Canada was provided with clarity: settlement figures in Pierringer agreements do not need to be disclosed.

In Sable, Sable Offshore Energy Inc. sued a number of defendants who had supplied it with and applied paint intended to prevent corrosion. After initiating an action against all of the defendants alleging that the paint did not preventing corrosion, Sable entered into Pierringer agreements with some of the defendants, allowing those defendants to withdraw from the litigation while permitting Sable’s claims against the non-settling defendants to continue. All of the relevant evidence in the possession of the settling defendants, would, in accordance with the agreements, be given to the plaintiffs and be discoverable by the non-settling defendants. And, all of the terms of the Pierringer Agreements were disclosed to the two non-settling defendants, except for the amounts agreed to. The non-settling defendants brought an application for disclosure of the settlement amounts paid under the Pierringer Agreements. At trial, the Court dismissed the defendants’ application for disclosure of the settlement amounts. This was overturned at the Court of Appeal, and subsequently appealed.

At the Supreme Court of Canada, Justice Abella wrote the decision. Speaking for the Court, she began by noting there is an overriding public interest in favor of settlement, in that it promotes the interests of the litigants by saving them the expense of the trial, and it reduces the strain upon an overburdened judicial system. And, settlement privilege promotes settlement.

Accordingly, the Court proceeded with a structured analysis of settlement privilege. Settlement negotiations have long been protected by the common law rule that "without prejudice" communications made in the course of such negotiations are inadmissible. The 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. Citing the English case of Rush & Tompkins Ltd. v. Greater London Council, (1988) 3 All E.R. 737 and the British Columbia case of Middelkamp v. Fraser Valley Real Estate Board (1992), 71 B.C.L.R. (2d) 276 (C.A.), the Court held that 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 a settlement is actually reached. As such, the Court concluded that settlement privilege applies to not only failed negotiations, but also to the content of successful negotiations, a key component of which is the settlement amount.

 
 

The Court noted that while exceptions to settlement privilege are available where a competing public interest outweighs the public interest in encouraging settlement, such exception is not present in this case. No tangible prejudice could be said to have been created by withholding the amounts of the settlements that can be said to outweigh the public interest in promoting settlements. In coming to this conclusion, Justice Abella noted that the non-settling defendants have received all the non-financial terms of the Pierringer Agreements. And, any concern that the non-settling defendants will be required to pay more than their share of damages is alleviated under the construct of Pierringer agreement. As a result, it could not be said that knowledge of the settlement amounts materially affects the ability of the non-settling defendants to know and present their case:

“The defendants remain fully aware of the claims they must defend themselves against and of the overall amount that Sable is seeking. It is true that knowing the settlement amounts might allow the defendants to revise their estimate of how much they want to invest in the case, but this, it seems to me, does not rise to a sufficient level of importance to displace the public interest in promoting settlements”

The non-settling defendants also argued that refusing disclosure impedes their own possible settlement initiatives since they are more likely to settle if they know the settlement amounts already negotiated. The Court did not accept this argument:

“Someone 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. The non-settling defendants’ position is no worse”

This ruling, set out by Justice Abella, effectively eliminates the confusion and lack of consensus in Canada regarding the settlement amounts within Pierringer agreements: they are not required to be disclosed to the non-settling defendants. The argument that disclosure would facilitate settlement amongst the remaining parties ignores that, but for the privilege, the first settlement would often not occur. With this newfound clarity, settlements have been promoted, without any corresponding detriment. Parties to litigation can rest assured that their communications and settlements themselves will be kept confidential.

 

 

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