Settlement privilege is a long-standing concept that wraps a protective veil around the efforts that litigants make to settle their disputes. It does so by ensuring that communications made to negotiate a settlement are confidential and inadmissible at trial. With these assurances, parties can negotiate freely without worrying that the negotiations will later come back to haunt them.
In recent years, the “Pierringer agreement” has become a popular settlement tool in multi-party litigation.
Traditionally, parties who entered into a Pierringer agreement had to disclose the existence of the agreement to the non-settling parties and the court, but not the amounts of the agreement, until after the completion of trial. In the recent decision of Sable Offshore Energy Inc. v Ameron International Corp, this traditional view was challenged.Pierringer agreements allow one or more defendants in a multi-party case to settle with the plaintiff, while the plaintiff continues the action against the defendants who do not settle. The non-settling defendants are only liable for their actual share of responsibility. A common feature of a Pierringer agreement is that the settling defendants must produce all relevant evidence and make this evidence available for the non-settling defendants.
In Sable v. Ameron, Sable sued 14 defendants for negligence, negligent misrepresentation, and breach of collateral warranty. Sable settled with some of them by way of three Pierringer agreements. The defendant Ameron did not settle with Sable and brought a motion for disclosure of the settlement amounts paid under the Pierringer agreements. Sable disclosed the terms of the agreements, but refused to produce the amounts of the settlement, claiming settlement privilege.
The motion’s judge agreed that the amounts of the settlements were covered by settlement privilege and were therefore not producible. On appeal to the Nova Scotia Court of Appeal, this decision was overturned. The plaintiff appealed to the Supreme Court of Canada.
The Supreme Court of Canada allowed the appeal and denied the requested disclosure of the amounts of the settlement. Justice Abella, writing for the Court held that there is a greater public interest in preserving settlement privilege than in providing the non-settling defendants with information about the settlements because settlements save litigants time, money and relieve an already overburdened and strained provincial court system from a large volume of cases. The Court noted that this is particularly true in multi-defendant civil suits because if these types of actions proceed to trial, it often results in consuming an exorbitant amount of time and expense for all parties and the courts.
Settlement privilege may be set aside when the interests of justice of the particular case require it, or in other words when a defendant can show that “a competing public interest outweighs the public interest in encouraging settlement”. Examples of competing interests would include allegations of misrepresentation, fraud, or undue influence, and preventing the plaintiff from being overcompensated.
In this case, the risk of overcompensation was not possible for two reasons. First, the Pierringer limited Ameron’s potential liability to its several share as assessed at trial. Secondly, Sable had agreed that at the end of trial, after liability was 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 accordingly if necessary to prevent overcompensation.
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