Construction disputes often give rise to lengthy litigation, involving many defendants with varying interests. Some defendants may wish to defend the action in court, while others may want to negotiate a settlement.

In order to facilitate the partial settlement of multi-party litigation, the courts have approved certain arrangement, the most common of which is known as a B.C. Ferry agreement in British Columbia, and a Pierringer agreement in Alberta and Ontario. However, the extent of any confidentiality attaching to these agreements has been a source of considerable litigation. In July 2013, though, the Supreme Court of Canada brought some much needed clarity to this area of law in its decision in Sable Offshore Energy Inc. v. Ameron International Corp.

In order to understand the implications of Sable, it is useful to review how B.C. Ferry and Pierringer agreements work. These agreements provide a mechanism for a plaintiff to settle claims against some but not all the defendants, while preserving the plaintiff’s right to pursue the non-settling defendants and insulating the settling defendants from being brought back into the litigation through third party proceedings. The agreement generally includes the following elements:

• The plaintiff accepts a defined sum in full satisfaction of its claim against one or more of the defendants;
• The plaintiff discontinues the action against the settling defendants and gives a covenant not to sue the settling defendants; and
• The liability of the settling and non-settling defendants is segregated through the plaintiff waiving any right to claim from the non-settling defendants any portion of damages that the court might ultimately assign to the settling defendants at trial.

Once this type of agreement is implemented, the non-settling defendants are only jointly liable for their collective proportionate share of liability and, consequently, they cannot assert claims for contribution and indemnity against the settling defendants. The settling defendants are effectively insulated from being brought back into the litigation through third party claims.

As the settlement agreement typically sets out the terms on which the plaintiff was prepared to let the settling defendant out of the action, it is not surprising that the defendants remaining in the litigation often want access to these agreements. A number of decisions have focused on the question of whether these agreements have to be disclosed to the other parties to the litigation and, if so, whether the requirement to disclose extends to disclosing the actual amounts paid by the settling defendants.

The courts’ answer to the first question has generally been “yes.” In one of the leading cases, Amoco Canada Petroleum Co. v. Propak Systems Ltd., the Alberta Court of Appeal confirmed that partial settlement agreements in multi-party actions must be disclosed to all other parties to the litigation prior to trial, and that the terms of the agreement should also be disclosed to the court.

The answer to the second question has proved more vexing. While courts in Alberta and B.C. have generally held that the actual settlement amounts were not relevant and, therefore, not subject to disclosure, it was not until the decision in Sable that clear guidance was provided. In its ruling, the Supreme Court confirmed that, absent “exceptional circumstances,” the amount the settling parties paid does not have to be disclosed to the remaining non-settling defendants.

The plaintiff in the Sable case entered into a Pierringer agreement to settle the action against some of the defendants. It disclosed the terms of settlement to the non-settling defendants but withheld the actual amounts paid. The non-settling defendants took the position that they were entitled to know the amounts paid by the settling defendants but the plaintiff claimed settlement privilege over the information. The trial court sided with the plaintiff but the Nova Scotia Court of Appeal took the opposite view and ordered the amounts disclosed.

In ruling that the settlement amounts were privileged and did not have to be disclosed, the Supreme Court placed great emphasis on encouraging resolution of disputes before trial and stated that the public interest in facilitating settlement outweighed any interest the non-settling defendants might have in learning the settlement amounts. In coming to its decision, the court also confirmed that the “content of successful negotiations” is protected by settlement privilege and not subject to disclosure. While the court held that settlement privilege may be displaced if some overriding public interest in disclosure is shown, this will likely only apply in very rare or exceptional cases.

The decision in Sable brings some welcome certainty to this area of law. Plaintiffs and defendants in multi-party litigation can enter into settlement negotiations with the assurance that any financial arrangements they may make will not have to be disclosed to the other parties except in very unusual circumstances. This assurance of confidentiality is often a key requirement for successful settlement negotiations in complex cases.

Gord Buck and Scott Harcus are associates in the construction and engineering group of Alexander Holburn Beaudin & Lang LLP. Gord can be reached at 604.484.1755 or gbuck@ahbl.ca. Scott can be reached at 604.484.1765 or sharcus@ahbl.ca.