– An imperfect solution to a complex resolution. Leading into April 2019, and only months apart, two appellate courts (Alberta and Ontario) raised serious questions about the efficacy of imposing the rule against overcompensation on plaintiffs who negotiated favourable partial settlements.  Notwithstanding these two appellate courts effectively lobbying the Supreme Court of Canada to intervene, the invitation was declined in May, 2019 through a dismissed leave to appeal application.   The law leaves in its wake a result that gives rise to incongruous outcomes, which is truly regrettable since this was a very opportune time for the courts to endorse the jurisprudence developed in other jurisdictions where plaintiffs entering into partial settlements are treated more equitably.

In addition to the foregoing, the settling parties can include terms addressing trial matters.  Most commonly, the settling parties will agree that the Settling Defendant will take no position on damages, but will actively participate in matters pertaining to liability.

By their very nature, Mary Carter agreements incentivize both the plaintiff and the Settling Defendant to “join forces”  to inflate the plaintiff’s damages, and to convince the trier-of-fact to attribute as much liability against the Non-Settling Defendant as possible.  This dynamic occurs naturally because the more the court attributes towards damages and liability against the Non-Settling Defendant the less the Settling Defendant is likely required to pay, and the more the plaintiff stands to recover.  Furthermore, the Settling Defendant is typically averse to guaranteeing the plaintiff a fixed monetary recovery that turns out to exceed the amount awarded at trial: hence the desire to assist the plaintiff to inflate their damages.

The Settling Defendant’s continuing participation in the trial also allows them to lobby for a favourable finding on liability, which they may value, especially if there are professional reputations on the line, or in circumstances where the present case is one of many such that a good result on liability paves the way for better results in their other cases.

This said, the Settling Defendant still has some potential remaining trial risks, especially if the Non-Settling Defendant does very well at trial (i.e., staves off any liability).  At this point, it is open to the court whether they will require the Settling Defendant to pay an adverse cost award in favour of the Non-Settling Defendant.

Mary Carter agreements have a real niche for cases involving the application of the “1% rule”  under the Negligence Act, where joint tortfeasors are held jointly and severally liable, such that a party whose negligence contributed a mere 1% towards the plaintiff’s injuries and resultant damages can be compelled to pay 100% of the plaintiff’s damages.  In those cases, the plaintiff and the defendant with the nominal 1% exposure (to 100% of the claimant’s damages) should give Mary Carter type settlements real consideration, especially when the likelihood of recovery against the Non-Settling Defendant is high.

Conversely, a defendant party who is the primary target (i.e.,: the one with the most liability exposure), rarely benefits from a Mary Carter agreement, because the recovery against the Non-Settling Defendant will likely be too insignificant to warrant the expense of continuing with the trial.

2009 – The End of the “Windfall” Era

Prior to 2009, plaintiffs who entered into Mary Carter and/or Pierringer agreements could potentially recover more than the damages assessed at trial because the Non-Settling Defendant received no credit for what the plaintiff recovered from the Settling Defendant.  The Ontario Court of Appeal brought this practice to an end in the decision of Laudon v. Roberts, 2009 ONCA 383, 66 C.C.L.T. (3d) 207, 308 D.L.R. (4th) 422 (“Laudon“)  The appellate court effectively pronounced that the rule against double recovery trumped everything, such that the plaintiff could not reap the rewards of a well negotiated partial settlement.

The Laudon decision sent chills into the legal community – indeed, in the immediate aftermath many commentators thought this would end the use of partial settlements altogether, because at first glance it appeared that the court was asserting that the Non-Settling Defendant received a 100% credit for the amount paid by the Settling Defendant.  However, upon sober reflection, the Laudon decision was simply limiting the plaintiff’s total recovery to the damages awarded at trial.  This meant that the Non-Settling Defendant would pay up to an amount equivalent to their proportionate share of the damages assessed at trial, but could end up paying less in the event less money was required to bridge the gap between what the plaintiff received from the Settling Defendant, and the total damages awarded by the trier-of-fact at trial.

The ‘confusion’  likely stemmed from the unusual facts in Laudon:  the plaintiff resolved their case with the settling defendant for $365,000 (in what was labeled a Mary Carter agreement, but by its terms, was more akin to a Pierringer agreement), however the plaintiff had little success against the remaining non-settling defendant by virtue of the jury finding that the plaintiff sustained $312,021 in damages, with the non-settling defendant being only 39% liable for those damages.  Because the plaintiff already received $365,000 from the settling defendant, the non-settling defendant, who was found 39% responsible for causing $312,021 in damages, didn’t have to pay a cent.

Although the plaintiff in Laudon was also contributorily negligent, the court did not address the impact, if any, that the plaintiff’s contributory negligence would have on the outcome, because it wasn’t necessary given that the settlement exceeded the total damage award at trial.

Was the Appellate Court Correct in ending the “Windfall” Era in 2009?

There is considerable debate whether the appellate court got the balance right in Laudon, effectively preventing plaintiffs from reaping the benefit of a well negotiated resolution with the Settling Defendant.  There are many valid reasons why a plaintiff should reap the rewards of a good settlement with the Settling Defendant.  Indeed, in many jurisdictions in the United States, that is the state of the law.

Instead in Canada, the recalcitrant Non-Settling Defendant reaps the benefit (or credit) for the plaintiff’s well negotiated settlement: a rather unusual result.  It seems to be an affront to common sense that the plaintiff’s well negotiated settlement with the Settling Defendant is doled out as a reward to the recalcitrant Non-Settling Defendant.  Indeed, a plaintiff who settles through a partial settlement arrangement bears the complete burden of a poorly negotiated partial settlement.  To the point, a plaintiff who makes a poor partial settlement (assessed with 20/20 hindsight and retrospective analysis following judgment) is not given a break of any kind, yet when a plaintiff enters into a favourable settlement with the Settling Defendant, the benefit is immediately consumed by the Non-Settling Defendant: with all due respect, this is not a justifiable nor equitable outcome.

Furthermore, it runs completely counter to the oft cited jurisprudential goal of promoting settlements.  If the court intends to promote settlements, they should incentivize parties to enter into partial settlements, and the best way to do that is to give plaintiffs the opportunity to reap a windfall, and not simply burden them with the risk of a scourge.  But more importantly, the law should not be such that it actually assists a recalcitrant defendant by giving them additional leverage to resist participating in a global settlement: namely allowing the Non-Settling Defendant to take the position that the plaintiff is now more inclined to “walk away”  from the trial empty-handed once the “credit”  is given for what the plaintiff secured from the Settling Defendant.

Regrettably, the decision in Laudon  wasn’t required to redress any prejudice to the Non-Settling Defendant.  Indeed, there is no prejudice to the Non-Settling Defendant in allowing the plaintiff to keep the rewards of a well negotiated partial settlement agreement because by definition the Non-Settling Defendant is simply being held accountable to pay their proportionate share of the judgment: a law that gives a recalcitrant Non-Settling Defendant a vehicle or mechanism to pay less makes little sense.  Put another way, there is no double recovery if the plaintiff receives from the Non-Settling Defendant the exact amount the Non-Settling Defendant is responsible to pay based on their degree of fault.

Cases are settled every day, with some being very favourable to the plaintiff and some being very favourable to the defendant, yet these negotiated resolutions are never upset at trial.  Indeed they never get to trial.  It is nonsensical to allow these privately negotiated settlements (in the context of a partial settlement) to become reopened at the behest of a third party.  Worse yet, it is even more troubling that once the private settlement is opened up to scrutiny, the negligent free plaintiff only stands to break even, or lose: and never stands to gain unless the Settling Defendant agreed to contribute in excess of the damages awarded at trial.

In 2018 the Alberta Court of Appeal struggled with (but did not override) the ratio in Laudon, in a case called Canadian Natural Resources Ltd. v. Wood Group Mustang (Canada) Inc., 2018 ABCA 305, where the appellate court concluded that even if change was required, it would have to come from the law makers or the Supreme Court of Canada (paras147 and 148):

“In summary, there are arguments both for and against the existing rule that a settling plaintiff must account to the non-settling defendant for any recovery in excess of its actual damages. As put by N.G. Wilson in “Encouraging Settlement” at p. 447: “The law as it stands represents a curious balancing of preventing overcompensation and encouraging settlement.” Reversing the rule requiring a plaintiff to account for over-settlements would eliminate any balancing, and allow the encouragement of settlement to predominate over the rule against overcompensation.

This Court should not overturn established decisions unless they are clearly wrong: …   All things considered, the appellant has not demonstrated any error underlying the rule established in Bedard v Amin [* Alberta’s equivalent to the Laudon decision in Ontario ]. … Abolition of the rule, or the adoption of any intermediate position (for example, a sharing of the “windfall” by the plaintiff and the non-settling defendant) should be left for the Supreme Court of Canada. There is also the prospect of legislative reform: see British Columbia Law Institute, Consultation Paper on Contribution after Settlement under the Negligence Act, March 2013” [Emphasis added]

2019 Ontario Court of Appeal – A chance to comment on the rule against double recovery

In 2019 the Ontario Court of Appeal in Gendron v. Doug C. Thompson Ltd. (Thompson Fuels), (2019 ONCA 293) (“Gendron“) had the opportunity to revisit Laudon.  The reason this case came before the appellate court was to seek clarification on how to account for the plaintiff’s contributory negligence: remember, Laudon  did not address this issue because it wasn’t necessary given that the amount the Settling Defendant paid not only exceeded the damage award less Laudon’s contributory negligence, but it exceeded the full damage award.

In Gendron,  however, the issue was paramount:  the parties wanted to know whether the rule against double recovery capped the plaintiff’s recovery to the full damage award, or capped it to the lesser amount once the plaintiff’s contributory negligence was taken into account.  The decision in Gendron is very welcomed because it actually answers this question, although in 2018 that same issue was before the Alberta Court of Appeal in the Canadian Natural Resources decision cited above.  Not surprisingly, the two decisions are aligned – the final result is that the plaintiff’s contributory negligence is ignored, such that the Non-Settling Defendant’s contribution is the lower of:

As stated above, the Alberta Court of Appeal would not overturn the paramountcy of the rule against double recovery, citing that it would need legislative intervention or reversal by the Supreme Court of Canada, and not surprisingly, the Ontario Court of Appeal also left this issue untouched.  This said, however, it is noteworthy that the Ontario Court of Appeal took the time and opportunity to comment on the American jurisprudence that would support overturning Laudon: (paras 111 – 114)

“The cases from these jurisdictions indicate that, although the liability of a non-settling defendant is limited to its proportionate share of fault, the non-settling  defendant generally does not enjoy a further right of set-off against the amount of the settlement: McDermott, at p. 221; Shantz, at p. 156; McDonough v. Van Eerden, 650 F. Supp. 78, 81 (E.D. Wis. 1986). The courts specifically contemplate that a Pierringer agreement for more than the settling defendant’s share of fault may result in a “windfall” for the plaintiff: Rambaum v. Swisher, 435 N.W.2d 19, 23 (Minn. 1989). That is not the law in Canada, but two of the policy considerations underlying this rule are instructive in this case.

First, the American courts recognize the benefits in encouraging settlements and protecting the bargain the plaintiff and settling defendant have reached. In Unigard Ins. Co. v. Ins. Co. of N. Am., 516 N.W.2d 762, 766 (Wis. Ct. App. 1994), the court observed that a settling defendant purchases an unspecified portion of the total liability, and takes the chance of paying too much or too little for its peace of mind. The First Circuit has commented that “Pierringer releases equitably distribute the risks of settlement among the parties”, by imposing the risks on parties who bargained for those risks: Austin v. Raymark Indus., Inc., 841 F.2d 1184, 1190-91 (1988). Several U.S. courts have accordingly considered it inequitable to allow the non-settling defendant to profit from the settlement agreement by obtaining a set-off: Rambaum, at p. 23; Anunti v. Payette, 268 N.W.2d 52, 56 (Minn. 1978). Courts have noted that allowing set-off would discourage settlement not only for plaintiffs but also for non-settling defendants, who would stand to gain the benefits of settlements at the end of trial. As the Rambaum court noted, allowing set-off would mean that “settling parties could no longer settle piecemeal” such that “the Pierringer would be effectively dismantled”: at p. 23.

The second factor underlying the rule against set-off is that it is considered fair to the non-settling defendant. Depending on the apportionment of liability at trial, the Pierringer agreement may turn out to benefit the plaintiff or the settling defendant. But the non-settling defendant will always be required to pay the proportion of damages precisely commensurate to its own fault. As a result, it should be no concern to the non-settling defendant how much the plaintiff received from the settling defendant: Shantz at p. 156.

Although the rule in Canada is different, Canadian courts have not been indifferent to these considerations. In Ratych v. Bloomer, 1990 CanLII 97 (SCC), [1990] 1 S.C.R. 940, for instance, the Supreme Court cautioned against double-recovery, but it allowed for insurance proceeds not to be set off on the principle that plaintiffs should not be deprived of bargained-for contractual benefits: at paras. 45, 53. In Ashcroft v. Dhaliwal, 2008 BCCA 352 (CanLII), 83 B.C.L.R. (4th) 279, at para. 28, the Court of Appeal for British Columbia noted the public interest in encouraging settlements but balanced it with the rule against double recovery. The Bedard court recognized “the element of unfairness” in a non-settling defendant reaping the benefits of the settlement, but considered that the Canadian policy against double-recovery was fair in a broader sense because it allowed the plaintiff to be fully compensated: at para. 16. In light of similar considerations, the court held in Canadian Natural Resources Ltd. that “The rule against overcompensation should be applied generously in favour of the settling plaintiff, by accepting that there is in fact no overcompensation until the plaintiff is fully indemnified”: at para. 148.

I agree with the policy analysis described above about fairness to the non-settling defendant and encouragement of settlements. A Pierringer agreement is by its nature a contract to which the non-settling defendant is a stranger. Absent double compensation, a non-settling defendant should not be able to rely on the benefits of that agreement beyond the guarantee that it will not be required to pay more than its share of the liability. By taking this approach, a plaintiff who may have been contributorily negligent will be encouraged to attempt to settle.”

So leading into April 2019, two appellate courts, only months apart, raised serious questions about the efficacy in applying the rule against overcompensation in situations involving arms-length partial settlement contracts.  Regrettably, however, this will likely remain the law for a long time, because notwithstanding these two appellate courts effectively lobbying the Supreme Court of Canada to intervene, the invitation was declined: the leave to appeal application in the Alberta case was dismissed on May 23, 2019 (2019 CanLII 45277 (SCC)).

As such, for the time being, and perhaps for decades to come, we are left with a set of rules that lead to incongruent results.  First, we now have a system where a plaintiff can be overcompensated, despite this purportedly being an impossible outcome given the alleged sacrosanct rule against overcompensation.  Indeed, this is exactly what occurred in Laudon: the trier of fact concluded that the plaintiff was entitled to no more than $312,000 in damages, yet the plaintiff was entitled to keep all of the $365,000 negotiated with the Settling Defendant.  Why are some “windfalls” permitted, but others not?  Second, the governing law effectively “rewards” plaintiffs who are contributorily negligent: a rather anomalous result.

What too will happen in the first test case where a Settling Defendant in a Mary Carter Agreement guarantees a recovery that far exceeds the damages awarded at trial?  Remember, in Mary Carter Agreements, funds do not necessarily exchange hands until the judgment is rendered.  Does the Settling Defendant have the right to assert that their contribution must be restricted to what the court awarded at trial, and not the amount they guaranteed to the plaintiff?  Of course not, but how do we square this circle, when juxtaposed against the legal principals recently endorsed by appellate courts?  Why is it that only recalcitrant Non-Settling Defendants reap the benefits, while the parties making strides to bring peace and harmony to the dispute bear the burdens?:  Nonsensical.

All of these strained results and outcomes could have been avoided had the courts simply adopted the rule against set-off, as our American counterparts.  No one is being overcompensated.  If a defendant agreed to pay $1M to extinguish $100,000 in liability, so be it, because tomorrow it may be a defendant who paid $100,000 to extinguish a $1M liability.  Those deals should remain private, and the Non-Settling Defendant should simply pay what they were found to owe arising from their several liability: not a penny more, or a penny less.

The Problem with the Math

Based on the principals set out in Gendron, the Non-Settling Defendant earns a “credit” that is equivalent to the amount that the partial settlement exceeds the monetary amount attributed to the plaintiff’s contributory negligence.  In circumstances where the plaintiff is not at fault,  every dime collected from the Settling Defendant must be credited to the Non-Settling Defendant.  The inherent problem with this formula is that it rewards plaintiffs who are contributorily negligent – a Pierringer agreement will boost the recovery of a plaintiff who is contributorily negligent, but a Pierringer agreement cannot boost the recovery of a plaintiff who is free of any negligence, which is an affront to common sense.  A legal construct that effectively compensates negligent plaintiffs more favourably than non-negligent plaintiffs is arguably inherently flawed.  A well negotiated Pierringer Agreement should reward all plaintiffs – not just negligent plaintiffs.

By its very nature, negligent plaintiffs always “do better”  with partial settlements because the more they are found negligent, the better (or more rewarding) the settlement becomes.  To illustrate on the furthest extreme, if a plaintiff enters a partial settlement for $500,000, and is found 100% liable at trial, the plaintiff recovered $500,000 using a partial settlement structure, where they would have recovered zero dollars at trial.  As such, it is not an affront to common sense that a negligent plaintiff gains more with a partial settlement agreement: what is controversial, however, is that a non-negligent plaintiff, based on Laudon  and Gendron,  is not allowed to benefit at all with a partial settlement, unless and until the settling defendant contributes more than the damages awarded at trial.

Diagrammatically, the chart below illustrates the non-linearity of what the court has now imposed on plaintiffs:

The foregoing chart was plotted using a trial damage award of $400,000, with the Settling Defendant being 50% liable and settling for an amount in the ranges between 75% less (ie: $50,000 instead of $200,000) to 150% more (ie: $500,000 instead of $200,000).  In this example, once the Settling Defendant pays 100% more (ie: $400,000 instead of $200,000), the Settling Defendant has paid the equivalent of the award at trial.  Everything above “100% more” represents the Settling Defendant paying more than damage award at trial (i.e., what occurred in Laudon ).

Most striking, from the above diagram, is how negligent plaintiffs continue to reap a benefit from a well negotiated partial settlement, whereas a negligent-free plaintiff completely flat-lines, and gains no benefit whatsoever from a well negotiated partial settlement, until the Settling Defendant contributes more than what is awarded in damages at trial.  As expressed previously, the innocent plaintiff bears only the fallout from a poorly negotiated partial settlement, and none of the benefits (i.e., the windfall) from a well negotiated partial settlement, unless the partial settlement extends to the point where the Settling Defendant contributes more than what is awarded at trial, which is indeed going to be a very rare occurrence.

If the law returned to the pre-Laudon  era, as supported by many jurisdictions to the south, the outcome would be linear, and arguably far more equitable, as follows (based on the same assumptions as above in the prior chart):

Having an unwillingness to state that Laudon was bad law, the two appellate courts were left with doing the next best thing – denying the Non-Settling Defendant a credit for the plaintiff’s contributory negligence.  But in not reversing Laudon,  the appellate courts simply compounded the inequities: and of course all of which is now endorsed by the Supreme Court of Canada.

As expressed earlier, plaintiffs who are assessed with negligence at trial will generally be better off coming to a partial settlement: this is true in the pre-Laudon  era, and post-Laudon  era.  This outcome is the natural by-product of the partial settlement being a higher percentage of plaintiff’s recovery the more the plaintiff’s contributory negligence increases.  This is why the chart above, reflecting the pre-Laudon  era, shows that a better outcome is achieved as the Plaintiff’s negligence increases: the difference, of course, is that there is no man-made interference that immediately eliminates any benefit for a negligent-free plaintiff, as demonstrated in the first chart.

Partial Settlements Still Useful – Despite the Flawed Logic

Regardless of the incongruities, there are still very good reasons to enter into a partial settlement agreement.  To recap, these benefits include:

For the Plaintiff Additionally for a Plaintiff who is Contributorily Negligent For Defendants

The downside, of course, is that a poorly negotiated Pierringer Agreement could result in a very bad outcome at trial for the plaintiff, but that is true of any settlement: the major difference being that a global settlement will hide a poorly negotiated settlement, whereas a partial settlement remains open for scrutiny as long as the case continues to trial.  In the case of Laudon  for example, the settling parties actually negotiated a very good partial settlement.  The plaintiff recovered more through the partial settlement than was awarded at trial.  Some may argue that the settling defendant in Laudon  overpaid, but the bottom line is that they were in the ball-park, and if they actually removed themselves from the litigation, they saved significant legal expenses, thereby making the closure they obtained through the partial settlement a good and respectable resolution.

David makes available a handy Pierringer Payout Calculator that calculates, based on the current jurisprudence, what the Non-Settling Defendant will contribute once input is given on the degree of every party’s negligence, the amount of the partial settlement, and the quantum of damages assessed at trial.  In addition, the calculator provides insight into the net benefit achieved by the plaintiff in having entered into a Pierringer type proportionate share agreement before trial.

The Pierringer Payout Calculator can assist the parties to quickly work out scenarios and decide whether a proportionate share agreement is right for them, in their circumstances.

Other Issues Surrounding Pierringer Agreements

Must compare Apples with Apples

To assess the credit, if any, that is owed to the Non-Settling Defendant, it is necessary to extract the amounts paid by the Settling Defendant toward legal fees and disbursements.  Put another way, it is necessary to find out how much of the partial settlement was paid toward damages, and use that figure against what the court awarded in damages. It would be triflingly unfair to the plaintiff to apply the all-inclusive settlement figure. (Pettey v. Avis Car Inc (1993) (Ont. Gen. Div.))

This, of course, is not controversial – it requires equivalent comparisons. However, the Alberta Court of Appeal, in Canadian Natural Resources Ltd. (supra),  took things one step further.  In an effort to better reward plaintiffs who attempt to settle through a partial settlement agreement, the Alberta Court of Appeal held that not only can the plaintiff deduct their partial indemnity costs, but the plaintiff can deduct the actual legal costs incurred to obtain the partial settlement, on a full indemnity basis (i.e., substantial indemnity or solicitor-and-client costs).  The Ontario court of Appeal, a few months later in Gendron,  did not address this issue.

Disclosure of the Existence of a Partial Settlement Agreement

Although most partial settlement agreements contain a provision that makes the agreement confidential and prohibited from being disclosed by the contracting parties unless required by law, the developing case law has essentially made it the law to have the existence of these agreements disclosed to the Non-Settling Defendants, and to the court.  Interestingly, up until 2014 when the Law Society overhauled the Rules of Professional Conduct, there was a specific rule and commentary that codified the lawyer’s duty to disclose the existence of a partial settlement agreement, as follows:

4. In civil proceedings, the lawyer has a duty not to mislead the court as to the position of the client in the adversary process. Thus, a lawyer representing a party to litigation who has made or is party to an agreement made before or during the trial whereby a plaintiff is guaranteed recovery by one or more parties notwithstanding the judgment of the court, shall forthwith reveal the existence and particulars of the agreement to the court and to all parties to the proceedings. (Rule 10, Commentary 4)

It is not entirely clear why the above provision/commentary was removed in 2014, but regardless, the courts have imposed this same duty upon lawyers.

The main reason behind mandating the disclosure of a partial settlement is because these arrangements have an immediate and potentially significant impact on the remainder of the litigation: Mary Carter and Pierringer Agreements, by their very nature, undeniably alter the dynamics between the remaining parties, and it would be an affront to the administration of justice to permit these agreements to remain hidden, and the cases to continue under false pretences.  In order for the parties to properly understand the change in the litigation landscape, the disclosure of the existence of the agreement must be made “immediately.”  Indeed, the failure to disclose the existence of such partial settlements will invariably summarily end the litigation, irrespective of any prejudice to the parties (see Aecon Buildings v. Stephenson Engineering Limited, 2010 ONCA 898, and Handley Estate v. DTE Industries Limited, 2018 ONCA 324).

It is important to note that this disclosure obligation not only applies to Pierringer Agreements and Mary Carter Agreements, but to any and all settlements that change the litigation landscape (ie: where former foes become allies), as was clearly illustrated in the case of Tallman Truck Centre Limited v. K.S.P. Holdings Inc., 2021 ONSC 984.  Also noteworthy from this case was the finding that the disclosure made three (3) weeks after the settlement was ratified was inadequate to satisfy the requirement to disclose the settlement “immediately.”

Because there is no strict definition of the term “immediate,” it is safe to say that once the partial settlement agreement is executed, the particulars of the agreement should be disclosed to the Non-Settling Defendant(s), and to the court, within a day or two, to be on the safe side.

From a practical perspective, however, there is really no getting around disclosing the existence of a Pierringer Agreement, because these types of settlements often require the plaintiff to bring a motion to formally amend their claim to clearly and unambiguously limit the relief sought against the Non-Settling Defendant to their proportionate degree of fault.  The mere commencement of such a motion requires the disclosure of the proportionate share agreement.  All would be ideal if this type of motion was brought right away, but should this motion be delayed, there is a real and substantial risk that such a motion could be upset by a counter-motion seeking to dismiss or permanently stay the action for lack of timely disclosure.  In the normal course of events, the better practice would be to first alert the other side to the existence of the partial settlement within a day-or-two of its ratification, and then in the calmness of time bring the motion to amend the pleadings.

How much of the actual partial settlement agreement must be disclosed?

Although there is no debate that the existence of the partial settlement must be disclosed, there has been considerable debate over what has to be disclosed: The entire agreement? A redacted version of the agreement?  A summary of the terms of the agreement?

The appellate court in Laudon, for example, held that the existence of a partial settlement agreement had to be disclosed, but not the content of the agreement or its actual terms.  Other decisions called for the full disclosure of the entire agreement, less the quantum of the settlement (Pettey v. Avis Car Inc (1993) (Ont. Gen. Div.)), and yet other cases called for a partially redacted version of the agreement (Moore v. Bertuzzi (2012) (Ont. S.C.J)).

For the time being, the courts are generally not requiring the settling parties to disclose the entire partial settlement agreement; however, the parties to the settlement have a positive obligation to share all the terms that change the “litigation landscape”  (Stamatopoulos v. Regional Municipality of Durham, (2014) (Ont. Div. Ct.)).

From a practical perspective, to meet this obligation, the settling parties ought to produce a redacted version of the partial settlement agreement, and be prepared to explain why the redacted portions do not change the “litigation landscape.”  The court in Pettey (supra), in agreeing with some American jurisprudence, rejected the practice of providing a summary of the agreement, stating that “gratuitous and self-serving language ought not to be part of the disclosure.”

Disclosing the Quantum of the Settlement

Over the years there has been debate over whether the quantum of the partial settlement has to be disclosed.  In Pettey v. Avis Car Inc.(1993), the court ruled that the disclosure of the dollar amounts is “patently in the discretion of the court,”  but generally need not be disclosed.  In Noonan v. Alpha-Vico (2010) (Master) the non-settling defendant commenced a motion for disclosure of the settlement amount.  The court concluded that the quantum of the settlement amount had to be disclosed to the Non-Settling Defendant immediately.  The court reasoned that “a defendant is entitled to know what the actual amounts in dispute are so that informed decisions may be made about whether to defend or offer to settle and what procedures may or may not be justified.”

But by 2013, the Supreme Court of Canada had its chance to address this issue, and held that the settlement amount may be kept confidential until the end of trial unless there is a competing public interest that outweighs the public interest in encouraging settlement (Sable Offshore Energy Inc. v. Ameron International Corp. , 2013 SCC 37).  The Supreme Court of Canada was dealing specifically with a Pierringer Agreement, however, the same concept appears to drive the reasoning in Pettey v. Avis Car Inc (1993) (Ont. Div. Ct), which in dealing with a Mary Carter settlement, wherein the following was said:

“The disclosure of the dollar amounts is patently in the discretion of the court. In the case at bar, as above noted, a copy of the full text of the agreement, including the dollar amounts, was sealed and made an exhibit in the trial, so that full disclosure was entirely within the court’s control. I declined to be apprised of the dollar amounts, being of the view that they would be of no assistance to me in controlling the process or in deciding the issues. It is not for me to consider whether, in given circumstances, the court ought to learn the dollar amounts. I note that in some jurisdictions in the United States, disclosure of the amounts to the jury is prohibited: see Ratterree v. Bartlett, supra; see also Hatfield v. Continental Homes, 610 A.2d 446 (Pa. 1992) at p. 452.” [Emphasis added]

It is noteworthy, as well, that the court in Gendron remained unaware of the settlement amount, citing that it was not required because all the court was called upon to do was to provide the state of the law in relation to the applicable set-off available to the Non-Settling Defendant, and the court simply allowed the parties to work out afterwards whether there was any set-off available to the Non-Settling Defendant by virtue of the Pierringer agreement entered into between the plaintiff and the Settling Defendant.

Obviously a return to the pre-Laudon  era would make the settlement amount immaterial to the court or to the Non-Settling Defendant, because the Non-Settling Defendant would not receive a credit of any kind: instead simply contributing the amount attributed to their negligence once damages were assessed at trial.

Be Careful if there is a Contractual Right to Indemnity between the Settling Defendant and any of the Non-Settling Defendants

Settling Defendants should be mindful that Pierringer type partial settlements may not provide them with any relief from the litigation in the event that they have a contractual  obligation to indemnify any of the remaining Non-Settling Defendants.

If the Settling Defendant is a complete stranger to the remaining Non-Settling Defendants (i.e., all independent tortfeasors, such as three different vehicle operators involved in a car accident), the Pierringer type settlement will work as intended.

However, if the Settling Defendant and at least one of the Non-Settling Defendants are connected (perhaps by a written or possibly verbal contract), that contract may create indemnification obligations on the part of the Settling Defendant, and if so, then the Settling Defendant cannot usurp those contractual obligations by entering into a Pierringer Agreement with the plaintiff (who is a complete stranger to the contract between the Settling Defendant and the Non-Settling Defendant).  Indeed, in these circumstances, there is a very good chance that the court will refuse to release the Settling Defendant, as was done in the case of Laidler v. The Office of the Public Guardian and Trustee, (2015) (Ont. S.C.J.), and in Amello v. Bluewave Energy Limited Partnership, (2014) (Ont. S.C.J.)

Conclusion

It is regrettable that that courts didn’t seize the opportunity to return to the  pre-Laudon  era, leaving in its wake the continued inequities that follow.  It is also regrettable that the Ontario Court of Appeal in Gendron  didn’t seize the opportunity to address the degree to which legal costs could be excluded (or deducted) from the settlement proceeds received from the Settling Defendant: something which the Alberta Court of Appeal considered at length in their ruling, a few months prior, that gave plaintiff’s the right to deduct their full-indemnity legal costs from the settlement reached with the Settling Defendant (and not just partial-indemnity costs).

It would have been very helpful to know whether Ontario plaintiffs can reduce the “settlement proceeds”  by legal fees assessed on a substantial indemnity basis, or even perhaps on a solicitor-and-own-client basis.   Currently the only guidance we have is from Pettey v. Avis Car Inc (1993) (Ont. Gen. Div.), which allows a plaintiff to deduct the amounts paid by the Settling Defendant toward legal fees and disbursements: this, of course, is more akin to a partial indemnity cost reduction.

In fairness, the Ontario Court of Appeal was not asked to address the legal cost deduction issue.  However, with so much commentary about this in the Alberta appellate court decision, just a few months earlier, it would have been helpful to have the Ontario Court of Appeal’s obiter  on the point,  so as to avoid ongoing litigation and debate over this issue.

Nonetheless, and despite the continued shortcomings, opportunities to invoke Mary Carter and Pierringer agreements should never be overlooked in situations involving multiple non-contracting defendants, some of whom are taking an intractable non-contribution position despite their exposure to liability and damages being close to immutable, even if only marginal.  In these circumstances, the recalcitrant defendant(s) should be left out: there should be no need to permit them to stifle the settlement objectives of the rest of the parties.  Often times the simple threat of entering into a partial settlement agreement is all that is required to prompt a reluctant defendant to make a contribution, because they don’t want to be left out.  Being left out is potentially daunting, considering:

The foregoing may be the impetus for a Non-Settling Defendant to make a contribution that they were otherwise disinclined to make: perhaps not initially, but eventually.

Hopefully a day will come when the Canadian courts veer from the nonsensical hybrid model they have created, where negligent plaintiffs are treated more favourably than innocent plaintiffs and where “credits” are doled out as rewards to those who didn’t settle rather than to those who did.  Until then, however, and despite the inequities in the current system, plaintiffs and Settling Defendants can still achieve gains through a partial settlement: namely peace of mind.  For the Settling Defendant, they cap their exposure, and in the case of a Pierringer type settlement they extract themselves from the litigation itself, all for an amount they believed was fair.  For the Plaintiff, they recover a guaranteed amount, and shelter themselves from an adverse finding on liability against them.  If the settlement decisions are made when there is a good factual matrix in place, the parties should generally be close to the correct target and predictable outcome at trial.

Authored by: David M. José (B.A., LL.B)

^{The information in this article or paper is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. No information contained in this paper should be construed as legal advice from 360Mediations, or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter.}