Multi Party Settlement Agreements - Practice and Pitfalls
As multi-party litigation continues to expand with ever more parties and issues, the increasing cost of trials is driving the resolution of most actions. Canadian courts have developed a number of mechanisms to help parties come to a partial settlement which relieves some of the parties of the risks and costs of proceeding to trial.
Pierringer Agreements (called B.C. Ferries Agreements in B.C.) are now commonplace, but with their ubiquity we have increasingly seen a lot of confusion and misinformation about how to properly utilize and implement this powerful litigation tool.
This paper will attempt to provide some basic information on how Pierringer Agreements were developed; how they are used in Canadian litigation, and useful tips and practice points to facilitate smarter and more effective settlement discussions, helping you close more files.
What we talk about when we talk about “Pierringer Agreements”
Pierringer Agreements and their BC counterpart, BC Ferries Agreements are settlement mechanisms used to allow a plaintiff to finalize a pre-trial settlement with some defendants in a multi-party proceeding, while continuing the action against the non-settling parties.
Pierringer Agreements grew out of a 1963 decision of the Wisconsin Supreme Court[i] on the issue of whether a settlement with some of the defendants in a multi-party action acted as bar to the non-settling defendants seeking contribution from the settling defendants.
What this means in plain language: the non-settling defendants cannot bring the settling defendants back into the litigation as third parties. That is the real power of a Pierringer agreement.
This is the key concept and it has been since the earliest decisions.
Pierringer agreements were imported into B.C. by the Court of Appeal in British Columbia Ferry Corp. v. T & N[ii]. In the B.C. case, the Court of Appeal was asked to review three different chambers orders striking out third party claims on the basis that the agreements between the plaintiffs and the settling defendants precluded a claim for contribution by the non-settling defendants.
The Court left open the claims by the non-settling defendants for declaratory relief as to the degree of fault. This is another key concept, as the non-settling parties are at liberty to argue at trial that the damage was caused by the “empty chairs” previously occupied by the settling defendants. Non-settling defendants are only responsible for the loss they actually caused.
This can still get complicated as there could be joint liability amongst the non-settling defendants – this will be discussed in further detail below.
What are the elements of a Pierringer agreement?
- The plaintiff receives a payment from the settling defendants in full satisfaction of the plaintiff’s claim against them;
- In return, the settling defendants receive from the plaintiff a promise to discontinue proceedings, effectively removing the settling defendants from the suit;
- Subsequent amendments to the pleadings formally remove the settling defendants from the suit; and
- The plaintiff then continues its suit against the non-settling defendants.[iii]
Ottawa weighs in
These issues came before the Supreme Court of Canada in Sable Offshore Energy Inc. v. Ameron International Corp[iv] where the non-settling defendants sought an order compelling the settling parties to disclose the amount of payment in the agreements – all other information had been disclosed.
The plaintiff and settling defendants took the position that the amounts of the settlement was part of settlement privilege.
Justice Abella, writing for the Court, noted the importance of fostering settlement negotiation. The Justice succinctly said, “Settlement privilege promotes settlement.”[v]
The non-settling defendants argued that without the knowledge of what the settling defendants paid, they would not be able to properly negotiate their own cases or prepare for trial. Justice Abella noted that the settling defendants managed to negotiate a settlement without information about what other parties might pay and “someone has to go first…”[vi]
Trying to get creative
Historically, the difference between BC Ferries Agreements and Pierringer agreements has been the BC Courts’ willingness to keep a door open for declaratory claims for contribution for the purely procedural purpose of allowing the non-settling parties access to pre-trial procedural rights.
Courts in other jurisdictions have opined that this gives too much emphasis on potential prejudice to the non-settling parties and not enough to the over-arching principle of promoting settlements wherever possible.[vii]
In a recent B.C. decision, a non-settling defendant attempted to reopen this debate, arguing that “… the effect of a BC Ferry settlement on the joint liability of non-settling parties is at best unsettled in law.”[viii] The B.C. Supreme Court, in dismissing the application, held that the existence of a BC Ferries Agreement, reinforced the central premise of these types of settlements:
[8] A BC Ferry settlement extinguishes the joint liability between settling parties, as a group, and non-settling parties, as a group, through the circumscription of a plaintiff’s claim against the non-settling parties, not through the settlement contract itself. In this case, the Plaintiff’s amended Notice of Civil Claim does not affect the potential joint liability of the non-settling defendants for losses that are not attributable to the fault of the Settling Parties…
The real thrust of the argument presented by the applicant was that the language of the agreement between the plaintiff and the settling defendants affected the rights of the non-settling defendants.
After noting that subject to the exceptions to the doctrine of privity, a non-party a contract cannot claim a benefit of that contract. After reviewing the history of the exceptions, the Court noted that the exceptions were not met and dismissed the motion:
[61] Finally, the obvious objective of the Settlement Agreements was to extricate the Settling Parties from the litigation in exchange for a payment of money, while permitting the Plaintiff to continue the action against the remaining defendants. This was achieved by providing the Settling Parties with a release of liability, an indemnity, and a covenant that the Plaintiff would amend its pleadings to remove the Settling Parties and circumscribe its claim to preclude any claim over against them. Construing the Plaintiff’s obligation to limit its claim to extend to eliminating the Plaintiff’s right to joint recovery from the remaining defendants for loss attributed to them as a group would be commercially absurd since it would represent a significant detriment to the Plaintiff and would not confer any corresponding benefit on the Settling Parties.[ix]
Burden of proof at trial
If the claim against the settling defendants is resolved pre-trial – what happens at the trial itself? The courts have reviewed this issue in multiple jurisdictions and are now in agreement that the burden of proof at trial remains with the plaintiff to prove liability of the non-settling defendants, but shifts to the non-settling defendants to prove liability of the settling parties.[x]
This results from the fact that there is joint liability as between the non-settling parties as a group but severed as between the settling parties as a group and the non-settling parties. Put another way, the non-settling parties can never be responsible for more than the damages caused by them. As a result, it is in their interest to point at the “empty chair”. Conversely, having already received payment from the settling defendants (without a trial) the plaintiff should do its best to minimize any finding at trial that the settling defendants contributed to the damage caused.
What about winfall profits?
What do the settling parties have to disclose and when do they have to disclose it?
While the Supreme Court of Canada in Sable, supra, made it clear that the non-settling parties had no right to know the value of the settlement prior to the trial, subsequent decisions have made it clear that disclosure to the court (and the other parties) is required at the conclusion of the trial.
This is tied to the principles against overcompensation.
In Bedard v. Amin[xi] a settling defendant was found not liable following the trial (remember that shifting burden of proof!), but the plaintiff was successful against the non-settling defendants. This created a scenario where the plaintiff would recover more than 100% of the damages awarded (including the prior settlement). The concept of “Fortune favors the brave” ran into the countervailing force of concern against double recovery outweighing the interest in promoting settlements.
In order to get around this potential problem, the amount of the settlement proceeds (net of costs) is set off from the damages awarded at trial. This obviously requires disclosure of the settlement amount.
The Bedard decision has been upheld by a subsequent decision of the Alberta Court of Appeal[xii] and variations of the same principles have been adopted in appellate courts in multiple Canadian jurisdictions (with some variance).[xiii]
TL;DR – what’s the takeaway?
Pierringer (and B.C. Ferries) Agreements are an important part of the litigation toolbox in all multi-party litigation. Depending on what role you are playing, these agreements can fund the remainder of the litigation (plaintiff); get your client/insured out of a 100 day trial (settling party); or change the burden of proof at the trial (non-settling party).
Making sure that you are taking full advantage of these tools is critically important to making the right decisions in litigation.
All Pierringer agreements have the following in common
- The plaintiff receives a payment from the settling defendants in full satisfaction of the plaintiff’s claim against them;
- In return, the settling defendants receive from the plaintiff a promise to discontinue proceedings, effectively removing the settling defendants from the suit;
- Subsequent amendments to the pleadings formally remove the settling defendants from the suit; and
- The plaintiff then continues its suit against the non-settling defendants.
The settling parties must disclose the existence of the agreement to the other parties and the Court, but not the amount, which must be disclosed at the conclusion of the trial.
Following an agreement, the burden of proof shifts to the non-settling parties to prove that the settling parties were at fault. The overall burden of proof, remains with the plaintiff.
There is joint liability amongst the group of non-settling parties, but not with the settling parties.
The non-settling parties cannot issue third party proceedings against the settling parties and consequently, have no rights of discovery.
The amount of the settlement must be disclosed to the Court, with the net settlement proceeds to be deducted from the amount of the award at trial.
There are a lot of nuances to settlement agreements in multi-party actions, and the law varies with each jurisdiction. When retaining counsel in complex litigation, make sure that you look for legal advisors who are well versed in these issues.[xiv]
[i] Pierringer v. Hoger, 21 Wis. 2d 182 – Wis: Supreme Court 1963
[ii] British Columbia Ferry Corp. v. T & N, 1995 CanLII 1810 (BC CA)
[iii] Amoco Canada Petroleum Co. v. Propak Systems Ltd, 2001 ABCA 110 (CanLII), at para 14
[iv] Sable Offshore Energy Inc. v. Ameron International Corp., 2013 SCC 37 (CanLII), [2013] 2 SCR 623
[v] Sable, supra, at para 13
[vi] Sable, supra, at para 29
[vii] Amoco, supra, at paras 22 – 27
[viii] KAS3204 v. Navigator Development Corporation, 2020 BCSC 1954 at para 5
[ix] KAS3204, supra, at para 61
