SCC Protects the Confidentiality of Settlement Amounts to Promote Settlement in Multi-Party Lawsuits

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A recent decision of the Supreme Court of Canada has ruled that in a multi-party lawsuit, a plaintiff that settles with only some defendants can keep the settlement amounts confidential from the non-settling defendants, at least until the liability of non-settling defendants is determined. The Court’s underlying rationale is that this advances the public interest in promoting settlement of lawsuits.

In Sable Offshore Energy Inc. v. Ameron International Corp., 2013 SCC 37, a decision released on June 21, 2013, the plaintiff sued suppliers of paint, and contractors that had applied the paint to the plaintiff’s structures. The plaintiff entered into Pierringer Agreements with only some of defendants. Pierringer Agreements allow certain defendants to settle with the plaintiff, while leaving the non-settling defendants potentially liable only for the loss they actually caused. All the terms of the settlement agreements were disclosed to the non-settling defendants except for the settlement amounts. Also, to avoid the possibility of being overcompensated, the plaintiff agreed to disclose the settlement amounts to the trial judge once the liability of the non-settling defendants had been determined.

The non-settling defendants applied to the Nova Scotia Supreme Court to compel the plaintiff to disclose the settlement amounts, arguing that non-disclosure impaired their ability to defend the case and impeded their own settlement initiatives.

The Nova Scotia Supreme Court dismissed the application, but the Nova Scotia Court of Appeal overturned that decision and ordered disclosure of the settlement of amounts. The plaintiff appealed to the SCC, which allowed the appeal and refused to order disclosure of the settlement amounts.

The SCC began by noting the public interest in promoting the settlement of lawsuits, in that settlement saves litigants the expense of a trial and conserves judicial resources. The SCC then recognized that settlement privilege promotes this public interest because settlement negotiations will more be more open, and therefore more fruitful if the parties know that the content of settlement negotiations cannot ultimately be disclosed.

Prior to the SCC decision, some lower court decisions had indicated that settlement privilege protected only settlement negotiations, but not concluded settlement agreements. In contrast, the SCC adopted “an approach that more robustly promotes settlement” by indicating that settlement privilege extends to the settlement agreement, as well as the settlement negotiations. The settlement privilege will be lifted only in exceptional cases where the non-settling defendants can show that a competing public interest outweighs the public interest of encouraging settlement, and not merely that disclosure is tactically advantageous to the non-settling defendants.

As the SCC noted, “someone has to go first” when settling multi-party litigation. A plaintiff can now enter into settlement agreements with greater assurance that the non-settling defendants will not be able use the settlement amounts to measure the plaintiff’s negotiation position. Defendants now have less incentive to take a wait-and-see approach to assess how settling defendants fared in their settlement negotiations with the plaintiff. While the dynamics that drive settlement are unique to each case, the SCC’s decision has, on balance, arguably made the law more conducive to settlement of multi-party litigation.