The Supreme Court has granted leave to appeal in a case that may elucidate the scope of discovery under Nova Scotia’s “semblance of relevance” test, in addition to the scope of settlement privilege and the entitlement of non-settling parties to know the settlement amounts under a Pierringer agreement in advance of the trial.
The case arose out of a tort action commenced by Sable Offshore Energy Inc. against a number of manufacturers of paint used in its offshore gas project. Ameron International Corporation, Ameron B.C. (collectively, “Amerons”) and Amercoat Canada (together with Ameron, the “Ameron Defendants”) were among the suppliers of paint used by Sable. It was alleged the paint failed prematurely. There was no contractual relationship between Sable and the Ameron Defendants. Sable’s claims against the Ameron Defendants were based on negligence, negligent misrepresentation and breach of a collateral warranty.
A Pierringer agreement takes its name from a 1963 Wisconsin case. The agreement allows some parties to a proceeding to settle claims and withdraw from litigation, leaving the remaining defendants responsible only for the loss they actually caused, with no joint liability with the settling defendants.
Sable and a number of defendants entered into Pierringer agreements, leaving the Ameron Defendants to continue the litigation. The terms of the Pierringer agreements were disclosed to the Ameron Defendants, but the amounts were not.
Ameron brought an application, pursuant to the 1972 Civil Procedure Rules (Nova Scotia), for the production of the settlement amounts. Sable opposed the application, on the ground that the amounts were covered by settlement privilege.
The Nova Scotia Supreme Court dismissed Ameron’s application. The Court held that the settlement amounts were relevant, but that they were covered by settlement privilege. The chambers judge concluded that the public interest in settlements was better furthered by protecting the settlement amounts from disclosure. She reasoned that the disadvantage to the non-settling defendants of not knowing the amount of settlement did not outweigh the benefit of encouraging settlement with some but not all of the defendants. Accordingly, the disclosure of the settlement amounts could take place only after trial.
Ameron appealed, arguing the disclosure should take place before trial. The determination that the amount is relevant was not appealed by Sable.
The Court of Appeal ordered that the settlement amounts be disclosured prior to the trial. The Court upheld the chambers judge’s finding that settlement amounts met the semblance of the relevant test, as they could reduce the amount payable by the non-settling defendants. However, the Court also held that the non-settling defendants were entitled to know the case which they had to answer, which includes the amount outstanding in the claim, and that this entitlement created an exception to the settlement privilege relied on by the chambers judge. Therefore, the disclosure had to be made prior to the trial, rather than following it. As stated by the Court:
“Brown instructs us that we must marry relevancy with the policy consideration to show that disclosure is necessary. The policy consideration, as discussed previously, is the fundamental tenet of our legal system that a party has a right to know the case it has to answer. In these circumstances, the disclosure of the settlement amount is necessary to give effect to Ameron’s right to know the case against it.
It seems axiomatic that if the settlement amounts are to be disclosed after trial to prevent double recovery, they must be relevant to the amount of the claim and, hence, the case to be met. I am satisfied that this is the type of exception referred to by Bryson, J.A. in Brown and the amounts outght to be disclosed.” (paras. 49-50)
In the result, then, the amount of the settlement was ordered to be disclosed to the non-settling parties, but not to the trial judge, prior to the trial.
Significance of the Appeal
The appeal to the Supreme Court has the potential to change the way in which Pierringer agreements are utilized by litigants. If not only the terms, but also the amounts, of settlement pursuant to Pierringer agreements must be disclosed to the non-settling litigants prior to trial, then non-settling defendants will have a better understanding of the case they must meet. Such disclosure may encourage settlement by “second-stage” defendants, who did not participate in the original Perringer agreement. Conversely, it may discourage plaintiffs from entering into a Perringer agreement in the first place, as such an agreement would “cap” the value of the claim and signal to the remaining defendants the amount which the plaintiff is prepared to accept.
As well, the Supreme Court’s decision may cast light upon the meaning of the “semblance of relevance” test for pre-trial discovery. Similar to Ontario, the Nova Scotia Civil Procedure Rules were recently amended to narrow the range of discoverable documents from those having a “semblance of relevance” to those which are simply “relevant”. However, the decision in Sable was rendered under the prior Rules, thus necessitating the application of the “semblance of relevance” test. The Court of Appeal in Sable noted the distinction between the old and new tests in referring to prior case law which had applied the new test to settlement communications. It will be interesting to see whether the Supreme Court comments upon this distinction, and provides guidance upon either the old or new relevancy tests for discovery.
Finally, the Supreme Court is likely to address the scope of settlement privilege, and in particular, the extent to which a litigant’s right to “know the case it has to answer” functions as an exception to it. While the Supreme Court did consider settlement privilege briefly in Globe and Mail v. Canada (A.G.)., it has yet to provide a detailed analysis of it. By contrast, the House of Lords considered settlement privilege extensively in Ofulue v. Bossert. It is possible that the Supreme Court will take advantage of the Sable appeal to lay the framework for the operation of the privilege in Canada.
Sable Offshore Energy et. al. v. Ameron International Corporation et. al., 2012 CanLII 36233
SCC Court File No. 34678
Date Granted: June 28, 2012