Supreme Court of Canada Explains the Law of Settlement Privilege

On June 21, 2013, the Supreme Court of Canada released its most detailed treatment ever of the law of settlement privilege in Canada. In Sable Offshore Energy Inc. v. Ameron International Corp., the Court also addressed, for the first time, the rules governing disclosure of Pierringer settlement agreements.

The Facts

Sable Offshore Energy Inc. sued several defendants. It settled with some, but not all, of them. The settlements took the form of Pierringer agreements – so named after the U.S. case of Pierringer v. Hoger, which endorsed the use of such agreements. In a Pierringer agreement, the settling defendants are able to withdraw from the litigation, with the plaintiff agreeing to pursue the non-settling defendants only for the losses they caused, and waiving any claim by the plaintiff of joint liability between the settling and non-settling defendants.

All of the terms of the settlement agreements that Sable reached were disclosed to the non-settling defendants, except the settlement amounts themselves. The non-settling defendants brought a pre-trial application for disclosure of the amounts. The trial judge dismissed the application on the basis that the amounts were protected against disclosure by settlement privilege. The Nova Scotia Court of Appeal reversed that decision and ordered disclosure of the settlement amounts.

The Supreme Court Decision

The Supreme Court of Canada allowed the appeal and restored the trial judge’s ruling. The Court’s decision is a strong endorsement of the importance of the protections afforded by settlement privilege. Madam Justice Abella, writing for a unanimous Court, stated that settlement privilege should be protected because the privilege promotes settlement of litigious disputes, and thus promotes one of the most "enduringly successful" means of securing access to justice, thereby reducing the delays, expense and stress associated with litigating a claim.

Settlement privilege, the Court explained, is a class privilege like solicitor-client privilege. This means that there is a prima facie presumption of inadmissibility of evidence that meets the criteria for settlement privilege unless one of the narrow exceptions to the privilege applies. As long as a communication is shown to have been made with a view to negotiating a resolution of a litigious dispute, settlement privilege protects the communication against disclosure. Although the Court did not say so explicitly, it is implicit in the privilege analysis that, to be protected by settlement privilege, the settlement communication must have been made in confidence with the intention that it not be disclosed to the party seeking disclosure.

The Supreme Court confirmed the following five key points about the operation of settlement privilege:

1. Substance takes priority over form. It is not necessary that parties expressly state that their communications are "without prejudice," for settlement privilege to apply. The test is whether the communications (either oral or written) were made in confidence with the intent of trying to resolve a litigious dispute. Any negotiations undertaken with this purpose are inadmissible. 
    
2. Settlement privilege applies to civil and criminal matters. Settlement privilege is not limited in application only to the settlement of civil disputes. It also protects negotiations undertaken to try to settle criminal and regulatory prosecutions. 
    
3. Settlement agreements themselves are privileged. The privilege applies regardless of whether a settlement agreement is reached – that is, it applies to both successful and unsuccessful dispute resolution negotiations. The Court rejected recent case law that had held that settlement agreements were not privileged. 
    
4. Partial waiver is permitted. The Court impliedly endorsed the proposition that disclosure of part of a settlement agreement does not necessarily entail waiver of settlement privilege over the entire settlement agreement. In Sable, the Court held that settlement privilege continued to protect the settlement amounts despite the plaintiff’s having disclosed all other terms of the settlement agreements.
    
5. Limited exceptions to the privilege exist. There are exceptions to settlement privilege, just as there are exceptions to solicitor-client privilege. A court’s determination whether to recognize an exception involves a balancing exercise, assessing whether the public interest in recognizing an exception outweighs the strong public interest in promoting settlement by protecting the confidentiality of settlement negotiations. The Supreme Court confirmed that exceptions apply where disclosure is required to avoid overcompensating the plaintiff or where there are allegations that the settlement negotiations involved misrepresentation, fraud or undue influence. The Court rejected, however, the argument that an exception to settlement privilege should apply simply on the basis that it would facilitate further settlements in an action to disclose the outcome of an initial partial settlement.

On the issue of Pierringer agreements specifically, the Court endorsed their use as a mechanism for helping to attenuate the obstacles in the way of negotiating settlements in multi-party litigation. The Court opined that Pierringer agreements in Canada routinely include additional protections for non-settling defendants beyond those found in Pierringer agreements in the United States, such as a requirement that non-settling defendants be given access to the settling defendants’ evidence. The Court did not specifically state that such additional protections are required.

The decision in Sable Offshore Energy Inc. v. Ameron International Corp. adds helpful guidance to a relatively underdeveloped area of Canadian privilege law.

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