May 30, 2018

The Terms of Fair Settlement: Pierringer Agreements and the Benefits of Settlement in Multi-Party litigation

Settlement in multi-party litigation is to be encouraged, as confirmed by the Supreme Court of Canada in Sable Offshore Energy Inc v Ameron International Corp. One common mechanism for achieving settlements in multi-party litigation is through what is commonly known as a Pierringer agreement. A Pierringer agreement allows the settling defendants to be released from the lawsuit with the non-settling defendants left exposed to their proportionate share of liability. Despite their popularity, the impact of a Pierringer Agreement on the remaining defendants and the continuing litigation is not always clear.

The Superior Court of Ontario recently provided further guidance in this in area through its decision in AllianzGlobal Risks US Insurance Company v The Attorney General of Canada (“Allianz”).

In Allianz, there were several incidents causing damage to an aircraft owned by the Plaintiffs while flying into Ottawa International Airport for United Express/United Airlines. The Plaintiffs entered into a Pierringer agreement with two of the Defendants, Transport Canada and the airport authority. NAV Canada, the remaining Defendant, was to remain in the litigation as the only non-settling defendant.

There are two issues arising out of Allianz, which parties dealing with Pierringer agreements should be aware of:

1. The court has jurisdiction to compel the non-settling defendant to abandon its contribution and indemnity claims against the settling defendants.

One of the main issues in Allianz was the request for a bar order, which would prevent the non-settling Defendant from making any claim against any other defendant if it is ultimately found liable. The Court found it had jurisdiction to force a non-settling defendant to abandon claims against the settling defendants, including cross-claims and third party claims in an effort to implement the Pierringer agreement. The Court concluded that there would be no reason to continue claims for contribution indemnity from the settling defendants if the non-settling defendant is only liable for its proportionate share of liability under a Pierringer arrangement.

2. Discovery rights are not part of the terms the non-settling defendant is entitled to when approving a Pierringer agreement.

While NAV Canada did not oppose the dismissal of the cross-claims, its position was contingent on the Court approving the Pierringer agreement on terms that were fair to NAV Canada, including preserving their discovery rights against the settling defendants. NAV Canada’s position is common to most non-settling defendants, who face a perceived procedural prejudice when they are left as the sole remaining defendant in the litigation. As the Court in Allianz points out, the reality is that after the approval of the Pierringer agreement, the non-settling defendant will now be faced with defending the allegations for which it is 100% at fault, albeit on a several liability basis, and it may be required to prove the fault of the settling defendants even though they are non-parties. The Court must aim to prevent prejudice to the non-settling defendant in such circumstances.

This does not mean that the Court should grant all of the discovery rights being sought by the non-settling Defendant in the process.  Indeed, the Court in Allianz was alive to the possibility of overreaching by the non-settling Defendant to such an extent that the terms sought could undermine the settlement. To this end, the Court concluded that the non-settling defendant would be required to establish the need for discovery of the non-settling Defendant through a motion to examine or seek production under the Rules.

Allianz reaffirms the Court’s commitment to encouraging settlements in multi-party litigation and helpfully provides parties with further guidance on the jurisdiction of the Court to bar further litigation against settling Defendants as part of a Pierringer agreement. Perhaps most importantly, however, is that Allianz seems to favour an approach that preserves settling defendants’ rights by limiting a non-settling defendant’s right to automatic discovery post-settlement. As a result, the court has made it easier for settling defendants in Pierringer-type arrangements to extricate themselves from the cost and expense of litigation.