July 7, 2020
This article was co-authored by Randell Trombley, a former associate at JSS Barristers.
A “Pierringer Agreement” is a settlement contract between a Plaintiff and one or more, but not all, of the Defendants in a lawsuit. Pierringer Agreements impose several liability, allowing removal of a settling Defendant from an Action without compromising the Plaintiff’s continued pursuit of non-settling Defendants. Canadian Courts enforce Pierringer Agreements, recognizing them as a valuable tool for encouraging settlement in multi-party litigation.
Upon final adjudication of an Action impacted by a Pierringer Agreement, the Court notionally apportions several liability between settling Defendants, non-settling Defendants, and the Plaintiff. This apportionment may reveal that one or more of the settling Defendants compensated the Plaintiff in excess of the settling Defendants’ share of liability. In such circumstances, a policy question arises as to whether the Plaintiff should be permitted to retain the benefit of overpayment, or alternatively, whether the overpayment should be credited to the non-settling Defendants.
Those in favour of retention of a Pierringer settlement surplus by a Plaintiff argue that doing so encourages settlement. It stands to reason that, if the benefit of overpayment is to be enjoyed by Plaintiffs rather than Defendants, Plaintiffs will be incentivized to earn that benefit through settlement. In contrast, if the benefit of overpayment is to be enjoyed by Defendants rather than Plaintiffs, Defendants would be incentivized to earn that benefit by refusing to settle, discouraging good faith settlement negotiation.[1]
Those opposed to retention of a Pierringer settlement surplus by a Plaintiff respond that the choice of beneficiary for an overpayment is unlikely to impact settlement behaviour. Faced with uncertainty and expense, a Plaintiff is unlikely to pass up a principled settlement in an attempt to arbitrage a settling Defendant’s overpayment. It is also questionable whether Defendants would strategically hold out to gain the benefit of a settling Defendant’s overpayment. Formal offers are available to discourage such behaviour,[2] and in any event, proceeding through Trial presents significant expense, likely more costly than the amount of a windfall credit. Moreover, Pierringer settlement amounts are subject to settlement privilege,[3],[4] leaving holdout Defendants blind to the likelihood of a settlement surplus.
Perhaps the most important consideration in resolving the appropriate beneficiary of a settlement surplus is whether that surplus, in the hands of a Plaintiff, amounts to permissible double recovery. The weight of Canadian law opposes double recovery, particularly in tort, but also in contract where double recovery is only permitted pursuant to narrow exceptions. Plaintiffs hoping to retain an overpayment have likened settlement surplus to one of those exceptions: proceeds from a contract of private insurance.[5] They have also sought to characterize overpayment as lawful consideration from the settling Defendant in return for risk mitigation and the avoidance of further legal expense, inconvenience, and publicity.[6]
Appellate courts in British Columbia and Ontario, in 2008 and 2009 respectively, declined to treat Pierringer settlement surplus as an exception to the rule against double recovery.[7] The Court of Appeal of Alberta followed suit in a unanimous 2010 decision, awarding non-settling Defendants the benefit of a Pierringer settlement surplus.[8] The issue has since been revisited in 2018, with the Court of Appeal of Alberta maintaining its earlier holding and its unanimity in this respect.
Interestingly, the more recent of the two Court of Appeal of Alberta decisions included a qualification:
The principle against overcompensation, however, does not require the settling plaintiff to recognize a surplus until it is completely indemnified for its damage (despite any contributory negligence), and it has recovered its solicitor and client costs of pursuing the settling defendants.[9]
Notwithstanding a settling Defendant's ostensible entitlement to a settlement surplus, the Court appears to have meaningfully limited the circumstances in which a settlement surplus will be recognized. Presumably, it would take a very substantial surplus to exceed both the value of a Plaintiff’s contributory negligence, as well as a Plaintiff’s outlay for solicitor and client costs incurred through Trial. Whether the Court’s qualification is better recognized as clarification, or development, it makes clear that a potential windfall to non-settling Defendants is to be significantly moderated through full indemnification of a settling Plaintiff.
Andrew Wilson is the firm's managing partner. Click here for his bio.
Randell Trombley is a former associate at JSS Barristers.
[1] Canadian Natural Resources Limited v Wood Group Mustang (Canada) Inc (IMV Projects Inc), 2018 ABCA 305 at paras 128 and 139 [CNRL].
[2] Ibid at paras 140 and 143.
[3] Ibid at para 141.
[4] Sable Offshore Energy Inc v Ameron International Corp, 2013 SCC 37 at para 30.
[5] IBM Canada Limited v Waterman, 2013 SCC 70 at para 76.
[6] Bedard v Amin, 2010 ABCA 3 at para 15 [Bedard].
[7] Ibid at para 13.
[8] Bedard, supra note 7.
[9] CNRL, supra note 2 at para 162.
Please note that JSS Barristers insights are provided for informational purposes only. They are not intended as legal advice or a legal opinion. Please contact authors or JSS Barristers if you would like to obtain legal advice on this or other legal issues.