The Supreme Court of Canada Confirms Amounts of Settlements are Protected by Settlement Privilege

On June 21, 2013, the Supreme Court of Canada in Sable Offshore Energy Inc. v. Ameron International Corp., 2013 SCC 37¹, rendered a decision which addresses the scope of protection offered by settlement privilege and confirms that the amount of negotiated settlements are protected by settlement privilege.

Facts

Sable Offshore Energy Inc. (“Sable”) was the promoter for the building of offshore structures and onshore gas processing facilities in Nova Scotia, for which projects various defendants supplied Sable with parts for the Sable structures. Sable sued a number of defendants alleging that the supplied part were unfit for their intended purpose.

In course of the litigation, Sable entered into Pierringer Agreements² for the settlement out of court with some of the defendants (the “Agreement”). As part of the terms of the Agreement, Sable notably agreed to amend its claim against the non-settling defendants in order to pursue them only for their share of liability. The terms of the Agreement were disclosed to the non-settling defendants, with the exception of the agreed settlement amounts.

The non-settling defendants filed an application for disclosure of the settlements amounts paid to Saber by the settling defendants. Sable argued that said amounts were protected by settlement privilege.

The rulings of the Courts below

The Supreme Court of Nova Scotia concluded that the settlement amounts were covered by settlement privilege and dismissed the application for disclosure of same³.  The court concluded that the public interest was best served by preserving settlement privilege and keeping the settlement amounts confidential

This decision was overturned by the Court of Appeal for Nova Scotia⁴, which ordered the disclosure of the settlement amounts. Notably, the court was of opinion that the non-settling defendants were entitled to know the case they have to answer in accordance with the fundamental principle of a fair trial.

The decision of the Supreme Court of Canada

At the outset, the Court indicates that settlements allow parties to reach a mutually acceptable resolution to their dispute without prolonging the personal and public expense and time involved in litigation. Promoting settlement is a “sound judicial policy” that “contributes to the effective administration of justice”.

Settlement negotiations have long been protected by settlement privilege which entails that communications made in the course of such negotiations are inadmissible and cannot be disclosed. To set aside this privilege, a defendant would have to demonstrate, on the balance of probabilities, that a competing public interest outweighs the public interest in encouraging settlement.

Also, while the words “without prejudice” need not to be included in settlement negotiations for the privilege to apply, the settlement privilege protects all negotiations, whether an agreement has actually been reached or not.

Accordingly, the Court indicated that the negotiated amount is a key component of successful negotiations, reflecting the admissions, offers, and compromises made in the course of negotiations, and must be protected by the privilege. The Court opined that it is better to adopt a robust approach to promote settlement:

“Since the negotiated amount is a key component of the “content of successful negotiations”, reflecting the admissions, offers, and compromises made in the course of negotiations, it too is protected by the privilege. […] [I]t is better to adopt an approach that more robustly promotes settlement by including its content.”

The Court also indicated that the concern that the non-settling defendants could be required to pay more than their share of damage was not founded. It is inherent in these types of agreements that non-settling defendants can only be held liable for their share of the damages and are severally, and not jointly, liable with the settling defendants.

And although not disclosing the settlement amount could impact the defence strategy of the non-settling defendants or deprive them of a tactical advantage, the Court was of opinion that the likelihood of a settlement in the first place would decrease if the amount is disclosable:

“Someone has to go first, and encouraging that first settlement in multi-party litigation is palpably worthy of more protection than the speculative assumption that others will only follow if they know the amount.”

The Court finally concluded that protecting disclosure of settlement negotiations and their fruits has the demonstrable benefit of promoting settlement and that there was little corresponding harm in denying disclosure of the settlement amounts in that case.

This decision is consistent with the principles applicable in Quebec that also recognize that communications made in the course of settlement negotiations are confidential and are inadmissible as evidence. The decision of the Supreme Court of Canada nonetheless provides further guidance on this fundamental issue and clarifies the extent of the settlement privilege, which now indisputably include the extent of the settlement amount.