Written By James J. Heelan KC, Matt Riskin and Varun Kapoor

When only some of the defendants to a lawsuit want to settle, Pierringer agreements can be an attractive solution. However, in a recent decision that adopted principles from Ontario jurisprudence, the Court of King's Bench of Alberta confirmed that failure to promptly disclose a Pierringer agreement can have dire consequences for the action.

Introduction

While many assume that the civil litigation process often culminates in a trial, in practice, most lawsuits rarely get to that stage. Going to trial is often seen as a 'last resort' and there is growing sentiment that other dispute resolution mechanisms—such as settlement during pretrial processes—are just as likely to produce fair and just results while saving time and expenses.¹

Settlement can be an attractive alternative to a protracted trial process; however, what happens when there are multiple defendants to a lawsuit and not everyone is prepared to settle? This can happen for a variety of reasons, such as differences in risk tolerance, views on liability or available finances. For those who wish to settle, the option of a Pierringer agreement can be an attractive one.

Pierringer Agreements

Pierringer agreements were first recognized in the United States in 1963² and the legitimacy of such agreements has since been recognized in Alberta on multiple occasions, most recently in Ball v 1979927 Alberta Ltd, 2024 ABKB 229 (the Ball Decision).³ Pierringer agreements are a form of proportionate share settlement agreements, with “Mary Carter” agreements being the other common form.

Proportionate share settlement agreements allow a subset of defendants in a civil action to settle with the plaintiffs and cap their respective proportionate liability. Pierringer agreements in particular allow the settling defendants to "withdraw from the litigation, leaving the remaining defendants responsible only for the loss they actually caused."⁴ This stands in contrast to Mary Carter agreements in which the settling defendants do not withdraw from the litigation.⁵

While Pierringer agreements can be beneficial to those parties wishing to settle, such agreements have the potential to significantly alter the course of litigation. Agreement terms such as those requiring the settling defendants to cooperate with the plaintiffs can impact the non-settling defendants given that their interests are no longer aligned, and such defendants may take steps detrimental to their position.

To address these concerns, Alberta courts have long held that Pierringer agreements should be disclosed to non-settling defendants and the Court.⁶ Court approval is required to remove the settling defendants from the action, as well as ensure negative impacts on the non-settling defendants are minimized.⁷ Courts must also be able to enforce and control their own processes and "ensure justice is done between the parties."⁸

While disclosure of a Pierringer agreement is necessary, there has been ambiguity in Alberta law surrounding when Pierringer agreements should be disclosed. That ambiguity was recently addressed in the Ball Decision.

When the Immediate Disclosure of Pierringer Agreements is Required in Alberta

In the Ball Decision—which consisted of multiple plaintiffs and defendants—a subset of the defendants (the non-settling defendants) applied to the Court of King's Bench of Alberta seeking an order providing that, among other things, the action against them be dismissed, struck or permanently stayed because the plaintiffs failed to immediately disclose to the non-settling defendants, and the Court, the existence of a Pierringer agreement between the plaintiffs and those defendants which were parties to the settlement (the settling defendants).⁹

The Pierringer agreement in question was entered into on or about February 21, 2021, and was not disclosed to the non-settling defendants until December 9, 2021, nearly 10 months later.¹⁰ In his analysis of the law on the disclosure of Pierringer agreements, Associate Chief Justice Nixon drew on principles recognized in Ontario jurisprudence.

One such principle that Nixon J adopted was that the "[f]ailure to immediately disclose settlements that drastically alter the litigation landscape is an abuse of process."¹¹ The question to ask is "whether the [Pierringer agreement] at issue is one that changes the entirety of the litigation landscape. If so, it must be disclosed immediately," otherwise the failure to disclose will result in an automatic abuse of process and the underlying action must be stayed.¹² This is a bright line test, and the determination is fact-specific and based on the various parties and claims.¹³

Nixon J articulated that a Pierringer agreement can alter the litigation landscape and warrant immediate disclosure "because, until such time as disclosure is made and the settlement is approved [by the Court], the settling defendants under a Pierringer agreement are still parties to the underlying action whose continued involvement and cooperation with the plaintiffs is misleading."¹⁴ The roles and relationships between the parties to the litigation are only clarified once disclosure is made.¹⁵

An example of a Pierringer agreement that would alter the litigation landscape “entirely” is one that changes the relationship between parties from adversarial to co-operative.¹⁶ This was precisely how the litigation landscape was altered in the Ball Decision, as the Pierringer agreement in question stipulated that the settling defendants would cooperate with the plaintiffs.¹⁷

Nixon J held that the failure to immediately disclose the agreement was an automatic abuse of process and the action as against the non-settling defendants was permanently stayed.¹⁸

Nixon J acknowledged the plaintiffs' arguments that no actual prejudice had been experienced by the non-settling defendants; however, he further adopted the Ontario position that "a lack of prejudice is not a relevant consideration when dealing with failure to disclose."¹⁹

Conclusion

While Pierringer agreements may be an attractive solution when a subset of defendants wish to settle multi-party litigation, such agreements should be promptly disclosed to the non-settling defendants and the Court. Notwithstanding a lack of prejudice, if such agreements change the litigation landscape, failing to immediately disclose them can result in an abuse of process and, ultimately, a stay of the underlying action.²⁰

For further details about Pierringer agreements or to discuss a specific matter, please contact one of the authors or a member of Bennett Jones' Commercial Litigation group.

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