Sable Offshore Energy Inc., as agent for v. on behalf of the Working Interest Owners of the Sable Offshore Energy Project,, 2013 SCC 37

SUPREME COURT OF CANADA Citation: Sable Offshore Energy Inc. v.

Ameron International Corp., 2013 SCC 37, [2013] 2 S.C.R. 623 Date: 20130621 Docket: 34678 Between: Sable Offshore Energy Inc., as agent for and on behalf of the Working Interest Owners of the Sable Offshore Energy Project, ExxonMobil Canada Properties, Shell Canada Limited, Imperial Oil Resources, Mosbacher Operating Ltd., Pengrowth Corporation, ExxonMobil Canada Properties, as operator of the Sable Offshore Energy Project Appellants and Ameron International Corporation, Ameron B.V., Allcolour Paint Limited, Amercoat Canada, Rubyco Ltd., Danroh Inc. and Serious Business Inc.

Respondents Coram: McLachlin C.J. and LeBel, Abella, Cromwell, Moldaver, Karakatsanis and Wagner JJ. Reasons for Judgment: (paras. 1 to 31) Abella J. (McLachlin C.J. and LeBel, Cromwell, Moldaver, Karakatsanis and Wagner JJ. concurring) Sable Offshore Energy Inc. v.

Ameron International Corp., 2013 SCC 37, [2013] 2 S.C.R. 623 Sable Offshore Energy Inc., as agent for and on behalf of the Working Interest Owners of the Sable Offshore Energy Project, ExxonMobil Canada Properties, Shell Canada Limited, Imperial Oil Resources, Mosbacher Operating Ltd., Pengrowth Corporation and ExxonMobil Canada Properties, as operator of the Sable Offshore Energy Project Appellants v. Ameron International Corporation, Ameron B.V., Allcolour Paint Limited, Amercoat Canada, Rubyco Ltd., Danroh Inc. and Serious Business Inc. Respondents

Indexed as: Sable Offshore Energy Inc. v. Ameron International Corp. 2013 SCC 37 File No.: 34678. 2013: March 25; 2013: June 21.

Present: McLachlin C.J. and LeBel, Abella, Cromwell, Moldaver, Karakatsanis and Wagner JJ. on appeal from the court of appeal for nova scotia Civil Procedure — Access to justice — Disclosure — Privilege — Promoting Settlement — Settlement privilege — Scope ofprotection offered by settlement privilege — Appellants entering into Pierringer Agreements with some defendants to multi-partylitigation — Non-settling defendants seeking disclosure of amount of settlements prior to trial — Whether amounts of negotiatedsettlements protected by settlement privilege.

Sable Offshore Energy Inc. sued a number of defendants who had supplied it with paint intended to prevent corrosion ofSable’s offshore structures and onshore facilities. Sable also sued several contractors and applicators who had prepared surfaces andapplied the paint. The paint allegedly failed to prevent corrosion. Sable entered into Pierringer Agreements with some of the defendants,allowing those defendants to withdraw from the litigation while permitting Sable’s claims against the non-settling defendants tocontinue.

Pierringer Agreements allow one or more defendants in a multi-party proceeding to settle with the plaintiff, leaving theremaining defendants responsible only for the loss they actually caused. All of the terms of those agreements were disclosed to theremaining defendants with the exception of the amounts the parties settled for. The remaining defendants sought disclosure of thesettlement amounts. The trial judge dismissed the application seeking disclosure of the settlement amounts, concluding they were covered bysettlement privilege. The Court of Appeal overturned that decision and ordered the amounts disclosed.

Held: The appeal should be allowed. The purpose of settlement privilege is to promote settlement. Settlements allow parties to reach a mutually acceptableresolution to their dispute without prolonging the personal and public expense and time involved in litigation. Settlement privilegeprotects the efforts parties make to settle their disputes by ensuring that communications made in the course of those negotiations areinadmissible. The protection is for settlement negotiations, whether or not a settlement is reached.

That means that successfulnegotiations are entitled to no less protection than ones that yield no settlement. Since the negotiated amount is a key component of thecontent of successful negotiations, reflecting the admissions, offers, and compromises made in the course of negotiations, it too isprotected by the privilege. As with other class privileges, there are exceptions. To come within those exceptions, a defendant must show that, onbalance, a competing public interest outweighs the public interest in encouraging settlement.

The non-settling defendants have received all the non-financial terms of the Pierringer Agreements. They have access to allthe relevant documents and other evidence that was in the settling defendants’ possession. They also have the assurance that they willnot be held liable for more than their share of damages. As for any concern that the non-settling defendants will be required to pay morethan their share of damages, it is inherent in Pierringer Agreements that non-settling defendants can only be held liable for their share ofthe damages and are severally, and not jointly, liable with the settling defendants.

The defendants remain fully aware of the claims theymust defend themselves against and of the overall amount that Sable is seeking. There is therefore no tangible prejudice created bywithholding the amounts of the settlements which can be said to outweigh the public interest in promoting settlements. Cases Cited Referred to: Pierringer v. Hoger, 124 N.W.2d 106 (1963); Sparling v. Southam Inc. (1988), (ON SC),66 O.R. (2d) 225; Kelvin Energy Ltd. v. Lee, (SCC), [1992] 3 S.C.R. 235; Rush & Tompkins Ltd. v. Greater LondonCouncil, [1988] 3 All E.R. 737; Cutts v. Head, [1984] 1 All E.R. 597; Middelkamp v.

Fraser Valley Real Estate Board (1992), (BC CA), 71 B.C.L.R. (2d) 276; Brown v. Cape Breton (Regional Municipality), 2011 NSCA 32, 302 N.S.R. (2d) 84;Amoco Canada Petroleum Co. v. Propak Systems Ltd., 2001 ABCA 110, 281 A.R. 185; Hudson Bay Mining and Smelting Co. v. Wright(1997), (MB KB), 120 Man. R. (2d) 214; Dos Santos Estate v. Sun Life Assurance Co. of Canada, 2005 BCCA 4,207 B.C.A.C. 54; Unilever plc v. Procter & Gamble Co., [2001] 1 All E.R. 783; Underwood v. Cox (1912), (ONSCDC), 26 O.L.R. 303; Bioriginal Food & Science Corp. v. Sascopack Inc., 2012 SKQB 469 .

Statutes and Regulations Cited Civil Procedure Rules (Nova Scotia), rr. 20.02, 20.06. Authors Cited Bryant, Alan W., Sidney N. Lederman and Michelle K. Fuerst. The Law of Evidence in Canada, 3rd ed. Markham, Ont.: LexisNexis,2009. Knapp, Peter B. “Keeping the Pierringer Promise: Fair Settlements and Fair Trials” (1994), 20 Wm. Mitchell L. Rev. 1. Vaver, David. “‘Without Prejudice’ Communications ― Their Admissibility and Effect” (1974), 9 U.B.C. L. Rev. 85. APPEAL from a judgment of the Nova Scotia Court of Appeal (MacDonald C.J.N.S. and Oland and Farrar JJ.A.), 2011

NSCA 121, 310 N.S.R. (2d) 382, 983 A.P.R. 382, 26 C.P.C. (7th) 1, 346 D.L.R. (4th) 68, 12 C.L.R. (4th) 129, [2011] N.S.J. No. 687(QL), 2011 CarswellNS 893, reversing a decision of Hood J., 2010 NSSC 473, 299 N.S.R. (2d) 216, 947 A.P.R. 216, [2010] N.S.J.No. 713 (QL), 2010 CarswellNS 907. Appeal allowed. Robert G. Belliveau, Q.C., and Kevin Gibson, for the appellants. John P. Merrick, Q.C., and Darlene Jamieson, Q.C., for the respondents Ameron International Corporation and AmeronB.V. Terrence L. S. Teed, Q.C., and Ronald J.

Savoy, for the respondents Allcolour Paint Limited, Amercoat Canada, RubycoLtd., Danroh Inc. and Serious Business Inc. The judgment of the Court was delivered by [1] Abella J. — The justice system is on a constant quest for ameliorative strategies that reduce litigation’s stubbornlyendemic delays, expense and stress. In this evolving mission to confront barriers to access to justice, some strategies for resolvingdisputes have proven to be more enduringly successful than others.

Of these, few can claim the tradition of success rightfully attributedto settlements. [2] The purpose of settlement privilege is to promote settlement. The privilege wraps a protective veil around theefforts parties make to settle their disputes by ensuring that communications made in the course of these negotiations are inadmissible. [3] Sable Offshore Energy Inc. sued a number of defendants. It settled with some of them. The remaining defendantswant to know what amounts the parties settled for.

The question before us is whether those negotiated amounts should be disclosed orwhether they are protected by settlement privilege. Background [4] Sable undertook the Sable Offshore Energy Project, whose purpose was the building of several offshore structuresand onshore gas processing facilities in Nova Scotia. Ameron International Corporation and Ameron B.V. (Ameron) and Allcolour PaintLimited, Amercoat Canada, Rubyco Ltd., Danroh Inc. and Serious Business Inc. (collectively Amercoat) supplied Sable with paint forparts of the Sable structures.

Sable brought three lawsuits alleging that the paint failed to prevent corrosion. [5] In the lawsuit that is the subject of this appeal, Sable sued Ameron, Amercoat, and 12 other contractors andapplicators who were responsible for preparing surfaces and applying the paint coatings. The claims against Ameron and Amercoat werefor negligence, negligent misrepresentation and breach of a collateral warranty. The claims against the other defendants were similar. [6] Sable entered into three Pierringer Agreements with some of the defendants. Named for the 1963 Wisconsin caseof Pierringer v.

Hoger, 124 N.W.2d 106 (Wis. 1963), a Pierringer Agreement allows one or more defendants in a multi-party proceedingto settle with the plaintiff and withdraw from the litigation, leaving the remaining defendants responsible only for the loss they actuallycaused. There is no joint liability with the settling defendants, but non-settling defendants may be jointly liable with each other. [7] As part of the terms of the Agreements, Sable agreed to amend its statement of claim against the non-settlingdefendants to pursue them only for their share of liability.

In addition, all the relevant evidence in the possession of the settlingdefendants, would, in accordance with the Agreements, be given to the Plaintiffs and be discoverable by the non-settling defendants. [8] Ameron and Amercoat did not settle. All the terms of the Pierringer Agreements were disclosed to Ameron andAmercoat except the amounts agreed to. [9] These settlement agreements were approved by court order on April 27, 2010.

On December 3, 2010, Ameronfiled an application pursuant to Rules 20.02 and 20.06 of Nova Scotia’s 1972 Civil Procedure Rules (which the parties previously agreedwould govern the litigation) for disclosure of the settlement amounts paid under the Pierringer Agreements. Sable’s position was thatthe amounts were subject to settlement privilege. [10] Hood J. dismissed the defendants’ application for disclosure of the settlement amounts. She concluded that thepublic interest was best served by preserving settlement privilege and keeping the settlement amounts confidential.

The Court ofAppeal overturned that decision and ordered the amounts disclosed. Analysis [11] Settlements allow parties to reach a mutually acceptable resolution to their dispute without prolonging the personaland public expense and time involved in litigation. The benefits of settlement were summarized by Callaghan A.C.J.H.C. in Sparling v.Southam Inc. (1988), (ON SC), 66 O.R. (2d) 225 (H.C.J.): . . . the courts consistently favour the settlement of lawsuits in general. To put it another way, there is an overriding public interest infavour of settlement.

This policy promotes the interests of litigants generally by saving them the expense of trial of disputed issues, and itreduces the strain upon an already overburdened provincial court system. [p. 230] This observation was cited with approval in Kelvin Energy Ltd. v. Lee, (SCC), [1992] 3 S.C.R. 235, at p. 259, where

L’Heureux-Dubé J. acknowledged that promoting settlement was “sound judicial policy” that “contributes to the effective administrationof justice”. [12] Settlement privilege promotes settlements. As the weight of the jurisprudence confirms, it is a class privilege. Aswith other class privileges, while there is a prima facie presumption of inadmissibility, exceptions will be found “when the justice of thecase requires it” (Rush & Tompkins Ltd. v.

Greater London Council, [1988] 3 All E.R. 737 (H.L.), at p. 740). [13] Settlement negotiations have long been protected by the common law rule that “without prejudice” communicationsmade in the course of such negotiations are inadmissible (see David Vaver, “‘Without Prejudice’ Communications — TheirAdmissibility and Effect” (1974), 9 U.B.C. L. Rev. 85, at p. 88). The settlement privilege created by the “without prejudice” rule wasbased on the understanding that parties will be more likely to settle if they have confidence from the outset that their negotiations will notbe disclosed.

As Oliver L.J. of the English Court of Appeal explained in Cutts v. Head, [1984] 1 All E.R. 597, at p. 605: . . . parties should be encouraged so far as possible to settle their disputes without resort to litigation and should not be discouraged by theknowledge that anything that is said in the course of such negotiations . . . may be used to their prejudice in the course of theproceedings. They should, as it was expressed by Clauson J in Scott Paper Co v. Drayton Paper Works Ltd (1927) 44 RPC 151 at 157,be encouraged freely and frankly to put their cards on the table.

What is said during negotiations, in other words, will be more open, and therefore more fruitful, if the parties know that it cannot besubsequently disclosed. [14] Rush & Tompkins confirmed that settlement privilege extends beyond documents and communications expresslydesignated to be “without prejudice”. In that case, a contractor settled its action against one defendant, the Greater London Council (theGLC), while maintaining it against the other defendant, the Carey contractors.

The House of Lords considered whether communicationsmade in the process of negotiating the settlement with the GLC should be admissible in the ongoing litigation with the Careycontractors. Lord Griffiths reached two conclusions of significance for this case. First, although the privilege is often referred to as therule about “without prejudice” communications, those precise words are not required to invoke the privilege. What matters instead is theintent of the parties to settle the action (p. 739).

Any negotiations undertaken with this purpose are inadmissible. [15] Lord Griffiths’ second relevant conclusion was that although most cases considering the “without prejudice” rulehave dealt with the admissibility of communications once negotiations have failed, the rationale of promoting settlement is no lessapplicable if an agreement is actually reached.

Lord Griffiths explained that a plaintiff in Rush & Tompkins’ situation would bediscouraged from settling with one defendant if any admissions it made during the course of its negotiations were admissible in its claimagainst the other: In such circumstances it would, I think, place a serious fetter on negotiations . . . if they knew that everything that passed between themwould ultimately have to be revealed to the one obdurate litigant. [p. 744] [16] Middelkamp v.

Fraser Valley Real Estate Board (1992), (BC CA), 71 B.C.L.R. (2d) 276 (C.A.),subsequently endorsed the view that settlement privilege covers any settlement negotiations. The plaintiff James Middelkamp launcheda civil suit against Fraser Valley Real Estate Board claiming that it had engaged in practices that were contrary to the Competition Act,R.S.C. 1985, c. C-34, and caused him to suffer damages. He also complained about the Board’s conduct to the Director of Investigationand Research under different provisions of the Act, resulting in an investigation by the Director and criminal charges against the Board.

The Board negotiated a settlement with the Department of Justice, leading to the criminal charges being resolved. Middelkamp soughtdisclosure of any communications made during the course of negotiations between the Board and the Department of Justice. McEachernC.J.B.C. refused to order disclosure of the communications on the basis of settlement privilege, explaining: . . . the public interest in the settlement of disputes generally requires “without prejudice” documents or communications created for, orcommunicated in the course of, settlement negotiations to be privileged.

I would classify this as a “ʻblanketʼ, prima facie, common law,or ‘class’” privilege because it arises from settlement negotiations and protects the class of communications exchanged in the course ofthat worthwhile endeavour. In my judgment this privilege protects documents and communications created for such purposes both from production to otherparties to the negotiations and to strangers, and extends as well to admissibility, and whether or not a settlement is reached.

This isbecause, as I have said, a party communicating a proposal related to settlement, or responding to one, usually has no control over whatthe other side may do with such documents. Without such protection, the public interest in encouraging settlements will not be served.[Emphasis added; paras. 19-20.] [17] As McEachern C.J.B.C. pointed out, the protection is for settlement negotiations, whether or not a settlement isreached. That means that successful negotiations are entitled to no less protection than ones that yield no settlement. The reasoning inBrown v.

Cape Breton (Regional Municipality), 2011 NSCA 32, 302 N.S.R. (2d) 84, is instructive. A plaintiff brought separate claimsagainst two defendants for unrelated injuries to the same knee. She settled with one defendant and the Court of Appeal had to considerwhether the trial judge was right to order disclosure of the amount of the settlement to the remaining defendant.

Bryson J.A. found thatdisclosure should not have been ordered since a principled approach to settlement privilege did not justify a distinction betweensettlement negotiations and what was ultimately negotiated: Some of the cases distinguish between extending privilege from negotiations to the concluded agreement itself. . . . The distinction .. . is arbitrary.

The reasons for protecting settlement communications from disclosure are not usually spent when a deal is made.Typically parties no more wish to disclose to the world the terms of their agreement than their negotiations in achieving it. [Emphasisadded; para. 41.]

Notably, this is the view taken in Alan W. Bryant, Sidney N. Lederman and Michelle K.

Fuerst, The Law of Evidence in Canada (3rd ed.2009), where the authors conclude: . . . the privilege applies not only to failed negotiations, but also to the content of successful negotiations, so long as the existence orinterpretation of the agreement itself is not in issue in the subsequent proceedings and none of the exceptions are applicable. [Emphasisadded; §14.341.] [18] Since the negotiated amount is a key component of the “content of successful negotiations”, reflecting theadmissions, offers, and compromises made in the course of negotiations, it too is protected by the privilege.

I am aware that some earlierjurisprudence did not extend the privilege to the concluded agreement (see Amoco Canada Petroleum Co. v. Propak Systems Ltd., 2001ABCA 110, 281 A.R. 185, at para. 40, citing Hudson Bay Mining and Smelting Co. v. Wright (1997), (MB KB), 120Man. R. (2d) 214 (Q.B.)), but in my respectful view, it is better to adopt an approach that more robustly promotes settlement by includingits content. [19] There are, inevitably, exceptions to the privilege.

To come within those exceptions, a defendant must show that, onbalance, “a competing public interest outweighs the public interest in encouraging settlement” (Dos Santos Estate v. Sun Life AssuranceCo. of Canada, 2005 BCCA 4, 207 B.C.A.C. 54, at para. 20). These countervailing interests have been found to include allegations ofmisrepresentation, fraud or undue influence (Unilever plc v. Procter & Gamble Co., [2001] 1 All E.R. 783 (C.A. Civ. Div.), Underwoodv. Cox (1912), (ON SCDC), 26 O.L.R. 303 (Div.

Ct.)), and preventing a plaintiff from being overcompensated (DosSantos). [20] The non-settling defendants argue that there should be an exception to the privilege for the amounts of thesettlements because they say they need this information to conduct their litigation. I see no tangible prejudice created by withholding theamounts of the settlements which can be said to outweigh the public interest in promoting settlements. [21] The particular settlements negotiated in this case are known as Pierringer Agreements.

Pierringer Agreements weredeveloped in the United States to address the obstacles to settlement that arose in multi-party litigation. Professor Peter B. Knappsummarized the value — and complexity — of trying to settle multi-party litigation as follows: Settlement of complicated multi-defendant civil litigation is particularly valuable, because complicated civil trials can consumeenormous amounts of a judge’s time and can be expensive for the parties. However, settling multi-defendant civil litigation can beespecially difficult.

Different defendants have different tolerances for risk, and some defendants are simply far less willing to settle thanothers. (“Keeping the Pierringer Promise: Fair Settlements and Fair Trials” (1994), 20 Wm. Mitchell L. Rev. 1, at p. 5) [22] Professor Knapp also explained why, prior to Pierringer Agreements, settlements had been difficult to encourage: On one hand, a plaintiff contemplating settlement with one of several defendants faced the possibility that release of the one defendantwould also extinguish all claims against the nonsettling defendants.

On the other hand, in jurisdictions which permitted contributionamong joint tortfeasors, a settling defendant faced the possibility of post-settlement contribution claims made by the nonsettlingdefendants. [pp. 6-7] [23] In the United States, Pierringer Agreements were found to significantly attenuate the obstacles in the way ofnegotiating settlements in multi-party litigation. Under a Pierringer Agreement, the plaintiff’s claim was only “extinguished” againstthose defendants with whom it settled; the claims against the non-settling defendants continued.

The settling defendants, meanwhile,were assured that they could not be subject to a contribution claim from the non-settling defendants, who would be accountable only fortheir own share of liability at trial. [24] Pierringer Agreements in Canada built on these American foundations and routinely included additional protectionsfor non-settling defendants, such as requiring that non-settling defendants be given access to the settling defendants’ evidence.

In thiscase, for example, the court order approving the settlement required that the plaintiffs get production of all relevant evidence from thesettling defendants and make this evidence available to the non-settling defendants on discovery. It also ordered that, with respect tofactual matters, there be no restrictions on the non-settling defendants’ access to experts retained by the settling defendants.

In addition,the Agreements in this case specified that their non-financial terms would be disclosed to the court and non-settling defendants “to theextent required by the laws of the Province of Nova Scotia and the rulings and ethical guidelines promulgated by the Nova ScotiaBarristers’ Society” (A.R., at pp. 142 and 184). [25] The non-settling defendants have in fact received all the non-financial terms of the Pierringer Agreements. Theyhave access to all the relevant documents and other evidence that was in the settling defendants’ possession.

They also have theassurance that they will not be held liable for more than their share of damages. Moreover, Sable agreed that at the end of the trial, onceliability had been determined, it would disclose to the trial judge the amounts it settled for.

As a result, should the non-settlingdefendants establish a right to set-off in this case, their liability for damages will be adjusted downwards if necessary to avoidovercompensating the plaintiff. [26] As for any concern that the non-settling defendants will be required to pay more than their share of damages, it isinherent in Pierringer 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. [27] It is therefore not clear to me how knowledge of the settlement amounts materially affects the ability of the non-

settling defendants to know and present their case. The defendants remain fully aware of the claims they must defend themselves againstand of the overall amount that Sable is seeking.

It is true that knowing the settlement amounts might allow the defendants to revise theirestimate of how much they want to invest in the case, but this, it seems to me, does not rise to a sufficient level of importance to displacethe public interest in promoting settlements. [28] The non-settling defendants also argued that refusing disclosure impedes their own possible settlement initiativessince they are more likely to settle if they know the settlement amounts already negotiated. Perhaps. But they may also, depending onthe amounts, arguably come to see them as a disincentive.

In any event, theirs is essentially a circular argument that the interest insubsequent settlement outweighs the public interest in encouraging the initial settlement. But the likelihood of an initial settlementdecreases if the amount is disclosable. [29] Someone has to go first, and encouraging that first settlement in multi-party litigation is palpably worthy of moreprotection than the speculative assumption that others will only follow if they know the amount. The settling defendants, after all, wereable to come to a negotiated amount without the benefit of a guiding settlement precedent.

The non-settling defendants’ position is noworse. As Smith J. noted in protecting the settlement amount from disclosure in Bioriginal Food & Science Corp. v. Sascopack Inc.,2012 SKQB 469 : . . . imperfect knowledge is virtually always the case in settlement negotiations. There are always knowns and known unknowns . . . .[para. 33] And Bryson J.A. compellingly summarized the competing arguments in Brown as follows: Some courts have argued that it is necessary to go further and disclose the settlement amount itself.

They hold either that theagreement (unlike negotiations) is not privileged or that the settling parties have an advantage which should be redressed by disclosure. .. . If indeed settling parties thereby enjoy an advantage over non-settling parties, it is one for which they have bargained. The courtshould hesitate to expropriate that advantage by ordering disclosure at the instance of non-settling parties, intransigent or otherwise.

Theargument that disclosure would facilitate settlement amongst the remaining parties ignores that, but for the privilege, the first settlementwould often not occur. [Citations omitted; para. 67.] [30] A proper analysis of a claim for an exception to settlement privilege does not simply ask whether the non-settlingdefendants derive some tactical advantage from disclosure, but whether the reason for disclosure outweighs the policy in favour ofpromoting settlement.

While protecting disclosure of settlement negotiations and their fruits has the demonstrable benefit of promotingsettlement, there is little corresponding harm in denying disclosure of the settlement amounts in this case. [31] I would therefore allow the appeal with costs throughout. Appeal allowed with costs throughout. Solicitors for the appellants: McInnes Cooper, Halifax. Solicitors for the respondents Ameron International Corporation and Ameron B.V.: Merrick Jamieson Sterns Washington &Mahody, Halifax.

Solicitors for the respondents Allcolour Paint Limited, Amercoat Canada, Rubyco Ltd., Danroh Inc. and Serious BusinessInc.: Bingham Law, Moncton.