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Monday Morning Case Bites for October 1, 2018

Last Week’s Court Rulings from the Alberta Court of Queen’s Bench, Court of Appeal and SCC.

Edited by Amanda Kostek & Christie Dewar

Canadian Natural Resources Limited v Wood Group Mustang (Canada) Inc (IMV Projects Inc), 2018 ABCA 305
Pierringer agreement l Over settling l Credit for surplus l Solicitor client costs

Envacon Inc v 829693 Alberta Ltd, 2018 ABCA 313
Contempt l Remedy for anticipated non-compliance

Judgment Highlights

Canadian Natural Resources Limited v Wood Group Mustang (Canada) Inc (IMV Projects Inc), 2018 ABCA 305

On the eve of Trial two defendants entered into a Pierringer agreement with the plaintiff. The Trial proceeded against the remaining defendant. The Court revisited the key features of a Pierringer agreement and how they differ from Mary Carter agreements:

[119] In the month immediately before the trial, CNRL entered into Pierringer settlement agreements with Shaw Pipe and Flint Field Services. Under a Pierringer agreement, the plaintiff enters into final settlements with some of the defendants, who withdraw from the litigation. The plaintiff then proceeds to trial against the non-settling defendants: Pierringer v Hoger, 124 NW 2d 106 (1963 SC Wisconsin). The settling defendants agree to pay a sum of money, they are no longer parties to the action, and the plaintiff agrees not to pursue the non-settling defendants for more than their proportionate liability. Since the non-settling defendants cannot be liable for more than their proportionate share of the damage, the settling defendants are not exposed to any claim for contribution from the non-settling defendants.

[120] There are many variations of partial settlement agreements: CCS Corp. v Secure Energy Services Inc., 2016 ABQB 94 (CanLII) at para. 32, 83 CPC (7th) 126. Pierringer agreements can be contrasted with another common type, Mary Carter agreements: Booth v Mary Carter Paint Co., 202 So 2d 8(1967 Fl Dist CA). In a Mary Carter agreement, the plaintiff is guaranteed a fixed recovery from the settling defendants, but the settling defendants remain parties to the action and seek to maximize recovery from the non-settling defendants. The settling defendants’ exposure is capped at the agreed amount, but the settling defendants’ obligation decreases in direct proportion to any increase in the non-settling defendants’ liability as determined at trial.

The Court primarily discussed the issues that arise when a Trial then proceeds against the non-settling defendants and it is subsequently discovered that the plaintiff was either overcompensated or undercompensated by the settling party. In particular, the Court considered whether the plaintiff or non-settling defendants are entitled to a credit for over payment, and the issue of double compensation:

[125] A number of issues arose from the Pierringer agreements. Underlying these issues is the existing rule in Bedard v Amin, which provides that the plaintiff must account to the non-settling defendants if it “over settled”. In other words, if a settling defendant agrees to pay the plaintiff more than the trial judge finds that settling defendant would have been liable for, the non-settling defendant is entitled to credit for that “overpayment” in order to avoid the plaintiff being double compensated. The specific issues are:

(a) CNRL’s calculations suggest that it may have “under settled” with Flint Field Services or Shaw Pipe. If it turns out that CNRL has actually “over settled” with either of them, does CNRL have to give IMV Projects credit for the “surplus”? IMV Projects argues that it should be given credit for any “surplus” to avoid a “windfall” to CNRL. CNRL argues that there is no “over settlement” on these facts, but that in any event it should be entitled to the benefit of the bargain it made.

(b) With respect to the “windfall” issue, the parties were given leave to reargue this Court’s prior decision in Bedard v Amin: see Canadian Natural Resources Ltd. v Wood Group Mustang (Canada) Inc., 2018 ABCA 122 (CanLII).

(c) In determining whether the settling plaintiff has been overcompensated, does one measure the plaintiff’s recovery against its total loss, or only against that portion of the loss that was not caused by its contributory negligence?

(d) Is CNRL entitled to deduct solicitor and client costs in determining its net recovery under the Pierringer agreements?

The plaintiff argued that the Bedard v Amin decision was unfair as it placed the risk on the Plaintiff, and discouraged settlement:

[128] Bedard v Amin considered the arguments for and against these alternatives. As the Court noted at para. 2:

The question calls for a balancing of competing policy objectives: the public interest in encouraging settlement of multi-party litigation versus the rule against double recovery in tort claims.

The arguments in favour of allowing the plaintiff to keep the “surplus” were that the plaintiff, having incurred the risk of settling, should be entitled to the benefits as well. Allowing the plaintiff to keep the surplus would encourage settlement, whereas allowing the non-settling defendant credit for the surplus would encourage recalcitrant and unreasonable defendants. There was no policy reason for reducing the responsibility of the non-settling defendant for the damage it caused. Alternatively, any “surplus” was not truly the proceeds of the cause of action, rather it was the consideration under a separate contract, the accord and satisfaction represented by the Pierringer agreement. As such, there was no actual double recovery, and the plaintiff should not have to give credit. The arguments in favour of requiring the plaintiff to account to the non-settling defendant for the “surplus” were that double recovery should be avoided, as emphasized in the leading decision of Ratych v Bloomer, 1990 CanLII 97 (SCC), [1990] 1 SCR 940.

The non-settling defendant argued that Pierringer agreements are problematic for non-settling defendants because the Plaintiff loses incentive to prove the settling defendant’s responsibility for damages, which effectively shifts the burden of doing so to the non-settling defendant:

[142] IMV Projects argues that Pierringer agreements are inherently problematic for the non-settling defendant. Once the settling defendant withdraws from the litigation, the plaintiff loses any incentive to prove it responsible for the damage, thereby shifting the burden of proof to the non-settling defendant. At the same time it becomes increasingly difficult for the non-settling defendant to prove the responsibility of the settling defendant: see P.B. Knapp, “Keeping the Pierringer Promise” at pp. 66-7; Allianz Global Risks US Insurance Co. v Canada (Attorney General), 2017 ONSC 4484 (CanLII) at paras. 24-6, 139 OR (3d) 424. Some of those challenges manifested themselves in this litigation. IMV Projects argues that, overall, Pierringer agreements are not advantageous to non-settling defendants, despite the speculative prospect of benefiting from an over settlement with a settling defendant.

The Court concluded that the current state of the law is a balance between preventing overcompensation and encouraging settlement:

[147] In summary, there are arguments both for and against the existing rule that a settling plaintiff must account to the non-settling defendant for any recovery in excess of its actual damages. As put by N.G. Wilson in “Encouraging Settlement” at p. 447: “The law as it stands represents a curious balancing of preventing overcompensation and encouraging settlement.” Reversing the rule requiring a plaintiff to account for over-settlements would eliminate any balancing, and allow the encouragement of settlement to predominate over the rule against overcompensation.

In determining whether a plaintiff has been overcompensated, the issue of costs had to be considered as well. The Court determined that the plaintiff should be compensated for solicitor client costs regardless of whether they were provided for in the Pierringer agreement as the rule against double compensation is a rule of law, not of contract:

The Costs Deduction

[152] In determining its net recovery, the plaintiff in a Pierringer agreement is entitled to deduct the costs of pursuing the claim. This point was made in Bedard v Amin at para. 18:

18 We would add this qualification. The end result following the deduction of settlement proceeds should be that the appellants receive the full level of compensation for which the trial judge found the non-settling defendants liable. We have no way of knowing whether the settlement amount included a provision for costs, but it seems obvious that some legal costs would have been incurred in connection with the settled claim. Only the net settlement proceeds, after an appropriate deduction for costs incurred in the claim against the settling defendants, should be set off against the damage award at trial. If the parties cannot agree on quantum, they can apply to Queen’s Bench for a determination.

Bedard v Amin did not specify whether the appropriate deduction was solicitor and client costs or only party and party costs.

[156] The issue here, however, is not whether the Pierringer agreements did or did not include solicitor and client costs in the settlement, it is not whether those costs were sufficiently quantified in those agreements, nor is it whether CNRL was entitled to solicitor and client costs under the Memorandum of Agreement. The rule against double compensation of plaintiffs (thus entitling a non-settling defendant to the benefit of any “windfall” or “surplus” arising from a Pierringer situation) is a rule of law, not of contract. The rule operates apart from the intention of the plaintiff, the settling defendants, or the non-settling defendants (who are not even parties to the contract). The parties cannot contract themselves into or out of the rule against double compensation, and the real issue is the scope of that rule.

[157] The law requires the plaintiff to account for any “windfall” or “surplus” to prevent double recovery, the effect being that the non-settling defendant will pay less than the court felt it was liable for in law. As a matter of policy, there is no justification for requiring the plaintiff to account for any “surplus” until it has been fully compensated for the expenses incurred in recovering the settlement amounts. Until the plaintiff is fully indemnified for its costs, there is no “surplus”, no double compensation, and no basis on which to confer any benefit on the non-settling defendant. As a general rule, in accounting for any “windfall” or “surplus” arising under a Pierringer agreement, the plaintiff should be entitled to deduct its reasonable solicitor and client costs incurred in pursuing the settling defendants.

The Court concluded that in the event of an “over settlement” in a Pierringer agreement, the plaintiff must give credit to the non-settling defendant for any surplus, but only after the plaintiff has been completely indemnified by the settling party for its several liability, including solicitor client costs:

Summary on Pierringer Issues

[162] In summary, CNRL has not established a basis for setting aside the prior decision of this Court in Bedard v Amin. A settling plaintiff under a Pierringer agreement must give credit to the non-settling defendant for any surplus arising from the payments by the settling defendants. 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.

Envacon Inc v 829693 Alberta Ltd, 2018 ABCA 313

Three production orders required the Defendant to produce financial statements. Those orders were not complied with, and attempts to comply were not diligent. On an application for contempt the Court struck the Defendant’s pleadings, and awarded solicitor client costs. On Appeal the Court of Appeal noted that the orders were not appealed. The Court directed that if the Defendant anticipated being unable to comply with the Orders, then other remedies were available:

[16] The proper course for a contemnor who believes or anticipates non-compliance with a court order is to vary, discharge or appeal it: Carey at para 58; Phillips v Avena, 2006 ABCA 19 (CanLII) at para 94, 384 AR 34. A person said to have breached an order presumably would have had a route of appeal or review available and did not follow it, or did follow it and was unsuccessful. Even if such an appeal or review was not possible, it would still not be open to the alleged contemnor to wait to launch a collateral attack on the order or engage in a deliberate and inexcusable disobedience of it: Compare Behn v Moulton Contracting Ltd, 2013 SCC 26 (CanLII) at paras 39 to 42, [2013] 2 SCR 227.

The Court of Appeal concluded that the first two production Orders were not clear. The third was clearly not complied with. As a result, the Court of Appeal allowed the appeal with respect to striking the Pleadings, but directed that the Defendant pay solicitor client costs for all steps taken in relation to securing compliance with the third Order.