Saskatchewan – court approves arbitral parties’ Pierringer agreement in litigation against third party

Upon application, Madam Justice Brenda R. Hildebrandt in Rosetown (Town) v. Bridge Road Construction Ltd., 2020 SKQB 3 approved an agreement between two (2) arbitral/litigation parties T and BR to release BR from litigation involving a third party S which did not participate in that agreement.  The agreement, known as a Pierringer agreement, left S open to its proportionate share of responsibility in the litigation pursued by T.  Having examined the Pierringer agreement in light of its impact on S, Hildebrandt J. approved its application and amendments to the pleadings in court to implement it.

Hildebrandt J.’s decision involved three (3) groups of parties and allegations of deficient design and construction of personal care facility in Rosetown, Saskatchewan: the Town of Rosetown (“Town”); Bridge Road Construction Ltd. and Bridge Road Developments Ltd. (collectively “Bridge Road”); and, Samson Design Inc. and Samson Engineering Inc. (collectively “Samson”).

The allegations lead to three (3) separate proceedings:

(i) arbitration – Town issued a January 6, 2017 notice to arbitrate against Bridge Road under their construction contract.  Samson is not a party to the construction contract and did not participate in the proceedings other than to provide documents and attend mediation;

(ii) court litigation QBG 1297 of 2016 – Town initiated litigation against Bridge Road and, later amended to include Samson.  Samson then advanced a cross-claim against Bridge Road; and,

(iii) court litigation QBG 1456 of 2017 – Bridge Road initiated litigation against Samson.  The litigation was held in abeyance pending the outcome of the arbitration.

After arbitration and litigation had been initiated, Town and Bridge Road entered into a Pierringer agreement.  Samson was not a party to that Pierringer agreement.  Town sought an order from the Court of Queen’s Bench in the second file QBG 1297 of 2016 which involved:

(a) dismissing Town’s claims against Bridge Road and the cross-claim filed by Samson;

(b) barring future claims against Bridge Road;

(c) granting leave to amend pleadings;

(d) providing directions for questioning of Bridge Road by Samson; and,

(e) giving directions regarding disclosure to trial judge of Bridge Road payment under Pierringer agreement.

Hildebrandt J. had to determine whether court approval was necessary and, if so, should the Pierringer agreement in issue be approved and if so, the terms of implementing the Pierringer agreement.

(1) Pierringer agreement – Hildebrandt J. provided context for her analysis and resulting order by referring back to an Alberta Court of Appeal decision in Amoco Canada Petroleum Co. Ltd. v. Propak Systems Ltd., 2001 ABCA 110 which permitted some but not all defendants in a complex multi-party litigation to settle though not without impact on the remaining defendants in gathering pre-trial evidence.  The decision set out what is a “Pierringer agreement” and its source.

[3] The case has meandered towards trial, with extensive though as yet incomplete discovery and document production. Now, nearly a decade after the fire occurred, ten groups of defendants want out and the plaintiffs want to let them go. They have entered into a type of settlement agreement known as a “Pierringer agreement” named after Pierringer v. Hoger et al., 124 N.W. (2d) 106 (Wis. S.C. 1963), the Wisconsin case in which this type of agreement was first considered. Such agreements permit some parties to withdraw from the litigation, leaving the remaining defendants responsible only for the loss they actually caused, with no joint liability. As the non-settling defendants are responsible only for their proportionate share of the loss, a Pierringer agreement can properly be characterized as a “proportionate share settlement agreement”.

Hildebrandt J. noted that the Pierringer agreement between Town and Bridge Road “is generally well-drafted and comprehensive”.  The agreement between those parties was conditional upon the court issuing an order authorizing “consequential steps” which involved not only discontinuing litigation between the parties to the agreement but also dismissal of Samson’s cross-claim.  Part of the agreement included Town’s undertaking not to pursue Samson for an amount greater than if Bridge Road remained in defendants in the action.

(2) court approval of Pierringer agreement – paras 9-25

Hildebrandt J. reviewed the key precedents and their comments on the need, if any, of court approval of Pierringer agreements.  In addition to Amoco Canada Petroleum Company Ltd. v. Propak Systems Ltd., 2001 ABCA 110, she considered Sable Offshore Energy Inc. v. Ameron International Corp., 2013 SCC 37 (CanLII), [2013] 2 SCR 623 and Bioriginal Food & Science Corp v. Sascopack Inc, 2012 SKQB 469 paras 20-21 and 33.  The need for approval appeared to be implicit in Baert v. Graham, 2011 SKCA 21 and Pchelnyk et al v. Carson et al, 2017 SKQB 181.

[22] While I accept that it is not the role of the court to parse the wording of the Pierringer agreement, evaluating its terms in order to ensure that procedural protections remain in place for non-settling parties is an appropriate approval function of this court. As well, the terms of the agreement inform the process of granting leave to amend the pleadings in consequence of the Pierringer agreement.

Given the precedents and the impact on Samson, Hildebrandt J. concluded that court approval was required.

(3) approval of the Pierringer agreement in issue – paras 26-43

Having decided that court approval of Town’s and Bridge Road’s Pierringer agreement was required, Hildebrandt J. examined the terms closely, tracking her analysis to various points raised by Samson as a third party most affected by a contract it did not sign.  At paras 27-28 Hildebrandt J. summed up the essence of the Pierringer agreement and its impact on Samson.

Samson submitted that it did not oppose Bridge Road from being removed from the action but “did not wish to be precluded from maintaining pleadings against Bridge Road”. Hildebrandt J. observed that “[t]hese positions are inconsistent”.  She noted that, in the amended Statement of Claim submitted for approval, Town and Bridge Road had provided that Samson was still free to allege fault on behalf of Bridge Road.

[31] Samson acknowledges this ability to continue “pointing the fingers at others” but wants Bridge Road to remain named as a defendant, particularly to the cross-claim, so as to obtain disclosure and undertake questioning. However, for the Pierringer agreement to be operative, Bridge Road needs to be removed as a defendant. It cannot be kept in the action notionally or partially. This would defeat the purpose of the settlement, which is reflected at para. F. in the preamble to the Pierringer agreement:

It is the intent and purpose of this Agreement that Bridge Road Construction and Bridge Road Developments are fully and finally removed and released from the Arbitration and the Action . . .

Hildebrandt J. reviewed other terms in the Pierringer Agreement which sought to repurpose the evidence collected/exchanged in the arbitration for use in the action and to tailor Samson’s access to further evidence.

[33] As noted, pursuant to the construction contract between the Town and Bridge Road, those parties began the arbitration process. Samson was not involved, save for providing disclosure of materials and attending the mediation session. The Pierringer agreement, at para. 15, provides that “all evidence [Bridge Road] and its former employees gave in the Arbitration, including documents, questioning transcripts, undertaking responses, and expert reports”, with only the exception of documents and evidence relating to Bridge Road’s finances, “can and will be produced and used in the Action as though it had been produced by Bridge Road.”  As such, Samson will have access to all pertinent information.

[34] However, counsel for Samson may have taken a different approach to questioning the officer on behalf of Bridge Road than that of the Town’s counsel. Accordingly, the draft order permits, but does not obligate, Samson to arrange for a questioning of the proper officer on behalf of Bridge Road Construction Ltd. However, if Samson elects to proceed with this questioning, it is to be done “forthwith”, with the payment of reasonable conduct money, as well as payment for Bridge Road’s counsel’s involvement on a solicitor and client basis.

Having reviewed other, specific concerns raised by Samson, Hildebrandt J. concluded that they “are more directed at the terms of the draft order regarding implementation of the agreement than at the Pierringer agreement itself”.  Considering that Samson had procedural protections in the draft order, she approved the Pierringer agreement.

(4) implementation of the Pierringer agreement – paras 44-46

Hildebrandt J. agreed that the terms of the draft order addressed Samson’s concerns with the Pierringer agreement and dismissal of Samson’s cross-claim was reasonable in the circumstances.   She approved the amendment to the Statement of Claim with its removal of Bridge Road as a party because the amendments demonstrate that “much consideration has been given to who are the appropriate parties” and reflect the “real issues between the remaining parties”.

Hildebrandt J. closed her reasons with an no costs order. She did so based on her acknowledgement of all counsel’s contribution, noting that “all counsel brought worthwhile insights to the court’s consideration of the approval process for Pierringer agreements”. 

urbitral note – First, the Pierringer agreement provided that the arbitration initiated by Town and the litigation QBG 1456 of 2017 initiated by Bridge Road against Samson, held in abeyance pending arbitration, would be discontinued. The Pierringer agreement also sought to amend the litigation in which Samson was a party. 

The agreement stemmed from the arbitration and, with court approval, impacted court litigation involving non-parties.  While a consent order in arbitration is an accepted way to terminate disputes, this approach allowed settlement by arbitral parties to reach into the court, with court approval.

Second, regarding settlement, paras 11-16 of Amoco Canada Petroleum Co. Ltd. v. Propak Systems Ltd., 2001 ABCA 110 merit reproducing and can apply in arbitration as well.

[11] The litigation of large losses in Canada has been characterized by two opposing trends: first, the practice of adding every conceivable party as a defendant or third party in order to spread out the risk of liability, which complicates and slows the litigation process; and second, the use of settlement agreements to help speed litigation and curb legal fees. See Barbara Billingsley, “Margetts v. Timmer Estate: The Continuing Development of Canadian Law Relating to Mary Carter Agreements” (1998) 36 Alta. L. Rev. (No. 4) 1017.

[12] Now past is the day when “settlement agreement” can be understood to refer solely to the final resolution of all outstanding issues between all parties to a lawsuit, effectively bringing the suit to an end. In the last several years, in response to increasingly complex and commensurately dilatory and costly litigation, a new generation of settlement agreements has been cautiously adopted by the litigation bar.

[13] The new settlement agreements, which include such exotically named species as the Mary Carter agreement and the Pierringer agreement, endeavour to attain a more limited objective: rather than trying to resolve all outstanding issues among all parties, a difficult task in complicated suits, they aim to manage proactively the risk associated with litigation. In short, contracting litigants prefer the certainty of settlement to the uncertainty and expense of a trial and the possibility of an undesirable outcome. This “risk-management” objective is accomplished by settling issues of liability between some but not all of the parties, thereby reducing the number of issues in dispute, simplifying the action, and expediting the suit. Ancillary benefits include a reduction in the financial and opportunity costs associated with complex, protracted litigation, as well as savings of court time and resources.

[14] To the extent that a proportionate share settlement agreement completely removes the settling defendants from the suit, it is like a conventional settlement agreement that brings all outstanding issues between the settling parties to a conclusion. Proportionate share settlement agreements therefore typically include the following elements:

1. The plaintiff receives a payment from the settling defendants in full satisfaction of the plaintiff’s claim against them;

2. In return, the settling defendants receive from the plaintiff a promise to discontinue proceedings, effectively removing the settling defendants from the suit;

3. Subsequent amendments to the pleadings formally remove the settling defendants from the suit; and

4. The plaintiff then continues its suit against the non-settling defendants.

[15] There is, however, an added complication that a proportionate share settlement agreement must address. As a result of third party proceedings, settling defendants are almost always subject to claims for contribution and indemnity from non-settling defendants for the amount of the plaintiff’s loss alleged to be attributable to the fault of the settling defendants. Before the settling defendants can be released from the suit, some provision must be made to satisfy these claims.

[16] This obstacle is overcome by including an indemnity clause in which the plaintiff covenants to indemnify the settling defendants for any portion of the damages that a court may determine to be attributable to their fault and for which the non-settling defendants would otherwise be liable due to the principle of joint and several liability. Alternatively, the plaintiff may covenant not to pursue the non-settling defendants for that portion of the liability that a court may determine to be attributable to the fault of the settling defendants. It is the latter approach that prevails in the agreement at issue in this suit, but in either case the goal of the proportionate share settlement agreement is to limit the liability of the non-settling party to its several liability.

Third, see Allianz v. Canada (Attorney General), 2017 ONSC 4484 for a recent application of Pierringer agreements and the role of the courts.