Today’s Blog is authored by Chigozie Enwereuzo, Student-at-Law with Hull & Hull LLP
As courts encourage litigants to explore resolution of their disputes using alternative methods, parties involved in multi-party litigation have been known to deploy two main types of settlement agreements in attempts to end their disputes: Pierringer agreements (discussed in my blog of April 18, 2024) and Mary Carter agreements.
A Mary Carter agreement is a partial settlement tool that may be used when only some of the parties involved in multi-party litigation are prepared to settle a case. It is a powerful settlement tool as it limits the exposure of the settling party or parties in the litigation while the plaintiff carries on against the non-settling parties.
Not only does a Mary Carter agreement allow the defendant to remain a party to the action in order to cooperate with the plaintiff in the latter’s attempts to maximize the recovery of damages from the remaining defendant(s), but the agreement also helps to shorten trails, as well as pressure non-settling defendants to settle.
If the plaintiff is successful against the remaining non-settling defendants, a Mary Carter agreement may permit the settling defendant to completely escape its contribution requirement. In other circumstances, a Mary Carter Agreement may permit the settling defendant to significantly reduce the damages it is required to pay.
Mary Carter agreements emanated from the Florida case of J.D. Booth v. Mary Carter Paint Company, 202 So. 2d (Fla. 2d DCA 1967). In that case, the husband of a woman killed in an automobile accident filed suit against four defendants. A settlement agreement reached with two of the defendants provided that the two settling defendants would not be liable above $12,500 and that if the verdict exceeded $37,500, the two settling defendants would owe nothing. The agreement also stipulated that both settling defendants would remain in the case and that the agreement would remain secret from the court and the other defendants. The agreement was upheld on appeal.
In terms of keeping a Mary Carter agreement secret, it is not protected by privilege and so its content must be disclosed to the other parties to the litigation and to the Court. In Aecon Buildings v. Brampton (City), 2010 ONCA 898, the Court held settlement agreements between a plaintiff and a defendant or defendants in a multi-party action must be disclosed immediately to all other parties to the litigation and to the Court. Leave to appeal this decision to the Supreme Court of Canada was sought and denied. In Noonan v. Alpha-Vico, [2010] O.J. 2807 ONSC at para. 50, the Court stressed that other defendants were entitled to the information necessary to make informed cost/benefit decisions about litigation and settlement strategies. The Court in Aviaco International Leasing Inc. v. Boeing Canada Inc., {2000] O.J. No. 2420 (ONSC) at para. 23, noted that such an agreement changes the relationship between the plaintiff and the settling defendant from adversarial to cooperative, thereby extinguishing the common interest of the defendants.
The test for whether privilege applies to the information transferred between parties was set out in Aviaco as follows:
Do the terms of the agreement alter the apparent relationships between any parties to the litigation that would otherwise be assumed from the pleadings or expected in the conduct of the litigation?
Before the decision in Aecon, if a party failed to disclose a Mary Carter agreement entered, courts in Ontario would typically order the disclosure of the agreement. Aecon, however, created a new, severe punishment for plaintiffs that fail to disclose the existence of a Mary Carter-type agreement. The Court in Aecon stated that a Mary Carter-type agreement must be disclosed immediately upon its creation, failing which the plaintiff’s claim against the remaining defendant(s) will be stayed. A serious penalty that lawyers must be aware of.
Thank you for reading!
Chigozie Enwereuzo, Student-at-Law