Understanding Mary Carter Agreements and Pierringer Agreements
A. Introduction
Mary Carter Agreements have been a hot topic in the legal press since spring. On May 7, 2009, the Ontario Court of Appeal released its judgment in the case of Loudon v. Roberts2 wherein the utility of what was characterized by the Court as not quite a true Mary Carter Agreement was considerably diminished. A “Mary Carter Agreement” is an agreement among a plaintiff and one or more (but not all) defendants in a lawsuit wherein a contracting defendant guarantees to provide the plaintiff a certain minimum financial recovery.3
In exchange, the plaintiff provides the contracting defendants a cap on its exposure to liability. The contracting defendant (in a true Mary Carter) remains in the lawsuit and has an interest in the outcome of the litigation. The contracting defendant’s exposure normally decreases as the non-contracting defendants’ exposure to liability increases.
A Mary Carter Agreement may be distinguished from another form of agreement which has become fashionable of late, the Pierringer Agreement4. Pierringer Agreements are similar to Mary Carter Agreements with the exception that the contracting defendant gets out of the action entirely and does not participate in the upside potential of the plaintiff’s claim against the non-contracting defendant. In Loudon, the Court considered the impact of a Pierringer Agreement on the litigation, yet the material agreement was referred to throughout that case as a Mary Carter Agreement.5
The Court of Appeal took a conservative (contra plaintiff) turn in the Loudon case. If one adopts a Law and Economics approach and analyze the allocation of costs and benefits flowing out of Pierringer or Mary Carter Agreements now, in light of Loudon, have been substantially negated as a risk management tool. Future attempts by plaintiffs to shift litigation risk onto non-contracting defendants with double recovery going to the contracting parties through Mary Carter Agreements or Pierringer Agreements has been stifled. The Court of Appeal has determined that a plaintiff’s recovery flowing from the consequences of negligence is to be assiduously restricted to actual loss (no double recovery allowed). Excess damages obtained from the contracting defendants are deducible from damages payable by non-contracting defendans. Therefore, the utility of Pierringer Agreements or Mary Carter Agreements is restricted. The upside potential of such agreements is not evenly distributed among plaintiffs and defendants. Now it primarily lies with defendants. Consequently, plaintiff’s counsel contemplating a Mary Carter Agreement or a Pierringer Agreement will have to reconsider the costs and benefits of a such agreements in light of the prohibition on double recovery and deductibility of damages.
Mary Carter Agreements and Pierringer Agreements are complex and speculative. I compare entering such agreements to betting on the futures markets. A futures market is a market wherein traders promise to buy or sell a certain commodity for a fixed price at a fixed date in the future.
For example, people can trade in the future price of oil. This paper will be presented on December 10, 2009. If I were a trader I might be prepared to bet that the price of oil will rise over the next year to $130.00 a barrel. What I can do is purchase a contract to buy a set amount of oil for $110.00 per barrel on December 10, 2010. With the oil in hand, I could flip it on December 10, 2010 for a tidy $20.00 per barrel profit – if I am right. If I am wrong, and the price of oil is only $90.00 a barrel on that December 10, 2010, I will suffer a $20.00 per barrel loss. Likewise, I could have oil that I am prepared to sell for $90.00 per barrel one year hence because I fear the recession will continue and oil prices will be depressed because of reduced demand. If oil drops to $70.00 a barrel and I have a contract to sell for $90 – I am a genius. If the price goes up and I am selling for $90.00 in a market paying $130.00 – I am a fool. The key is to predict correctly and place the right bet.
Lawyers contemplating a Mary Carter Agreement or a Pierringer Agreement must act like traders and bet upon the future contingency of a lawsuit, both in terms of quantum of damages and the percentage allocation of liability. A plaintiff’s lawyer who is considering entering a Mary Carter Agreement or Pierringer Agreement with a defendant must determine in advance, with a high degree of accuracy, what the ultimate outcome at trial is likely to be as well as the likely recovery from the potential contracting defendant versus the non-contracting defendants. Against this, the plaintiff lawyer must consider what is offered by the potential contracting defendant.
If the plaintiff’s counsel under-estimates the contracting defendant’s potential percentage of liability at trial and under-estimates the total quantum likely to be awarded at trial, he may be selling his client short as his client will have a shortfall in his or her recovery. On the other hand, if the plaintiff’s lawyer (together with the lawyer for the contracting defendant) over-estimates the contracting defendant’s percentage of liability as well as the over-all quantum of damages likely to be awarded at trial, he may end up achieving an advantageous – low risk recovery for his client.6 Whether a plaintiff has struck a clever deal for his or her client; or made a foolish wager will turn on the outcome of a trial against the non-contracting defendant.
Whatever way one cuts it, a Mary Carter Agreement or a Pierringer Agreement significantly alters the landscape of a lawsuit. They realign the interests of the parties – often into unnatural configurations. In so doing, they place a premium on the gamesmanship of counsel. Though parties are allowed (and in fact are generally encouraged) to settle cases, Mary Carter Agreements and Pierringer Agreements are not always a reliable mechanism encouraging ultimate settlement; rather, they can be precarious mechanisms promoting only partial settlement of proceedings.7
Until the Loudon case, from the perspective of a plaintiff considering a Mary Carter or Pierringer Agreement, the question of global quantification at trial was not as significant a concern in the cost / benefit analysis as potential liability splits among the parties. This is because any potential windfall was presumed to rest with the plaintiff. It was previously assumed that the non-contracting defendant could face the risk of paying a form of double recovery to the plaintiff.8 Now, that is not the case. Plaintiffs contemplating a Mary Carter Agreement or a Pierringer Agreement need to consider the lack of up-side potential to them of a Mary Carter Agreement given the Court of Appeal’s position on deductibility of the guaranteed recovery in the Agreement from the ultimate quantification of damages at trial.
In the course of this paper, we will look at the originating case of Booth v. Mary Carter Paint Co.. Then we will look at the Pierringer Agreement and the significance of the difference between them. Thereafter, we will discuss the duty to disclose the Mary Carter Agreements and Pierringer Agreements to the Court. Then we will discuss Mary Carter Agreements and Pierringer Agreements as from the perspectives of the public policy; the concept of double recovery and the impact of Loudon on them; and the interaction of Mary Carter Agreements and Pierringer Agreements with the Negligence Act.
B. Mary Carter – The Original Case and Development
Mary Carter Agreements first were judicially considered in the mid 1960's in Florida in the case of Booth v. Mary Carter Paint Company.9 The facts of the case were that the plaintiff lost his wife in a car accident. There were two target defendants, one of which was the Mary Carter Paint Company. The other was a company named Willoughby. The case involved three parked trucks taking up almost an entire roadway, allegedly posing a risk to traffic. Two of the trucks were owned by Mary Carter, the third by Willoughby. The plaintiff’s wife drove into one of the trucks owned by Mary Carter. The case proceeded and a motion for summary judgment was sought by the defendants which was granted. It was reversed on appeal10.
Subsequently, Willoughby made a deal with the plaintiffs. Willoughby’s liability would be limited to $12,500.00. If a verdict was obtained at trial against Mary Carter in excess of $37,500.00, that judgment would fully satisfy the plaintiff’s claim. If a judgment against Mary Carter was less than $37,500.00, Willoughby would top up the judgment to $37,500.00 to the maximum of its potential liability of $12,500.00. Further, if the verdict was in favour of the defendants, Willoughby would nevertheless pay $12,500.00. Willoughby was to remain in the action regardless of outcome. The Agreement was specifically not characterized as a release or settlement or admission of liability. The agreement was also not to have an effect on the liability to be established at trial nor the extent of damages and would not be revealed to the jury trying the case.11
The Court ultimately held that the agreement was enforceable. The classic elements of the agreement were flushed out. First, it was secret. Second, the contracting defendants remained in the action. Third, the contracting defendants guaranteed the plaintiff a certain minimum recovery regardless of outcome in the trial. Fourth, the contracting defendants take a stake in the plaintiff’s claim – such as a rebate of part, or all of the damages paid to the plaintiff, depending on the outcome achieved against the non-contracting defendant at trial. Fifth, the agreement does not constitute a release.
The ultimate outcome of the trial was that the jury set damages at $15,000.00. The defendants, Mary Carter (inclusive of its drivers) sought to offset the sum received by the plaintiff ($12,500.00) from the total damages payable, thereby reducing their liability to only $2,500.00. The Florida Court of Appeal held that the agreement was not a release, merely an agreement to limit liability. Consequently, the plaintiffs got $12,500.00 from Willoughby and $15,000.00 from Mary Carter for a grand total of $27,500.00. ($10,000.00 less than the top exposure at which Willoughby’s full liability would begin to diminish.)12
From this case, we see the classic operation of a Mary Carter Agreement in bestowing a windfall on the plaintiff, thereby enhancing the risk profile on the non-contracting defendant. The contracting defendant has the benefit of a capped liability with an upside potential of reduced damages. The plaintiff has the upside potential of achieving a higher quantum over all by splitting the defence – a classic divide and conquer strategy. With no deductibility, there is little downside to the plaintiff except costs payable to the non-defendant in the event the plaintiff fails at trial against the non-contracting defendant. And even then, if the agreement entered into is a true Mary Carter Agreement, the risk of an adverse costs award after failure at trial against the non-contracting defendant is shared with the contracting defendant.
C. Pierringer Agreements
The distinguishing feature between a Mary Carter Agreement and a Pierringer Agreement is that in the Mary Carter Agreement, the contracting defendant remains in the action and effectively takes a stake in the plaintiff’s litigation. The contracting defendant’s interest will normally be to adduce evidence and advance submissions for the purpose of escalating the liability of the non-contracting defendant. In so doing, the contracting defendant may improve their chances of getting a rebate or reduction in their capped liability. However, with that upside potential for the contracting defendant, they also bear risk. In maintaining a stake in the litigation, the contracting defendant also risks an adverse cost award in circumstances where the non-contracting defendant fares well at trial. For a risk adverse contracting defendant, a complete exit from the action may be preferable. Thus, a Pierringer Agreement may be a better option.
In Pierringer v. Hoger,13 the case involved an explosion at a concrete mixing plant in Port Washington, Wisconsin in November 1st 1957. The plaintiffs sued several defendants and there were parties who were brought in by third party claims. The defendants all cross-claimed. By the time of trial, all defendants but one made settlements with the plaintiffs. They all signed releases and indemnification agreements with the plaintiffs. Total consideration for settlement was $37,964.00. The settling defendants then all moved for summary judgment against the non-settling defendant to dismiss the cross-claims of the non-settling defendant for contribution and indemnity. The court at first instance granted summary judgment and the non-settling defendant appealed.
The Wisconsin Supreme Court considered the issues thoroughly and upheld the agreement. The court considered various arguments from the non-contracting defendant but held that as long as the ultimate trial allows for an apportionment of liability as among all of the previously participating defendants and present defendant, as well as contributory negligence of the plaintiff, the agreement could stand. Ultimately the court determined that the effect of the agreement was to sever the nexus of joint liability and allow for a determination of several liability exclusively. The Court said:
“Upon the trial the release should be given immediate effect, as it is for contribution purposes, and the judgment, if any against the non-settling defendant should only be for that percentage of negligence allocated to him by the findings or the verdict. The claim for the balance has been satisfied by the plaintiff and there is no point in going through the circuity of ordering a judgment for a larger amount and requiring the plaintiff to satisfy it.”14
Out of the case certain general principles governing Pierringer Agreements arose:
1. Liability as among parties is segregated. In other words, liability is assessed on a several basis only. There is no joint liability.15
2. Satisfaction of the contracting defendant’s liability goes to the credit of all parties to the litigation.
3. The plaintiff maintains the ability to continue the action against the remaining (non-contracting) defendants
4. The plaintiff agrees that it will indemnify the contracting defendants for any contribution it pays to the other defendants and covenants to satisfy any judgment against the contracting defendant.
5. The settling (contracting) defendants unlike in a Mary Carter Agreement do not remain part of the action.
In an astute observation of the difference between Pierringer Agreements and Mary Carter Agreements Justice Langston of the Alberta Court of Queen’s Bench in the case of Vandevelde v. Smith said:
“While the two types of agreements are similar in that they are settlement agreements between a plaintiff and one of several joint tort-feasors, they differ in that under a Pierringer Agreement the settling defendant is no longer a party to the action and it is implicit in the agreement that the plaintiff will not pursue the non settling defendants for that portion, if any, of liability assessed by the trial judge against the settling party. The settlor gains the advantage of having his liability fixed and therefore not running the risk of paying one hundred (100%) per cent of any joint and several judgment.”16
D. Significance of Difference
The case of J&M Chartrand Realty Ltd v. Martin17 is an excellent example distinguishing the operation of a Mary Carter Agreement from a Pierringer Agreement because for whatever reason, the Agreement in that case contained features of both types of agreements. In Chartrand, the facts were that Chartrand was a land developer. It was constructing a building. It hired an architect, engineer and designer. They were the defendants Barry Martin, B.H. Martin Consultants Limited and Jim Martin respectively. They hired Bert Masonry Corp to build the masonry structures. The project went bad and expensive repair work had to be done to fix serious problems in the masonry work in the project.
Chartrand commenced a proceeding against all the architects, engineers and designers as well as the masonry company. The allegations of negligence were made jointly and severally. The claim was for $560,000.00. Prior to trial the plaintiff developer made a deal with the architect, designer and engineer. The deal was as follows:
1. The contracting defendants (the Martin group) would pay the plaintiff, Chartrand $75,000.00 in damages plus $10,000.00 in costs to the date of the agreement.
2. The contracting defendants would pay the plaintiff, Chartrand an additional $100,000.00 within a week of the judgment at trial.
3. Regardless of the trial judgment against the contracting defendants, they would not be liable for more than $185,000.00 inclusive of costs.
4. The plaintiff would proceed to trial and conduct it in co-operation with the contracting defendants to maximize damage claims against Bert Masonry.
5. Of any judgment against Bert Masonry, the first $100,000.00 shall go to the contracting defendants. Any excess would go to the plaintiff.
6. The agreement was to be secret.
7. The contracting parties would not enter any agreement with Bert Masonry without prior consent of the other parties.
The trial proceeded with one wrinkle, the contracting defendant, B.H. Martin Consultants Limited did not participate in the trial. The claim against it was dismissed at trial on consent. Thus, with respect to B.H. Martin Consultants, the agreement was effectively a Pierringer Agreement while the deal with Jim and Barry Martin was a Mary Carter Agreement. The matter proceeded to judgment (without the agreement being disclosed to the non-contracting defendant nor the court). Judgment was obtained by the plaintiff against the contracting defendants Barry Martin and Jim Martin in the sum of $577,674.03. The claim was dismissed against the non-contracting defendant, Bert Masonry. The deal struck from the plaintiff’s perspective was a disaster. The plaintiff compromised a judgment worth $577,000.00 for $185,000.00. The plaintiff took 32 cents on the dollar. Costs of the successful defendant, Bert’s Masonry were awarded against the plaintiff only.
The contracting defendants appeared to have made a great deal for themselves. From the perspective of contracting defendant, B.H. Martin it was a fabulous deal. It paid out its liability at the rate of 1/3 of potential exposure and was not exposed to costs of the trial. From the perspective of the contracting defendants, Barry Martin and Jim Martin the outcome was not quite so stellar.
Subsequent to completion of trial, the plaintiff went into receivership. Bert Masonry wanted its costs from what was by then an insolvent litigant, Chartrand. Counsel knew something smelled during the trial and after the trial he pressed for disclosure of the deal struck among the plaintiff and the Martin group of defendants. Disclosure ultimately occurred and counsel for Bert Masonry moved for an order varying the costs order – seeking that the contracting defendants be jointly and severally liable for costs of the trial with the insolvent plaintiff. Upon reviewing the facts Justice Gray ordered:
“. . . The order as to costs made by me on December 5, 1980 which has been referred to earlier herein will be varied as follows: The defendant Bert Masonry Corp. Ltd. shall have its costs on a party and party basis against the plaintiff and against the defendants Barry Martin and Jim Martin. . . . I have not seen fit to make an award as to costs against B.H. Martin Consultants Limited (a party to the non-disclosed agreement) because of the dismissal on consent at trial.”18
In his decision on costs, Justice Gray draws out the implications of the difference between a Mary Carter Agreement and a Pierringer Agreement. Barry and Jim Martin – the contracting defendants who continued in the proceeding became advocates in the plaintiff’s cause. Once the agreement came to light, they became exposed to costs in the same capacity as the plaintiff. The contracting party whose participation was discontinued and did not become an advocate for the plaintiff’s cause did not suffer cost consequences.
E. Policy, Procedure and Duty to Disclose
The element of secrecy in Mary Carter Agreements has not traditionally sat well among judges. Once the practice began to replicate itself in other cases, courts took a dim view of secrecy. The primary reason being that such agreements distort the adversarial nature of the process of a trial. The contracting defendants take on a stake in the outcome which is inimical to their natural interests in the litigation19. Thus, in Florida, six years after Mary Carter, the case of Ward v. Ochoa held a Mary Carter Agreement must be disclosed before trial and held that the Agreement would be admissible evidence.20 In the United States, in states where Mary Carter Agreements have been allowed to stand they have been permitted with the caveat that they must not be kept secret, disclosure is required.21
In some states in the United States, there has been a negative reaction to Mary Carter Agreements. In Nevada in 1971,22 a Mary Carter Agreement was held contrary to public policy as the Court held it distorted the adversarial process because of its secrecy. Public policy requires openness as to a party’s position. Indeed, Rule 4.01(1) of the Rules of Professional Conduct , the part of the Rules dealing with the Lawyer as Advocate states:
“When acting as an advocate, a lawyer shall represent the client resolutely and honourably within the limits of the law while treating the tribunal with candour, fairness, courtesy and respect.”
In the commentary it states:
“In civil proceedings the lawyer has a duty not to mislead the tribunal about the position of the client in the adversary process. Thus, a lawyer representing a party to litigation who has made an agreement or is party to an agreement made before or during the trial by which a plaintiff is guaranteed recovery by one or more parties notwithstanding the judgment of the court, should immediately reveal the existence and particulars of the agreement to the court and to all parties to the proceedings.”23
Thus, it is clear that as the Mary Carter Agreement as well as Pierringer Agreements have developed, for one to be effective, it must be disclosed to the court. They cannot be held as a secret. They must be disclosed in a timely fashion. This is because the non-contracting defendants must be able to deal with and adjust to the changed landscape of the litigation.
However, must a Mary Carter Agreement or a Pierringer Agreement be disclosed in its entirety? If so, to whom – and how are those determinations made? In the Pettey case,24 Justice Ferrier resorted to the first principle that a court must have all information available to it to allow it to properly control its own process. Thus, for example, His Honour concluded that the disclosure of dollar amounts may be in the discretion of the court.
Different parties may have different positions on whether the court ought to know the dollar amounts set out in the Mary Carter Agreement. Disclosure depends on whether the court feels it needs to be aware of dollar figures to control the process and decide the issues. Justice Ferrier noted that in several U.S. jurisdictions, disclosure of dollar amounts is prohibited.25 In his Honour’s case, he did not feel he needed to know the dollar amounts of the Mary Carter Agreement to control the process and adjudge the case fairly. Essentially, the scope of disclosure will be at the discretion of the court always referring to the necessity of controlling its own process so as to ensure a fair and just result.
F. The Legal Landscape – Principles and Public Policy
In addition to the guiding principle of openness just discussed, there are four further, major concepts that have play in Mary Carter Agreements and Pierrniger Agreements that we will explore. They are: courts always encourage settlement; courts need to control process to ensure fairness; the role of joint and several liability; and the allocation of risk of double recovery.
Ontario courts have (like other jurisdictions) adopt a general public policy that settlement is good and should be encouraged. It has been stated clearly:
“. . . the courts consistently favour the settlement of lawsuits in general. To put it another way, there is an overriding interest in favour of settlement. This policy promotes the interest of litigants generally by saving them the expense of trial of disputed issues, and it reduces the strain upon an already overburdened provincial court system”26
To the extent that Mary Carter Agreements and Pierringer facilitate settlement, they are consistent with that general public policy.
However, detractors of Mary Carter Agreements argue that Mary Carter Agreements do not promote complete settlement. They actually promote partial settlement with an enhanced probability of a trial as between the plaintiff and contracting defendants on one side and the non-contracting defendant on the other.27
In a Mary Carter Agreement, the contracting defendant takes a stake in the outcome of the plaintiff’s case. The piling on effect of the contracting defendant switching sides and taking a financial stake in the plaintiff’s outcome can have the effect of enhancing the momentum towards a trial with the remaining defendants. This argument was ably stated by the majority of Judges in the Texas Supreme Court in the case of Elbaor v. Smith28
“The settling defendant, who remains a party, guarantees the plaintiff a minimum payment, which may be offset in whole or in party by an excess judgment recovered at trial.....This creates a tremendous incentive for the settling defendant to ensure that the plaintiff succeeds in obtaining a sizable recovery, and thus motivates the defendant to assist greatly in the plaintiff’s presentation of the case (as occurred here). Indeed, Mary Carter agreements generally, but not always, contain a clause requiring the settlement defendant to participate in the trial on the plaintiff’s behalf.
Given this Mary Carter scenario, it is difficult to surmise how these agreements promote settlement. Although the agreements do secure the partial settlement of a lawsuit, they nevertheless nearly always ensure a trial against the non-settling defendant.......
Mary Carter agreements not only allow plaintiffs to buy support for their case, they also motivate more culpable defendants to “make a good deal’ and [and thus] end up paying little or nothing in damages.” . . . Remedial measures cannot overcome nor sufficiently alleviate the malignant effects that Mary Carter agreements inflict upon our adversarial system. No persuasive public policy justifies them, and they are not legitimized simply because this practice may continue in the absence of these agreements. The Mary Carter agreement is simply an unwise and champertous device that has failed to achieve its tended purpose.”
The Texas Supreme Court acknowledged the argument that disclosure of terms of Mary Carter Agreements and utilization of judicial discretion to control process may be adequate to control the mischief Mary Carter Agreements but retorted:
The conduct of this trial, however, confirms. . . that these remedial measures would only mitigate and not eliminate the unjust influences exerted on a trial by Mary Carter agreements. Equalizing peremptory strikes, reordering proceedings, thoroughly disclosing the true alignment of the parties and revealing the agreement’s substance cannot overcome collusion between the plaintiff and settling defendants who retain a financial interest in the plaintiff’s success. In fact, Mary Carter agreements may force attorneys into questionable ethical situations . . .
As a matter of public policy, this Court favors settlements, but we do not favour partial settlements that promote rather than discourage further litigation. And we do not favor settlement arrangements that skew the trial process, mislead the jury, promote unethical collusion among nominal adversaries, and create the likelihood that a less culpable defendant will be hit with the full judgment. The bottom lime is that our public policy favoring fair trials outweighs our public policy favouring partial settlements.”
The Ontario approach to Mary Carter Agreements has been to assume parties can enter into agreements as they see fit. As long as the agreement is disclosed, the Court can adapt its process to ensure fairness.29 For example in the Pettey v. Avis case, Justice Ferrier set out the public policy arguments for and against Mary Carter Agreements as they relate to the effect of them on the public policy objective of encouraging settlement. His Honour then declared that parties are free to enter contracts and though the Court encourages settlement of all issues but if not all issues as many issues as possible. The Court then took the approach of adapting the Courts process to address the new alignment of interests created by the contracting parties. Thus, in that case, the contracting defendants were not permitted to cross-examine on issues relating to quantum of damages - except with leave of the Court.
Though his Honour did address the concern of procedural artifice necessary to ensure fairness, he however, did not address the fundamental issue of the veracity of evidence in an environment of shifting and elastic interests created by Mary Carter Agreements. One of the values of trial is truth. Mary Carter Agreements arguably encourage parties to tailor truth to circumstances. Perhaps that can be dealt with through procedure and be exposed by cross-examination – but there is an unsettling concern that courts can promote or at least accept procedural maneuvering which could facilitate untruthfulness, rather than truthfulness.
Are Pierringer Agreements better suited to promoting overall settlement or at least more conducive to partial settlement without the perceived perversion of process that many opponents of Mary Carter Agreements fear? I would submit they are. The reason is that they foster a more honest and accurate alignment of interests. The contracting defendant is out of the action and does not take a financial stake in the claim of the plaintiff. The evidence of the contracting defendant is thus, less tainted by the risk, or lingering suspicion of situational malleability.
G. Double Recovery and Loudon
Turning to the application of the rule against double recovery and deployment of the concept of deductibility. In Loudon v. Roberts the plaintiff, Loudon was a passenger in a boat driven by his friend Sullivan when it collided with another boat operated by Roberts. Loudon was hurt and sued both Roberts and Sullivan. The litigation proceeded and the plaintiff entered into an agreement with the defendant, Roberts. The terms of the deal were that Roberts paid Loudon $365,000.00 inclusive of damages and interest as well as $35,000.00 costs inclusive of GST and $38,000.00 disbursements inclusive of GST. The total recovery from Roberts was $438,000.00. In addition, Roberts obtained an order dismissing the action against him without costs and was out of the action. Cross claims as between Sullivan and Roberts were dismissed on consent on a without costs basis. The defendant, Roberts took no stake in the outcome of the trial. It was a Pierringer Agreement.
The case proceeded to trial against the defendant Sullivan. The plaintiff, Loudon was seeking to recover Robert’s several liability. The jury assessed the damages at $312,000.00. The jury found Roberts 50% at fault, Sullivan 39% at fault and the plaintiff was 11% at fault for his own injuries. If damages had been paid on a purely several basis, Roberts’ obligation to pay would have been $156,000.00 plus interest, proportional costs, disbursements and GST. Sullivan (who it turns out substantially overpaid in the Pierringer Agreement) would have been obliged to pay $121,680.00 plus interest, proportional costs, disbursements and GST. While Loudon would have absorbed $34,320.00 plus interest, proportional costs, disbursements and GST.
The solicitor for Sullivan moved for an order deducting the amount paid to Loudon by Roberts from the damage award, effectively negating the judgment against Sullivan. The judge refused and instead ordered that Sullivan pay his proportional share of the sum ordered at trial, being approximately $121,000.00 exclusive of interests and costs. Essentially, the trial judge determined to allocate the risk of windfall to Roberts the non-contracting defendant and the benefit to Loudon the plaintiff.
Sullivan appealed asserting the trial judge erred in not deducting the settlement funds paid from the judgment sum and consequently dismissing Loudon’s claim and awarding costs. The Court of Appeal granted the appeal and did just that. In her analysis, Justice MacFarlane looked to the case of Raytch v. Bloomer30 quoting Chief Justice McLachlan:
“The general principles underlying our system of damages suggest that a plaintiff should receive full and fair compensation, calculated to place him or her in the same position as he or she would have been had the tort not been committed, in so far as this can be achieved in a monetary award. This principle suggests that in calculating damages under pecuniary heads, the measure of damages should be the plaintiff’s actual loss. It is implicit in this that the plaintiff should not recover unless he can demonstrate a loss, and then only to the extent of that loss. Double recovery violates this principle.”
The circumstances in Rytach were that a police officer was injured. He received pay while off work, while injured. The employer did not advance a subrogated claim. Given there were no past wage losses actually incurred by the plaintiff, there were no provable losses and therefore claim under that particular head of damages.
Starting from this first principle, the Court of Appeal explored other examples of circumstances where a plaintiff may recover pecuniary benefit in lieu of loss resulting in negation of pecuniary damages. Such cases involve deductibility of payments received in social welfare schemes31and personal injuries in successive car accidents.32 Thus, applying the general principle of no double recovery; what should happen when one joint tortfeasor pays in advance of trial (effectively overpaying his ultimate portion of several liability) and the other prefers a determination of liability at trial?
Justice MacFarlane looked to Lord Denning who said:
“. . .the question that arises is this: suppose that the plaintiff settles with one of the wrongdoers before judgment by accepting a sum in settlement; or suppose that by consent an order is made by the plaintiff accepts an agreed sum from the one tortfeasor and discontinues against him, but goes on against the other. I believe this to be a new point. It should be solved in the same way as the payment into court was solved. If the plaintiff gets judgment against the remaining tortfeasor for a sum which is more than the sum already recovered (by the settlement or the consent order) he is entitled to enforce it for the excess over which he has already recovered. But, if he gets judgment for less than he has already recovered, then he recovers nothing against the remaining tortfeasor and should pay the costs. I do not think that it would depend on whether the sum was paid under a covenant not to sue or a release, such as was discussed in Duck v. Mayeu and Cutler v. McPhail. That is an arid and technical distinction without any merits. It is a trap into which the unwary fall but which the clever avoid. It should be discarded now that we have statutory provision for contribution between joint wrongdoers. The right solution nowadays is for any sum paid by the one wrongdoer under the settlement to be taken into account when assessing damages against th other wrongdoer. If the plaintiff recovers more, he gets the extra. If he recovers less, he loses and has to pay the cost. And as between the joint wrongdoers themselves, there can be contribution according to what is just and equitable...”
H. The Negligence Act
Justice MacFarlane the turned to cases dealing with how such circumstances are considered in Canada having the advantage of the principles set out in sections 1 and 2 of the Negligence Act33 34. In Dixon v. British Columbia35 a plaintiff was on a bus journey. The bus went onto a ferry and passengers were escorted off the bus while the ferry was crossing a body of water. While on deck on the ferry the plaintiff slipped in a puddle of oil. He sued the bus company and the ferry company. The ferry company settled with the plaintiff and paid damages. The bus company sought to obtain a dismissal of the action against it because of the settlement with the ferry company, or in the alternative, deduction of the damages paid by the ferry company. The court held that the payments received via settlement with the ferry company were deductible from damages payable by the non-settling defendant.36
I believe that sections 1 and 2 of the Negligence Act do not necessitate that a plaintiff be denied double recovery if a plaintiff and contracting defendant in good faith over-estimate the contracting defendant’s liability in a pre-trial settlement. Section 1 creates the concept of joint and several liability. This protects the plaintiff in the event of a pecunious defendant being able to satisfy the full judgment and an impecunious defendant being unable to satisfy its several share of the judgment. The provision allows a plaintiff to recover from the wrongdoer with money and places on the pecunious wrongdoer the burden of settling accounts with other impecunious defendants.
Section 2 sets out a mechanism for the settling wrongdoer to, in turn, recover money and thereby settle accounts with other wrongdoers. The settling wrongdoer can establish specific and fixed responsibility among the collective of wrongdoers. Each wrongdoer is to pay his back to the original settling wrongdoer. The non-settling wrongdoers can challenge the settlement created – arguing that the settling defendant overpaid and if successful in that argument, pay only their proportionate share of the amount assessed by the Court as among wrongdoers. The settling defendant bears the risk in its assessment of the value of the settlement.
Section 2 of the Negligence Act does not provide for one wrongdoer the means to escape responsibility whatsoever for the wrong committed because a contracting defendant and plaintiff miscalculate the ultimate outcome in terms of quantum and liability splits. If the plaintiff accepts too little from the contracting defendant, he bears the risk. But with deductibility, if the plaintiff accepts too much proportionately from a contracting defendant, the plainitff also bears risk and the non-contracting defendant reaps the windfall. In this sense, I would submit that the Loudon case is vulnerable to attack at the Supreme Court of Canada. The general construction of the system of joint and several liability is in aid or protecting the plaintiffs from impecunious defendants. It is not designed for one pecunious defendant to escape several liability because of the miscalculation of value by another pecunious defendant. If courts wish to promote settlement (or even partial settlements) in cases with multiple defendants, courts must be prepared to allocate risk in an even handed way.
Essentially, the Court of Appeal in Loudon has undermined the value of Pierringer Agreements and Mary Carter Agreements as a settlement tool for plaintiffs. There is really little upside potential for plaintiffs because the attraction to a plaintiff of such agreement is procuring a windfall if the contracting defendant overpays its share. The plaintiff bears the risk of course if the plaintiff miscalculates and underestimates the value of the contracting defendant’s several liability. In either case, the non-contracting defendant either bears a neutral result or could benefit by a windfall from the contracting defendant’s miscalculation and overpayment.
The utility of Mary Carter Agreements and Pierringer Agreements has been severely undermined by the Court of Appeal. We will have to wait and see what happens at the Supreme Court of Canada
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Loudon v. Roberts [2009] O.J. 1824 (leave to appeal to Supreme Court of Canada sought)
M. Orkin, The Law of Costs, title 209.6 describes a Mary Carter Agreement as a type of agreement to limit the contracting defendant’s liability in return for giving them a financial stake in any recovery from the non contracting defendant.
A Peirringer Agreement comes from the case of Pierringer v. Hoger, 124 N.W.R. (2d) 106 (Wisc. S.C.)
Loudon v. Roberts [2009] O.J. 1824 (leave to appeal to Supreme Court of Canada sought)
However, given the newly applied principle of deductibility set out by the Court of Appeal on Loudon v. Roberts, plaintiffs counsel is confronted with the risk of an adverse cost award if the non-contracting defendant is allowed to deduct the excess of the contracting defendant’s payment from non-contracting defendant’s liability. This is what happened in Loudon v. Roberts.
As will be discussed below, there is a strong argument against Mary Carter Agreements as a settlement mechanism. The argument is that they actually only facilitate partial settlement and encourage ongoing litigation - making trial more likely among a realigned set of parties.
Craig Brown “Is Mary Carter Dead – or Just Wounded?” Lawyers Weekly, Vol 29, No. 24, October 30, 2009, p. 10; see also: Craig Brown “Mary Carter – Friend or Foe?” 2009 OTLA Fall Conference, October 29 to30, 2009, Toronto, Ontario
Booth v. Mary Carter Paint Company (1967), 202 So. 2d 8 (Fla. Dist. Ct. of App., 2d Dist)
The facts of the case are found at Booth v. Mary Carter Paint Company (1966), 182 So. 2d 292 (Fla. Dist. Ct. of App., 2d Dist)
Booth v. Mary Carter Paint Company (1967), 202 So. 2d 8 (Fla. Dist. Ct. of App., 2d Dist)
Ibid
Pierringer v. Hoger 124 N.W.R. (2d) 106
Pierringer v. Hoger 124 N.W.R. (2d) 106 (Wisc. S.C.) At paragraph 18
See: Hudson Bay Mining and Smelting v. Wright et al (1997) Man. R. (2d) 214 (Q.B.), and Greer v. Kurtz [2008] CanLII 26685 (ON S.C.)
Vandevelde v. Smith, 1999 ABQB 365 (CanLII) at paragraph 16
J&M Chartrand Realty Ltd v. Martin [1981] O.J. No. 739 (H.C.J.)
J&M Chartrand Realty Ltd v. Martin [1981] O.J. No. 739 (H.C.J.)
J&M Chartrand Realty Ltd v. Martin [1981] O.J. No. 739 (H.C.J.)
Ward v. Ochoa (1973), 284 So. 2d 385
See: General Motors v. Lahocki 410 A. 2d 1039; Ratteree v. Bartlett 707 P. 2d 1063; Tucson (City) v. Gallagher 439 P. 2d 1197.
Lum v. Stinnett 87 Nevada Rep. 402 (S.C.)
Though the Rules of Conduct are not binding on a Court, they do impose duties on lawyers. Justice Ferrier in the case of Pettey v. Avis Car Inc. (1993) 13 O.R. (3d) 725 (Gen. Div.) noted in paragraph 27 that the proceeding Commentary was specifically adopted by the Law Society were specifically adopted to deal with Mary Carter type agreements.
Pettey v. Avis Car Inc. (1993) 13 O.R. (3d) 725 (Gen. Div.)
Ibid, referring to Ratteree v. Bartlett 707 P. 2d 1063; and Hatfield v. Continental Homes 610 A. 2d 446 at . 452
Sparling v. Southam Inc. (1989), 66 O.R. (2d) 225 (C.A.) at p. 230.
Elbaor v. Smith 845 S.W. 2d 240 (Tex. 1992) at p. 247
Elbaor v. Smith 845 S.W. 2d 240 (Tex. 1992) at p. 247
Pettey v. Avis Car Inc. et al
Ratych v. Bloomer [1990] 1.S.C.R. 940 at paragraph 94
M.B. v. British Columbia [2003] 2 S.C.R. 477; Lincoln v. Hayman [1982] 2 All E.R. 819 (C.A.); Hodgeson v. Trapp, [1989]1 A.C. 807
Ashcroft v. Dhaliwal [2008] B.C.J. No. 1742 (C.A.), leave to appeal to Supreme Court of Canada refused [2008] S.C.C.A. No. 488
Negligence Act, R.S.O. 1990, c. N.1
3
S. 1 “Where damages have been caused or contributed to by the fault or neglect of two or more persons, the court shall determine the degree in which each of such persons is at fault or negligent, and, where two or more persons are found at fault or negligent, they are jointly and severally liable to the person suffering loss or damage for such fault or negligence, but as between themselves, in the absence of any contract express or implied, each is liable to make contribution and indemnify each other in the degree in which they are respectively found to be at fault or negligent.”
S. 2 “A tortfeasor may recover contribution or indemnity from any other tortfeasor who is, or would if sued have been, liable in respect of the damage to any person suffering damage as a result of a tort by settling with the person suffering such damage, and thereafter commencing or continuing action against such other tortfeasor, in which event the tortfeasor settling the damage shall satisfy the court that the amount of the settlement was reasonable, and in the event that the court finds the amount of the settlement was excessive it may fix the amount at which the claim should have been settled.”
Dixon v. British Columbia, [1979] B.C.J. No. 304
Ibid, para 47.
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