Most parties to an ongoing lawsuit want to settle prior to trial. In order to successfully effect settlement, drafting an enforceable and reliable settlement agreement is of utmost importance. One of the most common and effective settlement agreements when not all defendants want to settle is a BC Ferry Agreement. Following is a brief discussion of its contents, legal effects, and potential pitfalls.
Prior to British Columbia Ferry Corp. et. al. v. T&N plc. et. al., (1995), 16 BCLR (3d) 115 (CA), the key issue with pre-trial settlement agreements was whether a non-settling party could demand further monetary contribution from the party who settled its claim with the plaintiff. BC Ferry settled this by using the deep-rooted principle of contribution law whereby a defendant cannot be forced by another defendant to pay more than its proportionate share of the loss.
In a BC Ferry Agreement, the plaintiff agrees that it will not seek to recover any portion of the loss attributable to the settling defendant from the non-settling defendants. In other words, the plaintiff expressly agrees that the settling defendant’s share is paid in full. This arrangement brings finality to multi-party settlement arrangements by disallowing further claims for contribution by either the non-settling defendants or the plaintiff.
Shortfalls and Surpluses
The analysis becomes interesting in situations where a plaintiff has settled with one defendant while other non-settling defendants remain in the action. Three scenarios are possible and I think it is helpful to present each by way of simple examples. Let’s assume that there are four defendants, A, B, C, and D, and only A settles with the plaintiff for an undisclosed amount. After trial, the court finds that A is 40% liable, B and C are each 25% liable, and D is 10% liable. The total damages awarded to the plaintiff by the court is $100.
|Party||Liability Share||Dollar Amount|
Scenario one: A settled for the exact amount of its proportionate liability share
If A settled for the same monetary amount for which the court eventually finds A to be liable, no further issues arise. The plaintiff remains in a position to pursue B, C and D jointly and severally for their joint share of liability. What is key, however, is the fact that the plaintiff loses its ability to claim from A for any of A’s joint and several liability share. B, C and D are able to pursue contribution only from each other.
Scenario two: A settled for an amount exceeding its proportionate liability share
If A settled for an amount exceeding its proportionate liability share, B, C and D may wish to know the settlement amount – they may want to argue that the plaintiff was unjustly enriched due to A’s overpayment prior to the conclusion of trial.
Let’s assume that party A settled for $50, $10 in excess of its $40 liability share. B, C, and D are now left to cover their joint liability share – 60% of the $100 award. B, C, and D may want to argue that the plaintiff has been unjustly enriched by $10 and seek to have their $60 liability share reduced to $50.
Scenario three: A settled for an amount less than its proportionate liability share
If A settled for an amount less than its proportionate liability share, B, C and D will want to be shielded from the plaintiff’s monetary shortfall in collecting the total damages award.
Let’s assume that party A settled for $30, $10 less than its $40 liability share. B, C, and D should still only be required to cover their 60% joint liability share. If the settlement amount is known to all parties, B, C and D are shielded from paying the extra $10 shortfall (i.e., being pursued for 70%) because the BC Ferry Agreement prevents the plaintiff from pursuing B, C and D for contribution in excess of their joint liability share.
Disclosure of settlement amount
In all three of the above scenarios, the non-settling parties will want to find out what amount the settling party paid to the plaintiff. Issues of confidentiality and privilege arise. Is the plaintiff obligated to disclose the settlement amount to the non-settling parties?
In B.C. Children’s Hospital et al v. Air Products Canada Ltd. et al, 2001 BCSC 1083, the BC Supreme Court held that the amount of a settlement between the plaintiff and the settling party was irrelevant to the proceedings between the plaintiff and the non-settling parties.
The hospital commenced an action claiming that a number of parties were jointly and severally liable for damages. Prior to trial, the hospital entered into a settlement agreement with some of the defendants which contained a confidentiality clause. The non-settling parties sought disclosure of the settlement agreement, including the settlement amount, by arguing that the agreement, if disclosed, could impact the ongoing trial as well as the amount of damages sought by the hospital.
The hospital argued that the settlement agreement included a provision whereby the hospital waived its right to recover from the non-settling defendants any portion of the losses and damages attributed to the fault of the settling defendants. As you have likely realized, such a settlement arrangement is, in substance, a BC Ferry Agreement.
Neilson J. refused disclosure of the amount of settlement as irrelevant, stating that:
 Here, the plaintiffs’ proposed amendments set out a waiver and make it clear that they do not seek to recover from the remaining defendants any portion of the losses that the court may attribute to the fault of the ALC defendants. The result is that Praxair and the other remaining defendants are only potentially jointly and severally liable for that portion of the plaintiffs’ loss which is related to their own degree of fault as determined by the court …
 … the pleadings reveal no basis upon which the Praxair defendants may make a claim for contribution and indemnity from the ALC defendants. Even if such a claim were made, the reasons of Mr. Justice Wood in B.C. Ferry (1995) make it clear it could not succeed.
The non-settling parties further argued that, if the settling party paid more than its share of fault, the hospital would be unjustly enriched. Therefore, they concluded, the non-settling parties should be privy to the settlement amount. Neilson J. rejected this argument as premature by reasoning that the non-settling parties clearly had a tactical advantage in conducting their defence to place as much liability as possible on the settling parties (since the hospital would be prevented from pursuing the non-settling parties for the potential shortfall if the court concluded that the settling party was found to be liable in excess of the settlement amount).
The non-settling parties unsuccessfully appealed the decision of Neilson J. with respect to non-disclosure of the settlement amount. The majority of the Court of Appeal upheld his decision and stated:
In the present case, Neilson J. considered that disclosure of that portion of the settlement agreement relating to the amount of the settlement between the plaintiff and the ALC defendants need not be produced because relevance had not been demonstrated. With that conclusion, I agree.
The conclusion that the settlement amount is irrelevant is logical given that the plaintiff bears the burden of any imprudent settlement (because the plaintiff agreed to abandon any claim for a potential shortfall) and, as such, should also receive the benefit of any settlement in excess of the settling parties’ share of the loss.