Settlements of civil actions, including commercial claims, are both judicially encouraged and desirable. They serve the public interest by unburdening the courts of cases to be tried thereby saving public money. They benefit the litigants who are spared the costs, both direct and indirect, of participating in a trial. They also provide a certainty of result and the closure of a stressful distraction.
Further, lawyers in Ontario are ethically bound by their Rules of Professional Conduct to promote settlement with their clients whenever it is possible to do so on a reasonable basis.
Settlements are more easily accomplished where there are only one or two defendants and the cause of action is the same. They become more difficult when there are multiple defendants, causes of actions and complex issues of fact and law. In these cases plaintiffs carry a great burden and risk. Any opportunity to lessen that load is welcome. If one defendant will not settle, others might. It is not surprising then that the concept and use of “partial settlements” have become more prevalent.
Mary Carter Settlements
One such method of effecting a partial settlement is by use of what is known as a “Mary Carter Agreement”.
The concept has American roots in a U.S. decision, Booth v. Mary Carter Paint Co., but has been adopted and used in Canada. Although it is a flexible remedy, only limited by the needs of the parties and the creativity of their counsel, its essential features are as follows:
- The plaintiff is paid an agreed sum of money by one of the defendants and ensures itself that it will receive no less than that sum of money whatever the results of the pending trial;
- The settling defendant remains in the lawsuit but their exposure is limited to the amount they paid in the settlement;
- The plaintiff agrees that if:
- They can recover greater damages from the non-settling defendants by reason of the findings of fault after a trial that they will then proportionately reduce the amount that the settling defendant has to pay it as part of the settlement;
- They will not collect their full damages as found at trial from the non-settling defendants that to protect the settling defendant from claims over from the non-settling defendants for contribution or indemnity.
Disclosure of the Agreement
Canadian courts have consistently held that the agreement must be disclosed to the non-settling defendants and to the court forthwith after its conclusion.
The Ontario Rules of Civil Procedure mandate disclosure of the existence of the agreement and its particulars. This does not include the amount settled for unless the court orders its disclosure. The court may also review the terms of the agreement to ensure procedural fairness.
Impact of Mary Carter Settlements on a Trial
The plaintiff is now assured of a certain recovery relieving it of the usual economic pressure of a winner take all result. They further have the settling defendant as an ally, both now seeking to prove the liability and the greater percentage of fault of the non-settling defendant. This increases the odds of a better result for them both.
The settling defendant has now capped their exposure and is free to work against the non-settling defendant in the hopes of decreasing its payment obligation. If it is an insurer they are likely to have agreed to pay less than their limits and avoided a potential bad faith lawsuit.
The non-settling defendant now faces some pressure to settle or face a trial where the two other parties are both now targeting them.
If you have questions about the use of a Mary Carter Settlement, or about resolution of legal disputes in general, contact the Toronto trial and appellate lawyers at Milosevic Fiske LLP. We believe we are among the best litigation teams in Toronto. We are in court or in mediations almost every day and are skilled at thinking on our feet and rolling with the punches. Over the years we have seen and responded to it all and our impressive track record speaks for itself. We represent clients in complex commercial litigation matters, from contract and partnership disputes, to complex multi-party commercial claims. We are the lawyers other lawyers turn to for litigation. Call us at 416-916-1387 or contact us online for a consultation.