Monday, May 23, 2016

Effect of “Mary Carter Agreement” on Joint Liability

In Cormack v. Chalmers, 2015 ONSC 5564, the court held that a “Mary Carter”(*1) type settlement agreement with one defendant, who was entitled to limit his liability, did not change the liability of the other defendant from joint liability to several liability.

The following is a reproduction of the court’s endorsement:

This motion is brought by the defendants Pitt and Rubadeau (“Pitt”) seeking summary judgement against the plaintiff, Cormack dismissing paragraph 14(b) of her Statement of Claim (which pleads the Negligence Act); and for an order that the plaintiff’s claims against Pitt are subject only to several, and not joint liability because of a partial settlement agreement entered into between the plaintiff and the defendant Chalmers. This partial settlement agreement (or Mary Carter agreement) between the plaintiff and the defendant Chalmers limited the liability of Chalmers in exchange for payment by Chalmers of a fixed sum to the plaintiff, and an agreement by the plaintiff to save Chalmers harmless from any liability above the fixed amount.

This motion was argued following a trial management conference held on the eve of a civil jury trial to commence at Picton.  

Pitt’s position is that the partial settlement agreement has changed the legal relationships between the parties such that Pitt is no longer potentially jointly liable with Chalmers to the plaintiff, but is now only potentially severally liable to the plaintiff.

The plaintiff’s position is that the joint liability of Pitt to the plaintiff is unchanged, and Pitt’s motion should fail.

The plaintiff was badly injured while she was swimming in proximity to a harbour entrance. She was struck by Chalmers motor boat and was badly injured by its propeller. At the time the plaintiff went swimming, she was a guest of Pitt at their residence close to the harbour, had allegedly not been there previously, and allegedly had not been warned about possible hazards of swimming off their dock. The action was framed in negligence against all defendants, the Negligence Act was pleaded; and joint and several liability was claimed against the defendants Chalmers and Pitt.

Following completion of the pleadings and discoveries, Chalmers initiated proceedings in the Federal Court for a declaratory judgement that his liability was limited under the Marine Liability Act to a maximum amount. In their Statement of Defence in the Federal Court Pitt admitted the allegations in Chalmers Statement of Claim, admitted that Chalmer’s liability was capped at the fixed amount, and except for costs, admitted that Chalmers was entitled to the relief he was seeking. A consent judgement was then obtained in the Federal Court, to which Pitt also consented. Before the consent order was obtained, the plaintiff and Chalmers entered into a settlement agreement which provided that Chalmers liability was capped in all respects, that Chalmers was to pay the fixed amount to the plaintiff, and the plaintiff would save Chalmers harmless in the event he was called upon to pay more than the capped amount. The agreement contained a number of other provisions which included the obligation on Chalmers to cooperate with the plaintiff in prosecuting the action, and not to contest the plaintiff’s damages.  Pitt was not a party to the agreement and learned of it afterwards. It seems beyond question that Chalmers liability was correctly capped at $1,000,000.

The knub of Pitt’s argument is that the save harmless provision favouring Chalmers has so changed the relationship between the parties that it nullifies the joint liability provisions flowing from the Negligence Act, and has the legal effect of limiting Pitt’s liability to one of several liability.

Specifically the relevant provision of the partial settlement agreement relied upon is as follows:

12. Cormack agrees to indemnify Chalmers and to hold Chalmers harmless in respect of any crossclaim or any other proceeding or any other claim whatsoever arising from issues and allegations in Ontario Superior Court Action 11-0574 and in Federal Court Action T-812-13.

I don’t accept that the partial settlement agreement, or Mary Carter agreement, in this case has the effect of limiting Pitt’s liability to one of several liability to the plaintiff.

Essentially Pitt’s position remains unchanged following the agreement. Chalmer’s exposure was capped at the fixed amount with or without the agreement so that if a judgement against all of the defendants were to exceed Chalmers cap, Pitt would liable for the balance. The fact that the agreement provides for a refund to Chalmers up to a capped amount does not alter the rights or liability of Pitt.

If the judgement were to be less than the cap, then subject to the further submissions of counsel, there would be no enforceable judgement against Pitt because the plaintiff has already been paid.  The question of costs is still a live issue for Pitt; and their rights are unaffected by the agreement.

In Moore v Bertuzzi,(*2) Perell, J, dismissed an appeal from the Master who had ordered disclosure of a proportionate share settlement agreement, on the ground that settlement agreements of the type in question change the adversarial process and the court must therefore understand what and why the change is present. His reasons do not support the argument that paragraph 12 of the partial settlement agreement (and paras 14 and 15) alter Pitts liability to one of several liability. His comments at paragraph 67 of his decision are not statements of law but statements of fact concerning the usual terms of Mary Carter agreements. At paragraph 85, Perrell, J discusses the typical terms of a Pierringer agreement and the reasons therefore. I take neither of these references to be statements of law that are of assistance on this motion.

The reference to the excellent article by Stephen Moore entitled “Limitations and Joint and Several Liability” (*3) is similarly of limited assistance in dealing with the legal effect of the above noted provision in the partial settlement agreement. Again it is a practical guide and explanation of the use of proportionate or partial settlement agreements and is not authority for the proposition that Mary Carter agreements as a matter of law result in several liability only as against the non-settling defendant. It depends solely on the language of the agreement in question.

This in fact may be analogous to a situation whereby one defendant enjoys immunity at law or limited liability at statute, or perhaps even no assets to pay their proportionate share. It has been held that any of those circumstances do not protect the remaining defendant or defendants from joint liability. (*4)
The authorities relied upon by Pitt for the most part dealt with the issue of privilege and disclosure of partial settlement agreements, and not the legal effect on the substantive rights of the parties. They also appeared to involve agreements that were similar to a ‘Pierringer’ agreement where the settling defendant was to be let out of the action, and required as a term for its own protection, that the plaintiff would limit its claim against the non-settling defendant to several liability in order to prevent any claims for indemnity by the non-settling defendant.    Where the settling party remains as a defendant as in a ‘Mary Carter’ agreement, there is no authority that I am aware of that supports the proposition that the relationships between the parties has been altered as a matter of law to such an extent as to protect the non-settling defendant from joint liability. (*5) In this case, I am satisfied that the paragraph noted above does not have the effect of restricting the liability of Pitt to one of several liability.

   The motion on behalf of Pitt and Rubadeau is dismissed. I will hear submissions on costs at the conclusion of the trial unless the parties have in the meantime reached an agreement.

(*1) A Mary Carter Agreement is a settlement between the plaintiff and one or more defendants wherein the settling defendant guarantees to the plaintiff a minimal financial recovery. In return, the plaintiff agrees to limit the exposure to the settling defendant including to indemnify for any cross claims. A significant term of a Mary Carter agreement is that the settling defendant remains in the lawsuit. Traditionally, in a Mary Carter agreement the settling defendant’s payment to the plaintiff is tied to a determination of liability. The more the liability found against the non-settling defendant the less the settling defendant has to pay. While the settling defendant has agreed to pay to the claimant a value to the claim, that value has the potential to decrease, depending on the net result at trial. As such, the settling defendant has a stake in the outcome of the trial.
(*2) 2015 ONSC 3248, 110 O.R. (3d) 611
(*3) CLE program, Ontario, June 23, 2006
(*4) Ryan Estate v. Canada.(Attorney-General), 2015 NLTD(G) 90, 2015 CarswellNfld 221, 2015 NLTD(G) 90 paragraphs 59- 62

(*5) Noonan v. Alpha-Vico, 2010 ONSC 2720 (CanLII). although the case deals primarily with disclosure, privilege, and discovery issues where there are partial settlement agreements,  an excellent summary by Master McLeod appears at paragraphs 28 and 29.


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