In complex disputes, it is frequently beneficial for parties that have common interests to reach an agreement on specific issues. Co-defendants may enter into cooperation agreements in order to advance the common interest of the parties while maintaining an aggressive and principled defence. One situation where this may arise is when co-defendants agree to a reciprocal standstill for third party contribution and indemnity claims.
In order to facilitate the partial settlement of multi-party litigation, the Courts have approved certain types of arrangements such as the B.C. Ferry agreement in British Columbia (similarly, Pierringer or Mary Carter type agreements in other jurisdictions). However, the extent of confidentiality and obligation for disclosure attaching to these types of agreements has been a source of litigation, which raise questions related to privilege and when it must give way to the fair administration of justice.
The British Columbia Supreme Court clarified when disclosure of agreements between cooperating parties is required in Bilfinger Berger (Canada) Inc v. Greater Vancouver Water District, 2014 BCSC 1560, and explained the circumstances under which these types of agreements must be disclosed. The Court declined to apply the reasoning in Aecon Building v. Brampton (City), 2010 ONCA 898, on the basis that Aecon concerned an agreement that changed the litigation landscape and rendered the non-disclosure an abuse of process. This difference and its application is the subject of this paper.
Aecon Building v. Brampton (City)
The dispute arose in the context of a $46 million construction contract for the building of the Brampton Performing Arts Centre. Aecon claimed damages for breach of contract arising from delays in the project for which it says it was entitled to be compensated. In 2006, Aecon and Brampton engaged in discussions that resulted in them reaching an agreement in principle on how to proceed with their outstanding disputes.
Those discussions culminated in a formal written agreement between the two parties dated after the issuance of the Statement of Claim wherein Aecon is plaintiff and Brampton is defendant. At its core, the agreement provided that:
- Aecon would issue a statment of claim against Brampton and that within five days Brampton would file a cross-claim, Third Party Claim or other appropriate procedural mechanism against another party, Page + Steele, to make them a party to the action.
- Brampton would prosecute the Third Party Claim against Page + Steele.
- Aecon waived its right to collect any damages from Brampton in relation to the claims against Page + Steel – except to the extent that Brampton was awarded damages or otherwise recovered any sum from a party other than Aecon.
Essentially, Brampton agreed to advance claims against Page + Steele on Aecon’s behalf and Aecon agreed to cap its damage claims against Brampton to any amounts Brampton recovered from another party. The appeal was brought by one of the third parties.
The pleadings revealed only adversity between Aecon and Brampton. In fact, they had some commonality of interest in that they had agreed to cap Brampton’s liability at that which the city could recover from its third party claims. The agreement was disclosed to the appellant before it was required to deliver its pleading. However, Aecon and Brampton did not immediately inform all other parties to the litigation as well as the court.
The Court of Appeal, referring to Laudon v. Roberts, 2009 ONCA 383, concluded that such agreements “change entirely the landscape of litigation.” Although there was no prejudice as a result of the agreement being produced “several months after its existence was discovered by the appellant and it was specifically requested,” the Court held that the obligation of immediate disclosure of the agreement was “clear and unequivocal.” The appeal was allowed and an Order was made to stay the third party proceedings.
Bilfinger v. Metro Vancouver
The British Columbia Supreme Court took a different approach in Bilfinger.
Bilfinger was contracted by Metro Vancouver to construct two underground tunnels as part of a new water filtration project. A dispute arose during the $100 million project and Metro Vancouver cancelled Bilfinger’s contract. Metro Vancouver sued Bilfinger for breach of contract. Bilfinger started its own action against Metro Vancouver and an engineering consultant used by Metro Vancouver, Hatch Mott MacDonald Ltd.
In the course of litigation, Metro Vancouver and HMM entered into a cooperation agreement, which contemplated the exchange of information, the development of a joint defence strategy, common claims of privilege, an agreement not to be bound by findings of the court in subsequent actions, and the extension of limitation periods between the two parties.
The agreement sought to carve out a basis for the parties to jointly cooperate in defeating Bilfinger’s claim under the protection of common interest privilege – a cooperation agreement – and to preserve the right to claim against each other in the future – a reservation of rights agreement. The agreement did not involve full or partial settlement of any claims between the parties. It was not disclosed to the court or the other parties until several years after the agreement was entered into. After reviewing lengthy authorities, the Court concluded there was nothing inappropriate about the defendants’ documenting their cooperation or reservation of rights agreements.
Differences in Agreements
The Ontario Court of Appeal in Aecon held that if an agreement between a plaintiff and defendant changes the litigation landscape from that reflected in the pleadings, it must be produced immediately.
In British Columbia Children’s Hospital v. Air Products Canada Ltd., 2003 BCCA 177, the British Columbia Court of Appeal held that settlement negotiations and concluded settlement agreements between parties adverse in litigation did not need to be produced to the remaining parties.
In Dos Santos (Committee of) v. Sun Life Assurance Co. of Canada, 2005 BCCA 4, the British Columbia Court of Appeal said that the public policy behind settlement privilege is compelling and to justify an exception one must show another compelling or overriding interest of justice. The Court summarized the settlement privilege exception as being what is necessary for “the proper disposition of litigation” and the “just disposition of pending litigation.”
The Supreme Court of Canada affirmed in Sable Offshore Energy v. Ameron International Corp., 2013 SCC 37, that settlement privilege applied to settlement negotiations, even if no settlement was reached, as well as to settlement agreements. In deciding whether or not the settlement privilege must give way to disclosure of the terms of the settlement agreement, the Supreme Court of Canada held that there must be a competing public interest which outweighs the public interest in encouraging settlement.
In these cases, the agreements between parties to the litigation are adverse in interest on the pleadings. There is less case law on the disclosure obligations associated with agreements between co-defendants to cooperate in litigation. In Bilfinger, the Court drew a parallel between these types of agreements and noted as follows:
[149] While the British Columbia cases were decided in the context of settlement privilege, I can conceive of no policy rationale as to why common interest privilege should be protected in such instances whereas settlement privilege should give way.
[150] The need to disclose evidentiary arrangements is also emphasized in the Ontario cases. The Ontario cases emphasize the need, in the interests of the fair administration of justice, for the opposing party and the court to be able to know exactly where the parties stand in relation to each other in the adversarial process where that might be different from what is revealed by the pleadings: Aecon; Zwaniga; Laudon; Moore. This means understanding alliances as well as adverse positions.
[151] This is consistent with the professional obligation of a lawyer not to mislead the court about the position of the client in the adversarial process.
The Court concludes that determining whether a cooperation agreement must be disclosed and when it must be disclosed requires consideration of the public interest in the just disposition of pending litigation or when necessary to ensure a fair trial.
Obligations for Disclosure
Although Bilfinger appears to decline to apply the reasoning in Aecon, the Court distinguishes the cases by their alignment of interests and application of privilege. Instead of lowering the requirement for “immediate” disclosure of agreements that change the landscape of litigation, the Court has taken the requirement for exceptions to settlement privilege and applied it to common interest privilege.
Agreements that would have been subject to common interest privilege are subsumed into the category of exceptions to settlement privilege, although in some instances with less stringent requirements. That said, the Court still concludes, “It is necessary to disclose immediately any agreement which affects the party’s position in a way that is different than that revealed by the pleadings.” An agreement between parties who are adverse on the pleadings but that contains a settlement, release, reservation of rights, or a degree of cooperation not to be expected between adverse parties must therefore be disclosed immediately. The Court summarized the obligations for disclosure as follows:
[152] I conclude that where there would be common interest privilege over an agreement between parties in litigation, that privilege should give way to some extent when necessary for the just disposition of pending litigation, or to put it another way, when necessary to ensure a fair trial. Generally this will include circumstances where:
a) the agreement’s existence could cast light on the quality of the evidence or motivation of a witness or could affect the weight a court might give to the evidence;
b) the agreement’s existence could be relevant to decisions regarding the conduct of trial; and, or
c) the court or opposing party could otherwise be misled about the position of the parties in the adversarial process.
[153] More specifically, this means the common interest privilege between litigants who have a cooperation agreement must give way to some extent in the following circumstances:
a) where there are evidentiary arrangements in the agreement;
b) where the agreement contains a release, covenant not to sue, or reservation of rights; and, or
c) where the agreement makes the parties’ true adversarial positions in the lawsuit different than what might otherwise be expected from the pleadings.
The categories are broad and limit the reach of common interest privilege. The Court recognizes this by adding, “The extent to which the common interest privilege must give way may depend on the circumstances. Some analysis is necessary to determine whether or not production of the agreement itself is required or simply disclosure of the fact of the agreement.”
The timing of the Bilfinger disclosure is more flexible and appears to depend on the effect the agreement will have on the conduct of litigation for the non-privy party. The Court states, “An agreement dealing with evidentiary arrangements between parties should be disclosed at least by the start of trial, and possibly even by the time of examinations for discovery if it could allow the opposite party an opportunity to challenge the quality of the evidence and motives of the witness on discovery.” The requirement for disclosure of cooperation agreements is less “immediate” and depends on the point at which unfairness arises.
Conclusion
Aecon involved a cooperation agreement between the plaintiff and the defendant that was not disclosed to the third party. The Court held that immediate disclosure was required because the agreement changed the landscape of litigation. Bilfinger, in contrast, involved a cooperation agreement between a defendant and third party that was not disclosed to the plaintiff. The Court held that immediate disclosure was not required and set out the circumstances under which disclosure of cooperation agreements would be required.
In setting out the circumstances, the Court incorporated exceptions to settlement privilege, normally between opposing parties, and applied it to common interest privilege, normally between parties with aligned interests. The problem this presents is the requirement to disclose substantially more information in situations where co-defendants are working together to defeat the plaintiff’s claims. This is particularly true when one defendant commences third party proceedings against another defendant thereby making the relationship “adversarial” and requiring “immediate” disclosure of cooperation agreements.
Following Bilfinger, it is important to clarify the purpose of common interest communications, confirm the intention and impact of cooperation between parties, and document formal agreements related to evidentiary arrangements or reservation of rights.
Best Practices
- At the outset of proceedings, determine at what point during the litigation process an agreement will likely impact the conduct of litigation. It may be sufficient to disclose the existence of an agreement by the time of discoveries, or later, without having to produce the agreement itself.
- Is the agreement with co-counsel or the opposite side? If the agreement is with the opposite side, the agreement will more likely require “immediate” disclosure.
- That said, does the agreement impact the “litigation landscape” such that the other parties would change the conduct of their proceeding? If not, the agreement may not need to be disclosed or could be disclosed at a later time.
- What type of agreement is being contemplated? Settlement, release, reservation of rights, and cooperation agreements attract different types of privilege as well as timing for when the agreement must be disclosed.
- Is there some way of addressing concerns related to the requirement for disclosure without disclosing the agreement itself? For example, if there is a reservation of rights agreement, could it be sufficient to advise the non-privy party that the agreement is in place, but not the terms of the agreement?
Prepared by former associate, Lisa Picotte-Li.