Allianz v. Canada (Attorney General), 2017 ONSC 4484

Allianz v. Canada (Attorney General) 2017 ONSC 4484

CITATION: Allianz v. Canada (Attorney General) 2017 ONSC 4484

COURT FILE NO.: 12-54674

DATE: 2017/07/21

COURT OF ONTARIO,

SUPERIOR COURT OF JUSTICE

RE: ALLIANZ GLOBAL RISKS US INSURANCE COMPANY, TRANS STATES HOLDING, INC., TRANS STATES AIRLINES, LLC, XL SPECIALITY INSURANCE COMPANY, GENERAL SECURITY INDEMNITY COMPANY OF AZ, AXA CORPORATE SOLUTIONS ASSURANCE, NATIONAL FIRE & MARINE INSURANCE COMPANY, IRONSHORE SPECIALITY INSURANCE COMPANY, STARNET INSURANCE COMPANY, LLOYD’S SYNDICATE 2488, LLOYD’S SYNDICATE 5000, LLOYD’S SYNDICATE 1400, LLOYD’S SYNDICATE 5555, LLOYD’S SYNDICATE 1183, GREAT LAKES REINSURANCE (UK) PLC, ARCH INSURANCE COMPANY, ISOSCELES INSURANCE LTD,. AND CHARTIS INSURANCE UK LIMITED, Plaintiffs

AND:

THE ATTORNEY GENERAL OF CANADA, OTTAWA INTERNATIONAL AIRPORT AUTHORITY AND NAV CANADA, Defendants

AND:

PHILIP NASSER EFTEKHARI AND ALLAN WAYNE BURCH, Third Parties

BEFORE: MR. JUSTICE CALUM MACLEOD

COUNSEL: T. Tremblay, for the Plaintiffs and the Third Parties S. Johnston, for The Attorney General Of Canada D. Pankratz, for The Ottawa International Airport Authority R. Fenn, for NAV Canada

HEARD: July 13, 2017

REASONS

Introduction

1This decision also applies in action 13-58703 which is a parallel action raising the same issues. The motion before the court seeks certain orders necessary to implement a Pierringer agreement.¹ The issue is whether or not the court may impose a litigation bar on the non settling defendant and on what terms.

2As set out below, I have concluded there is jurisdiction to dismiss the crossclaims and third party claims in order to implement the Pierrenger agreement but it is appropriate to do so on terms which minimize prejudice to the non-settling defendant. This does not require all of the terms sought by NAV Canada. The terms imposed should be sufficient to protect the party who is a stranger to the settlement agreement but the court should attempt to craft terms that do not undo the benefit of settling. It is in the public interest and in the interest of justice to support settlement and streamlining of litigation generally and multi-party litigation in particular.

Background

3These actions arise out of separate incidents involving Embrauer 145 aircraft owned by Trans States Airlines LLC flying into the Ottawa International Airport for United Express / United Airlines. The incidents took place between 2004 and 2011 and involved damage to the aircraft sustained when the aircraft could not be kept on the paved portion of the runway while landing in the rain.²

4The plaintiffs are the owners of the aircraft and a consortium of insurers. The defendants are properly named in the title of the proceedings but in essence they are Transport Canada (the regulator and one time owner and operator of the airport), the airport authority (the current operator of the airport) and NAV Canada (now responsible for air traffic control). Although the federal government no longer directly operates the airport or the air traffic control system, the history and timing of divestment creates potentially complex liability issues to the extent that the plaintiffs allege liability for design of the runways (as but one example).

5This litigation has been underway for a considerable period of time and the actions have been in case management since 2014. Over the course of the last year it appears a settlement was reached between the plaintiffs and two of the defendants. The plaintiffs now seek to amend their claim to remove Transport Canada and the airport as defendants. They propose to continue with a much more focused claim against NAV Canada (the non-settling defendant) limited to its proportionate share of fault, if any. That is to say they would abandon any claim for joint liability and seek to hold NAV Canada liable only for the share of damages actually caused by its negligence (assuming any such fault is proven).

6The agreement also requires the plaintiff to ensure that none of the settling defendants are exposed to claims for contribution by a non-settling defendant. To implement this aspect of the settlement, the plaintiff seeks to have the court dismiss all of the crossclaims and the third party claims “with prejudice”. In other words NAV Canada would not be permitted to seek contribution and indemnity from any of its co-defendants or from the pilots. Finally, the settling defendants wish to be let out of the litigation. Part of the incentive for settling includes bringing the litigation to a halt and ending the necessity of incurring further costs.

The Issue

7NAV Canada has no objection to facing a narrower claim for its proportionate share of damages and in fact it has no objection to dismissal of the crossclaims providing the court grants the dismissal on terms. Specifically it wishes to retain rights of discovery against settling defendants. Even though they would no longer be parties, NAV Canada wants their evidence to be available in the same manner as it would be if they remained parties and it also wants its right to cross-claim preserved in the case of non-compliance.

8The issue then is whether the court can force the non-settling defendant to abandon claims against the settling defendants without its consent. Assuming the court has that authority is it reasonable to impose the order on terms other than those agreed to by the remaining defendant? And is it appropriate to impose terms over the objection of the settling parties at the risk of imperilling the settlement?

Analysis

Public Policy Supports Pierringer Agreements in Multi-party Litigation

9There is no doubt that there is an overriding public interest in favour of settlement. It is sound judicial policy which contributes to the administration of justice.³ Pierringer agreements have been recognized as an important tool in settling multi-party litigation. As described by the Supreme Court it is an important tool without which it is very difficult to conclude a settlement with only some of the defendants and with which it is possible to substantially streamline the litigation.

In the United States, Pierringer Agreements were found to significantly attenuate the obstacles in the way of negotiating settlements in multi-party litigation. Under a Pierringer Agreement, the plaintiff’s claim was only “extinguished” against those defendants with whom it settled; the claims against the non-settling defendants continued. The settling defendants, meanwhile, were assured that they could not be subject to a contribution claim from the non-settling defendants, who would be accountable only for their own share of liability at trial. ⁴

10This is a motion to implement a Pierenger agreement. This is not a case in which the agreement itself requires court approval but approval is required to amend the statement of claim, to allow the settling defendants out of the action and to stay or dismiss the crossclaims. The controversial aspect of this is the request for a “bar order” which would prevent the non-settling defendant from making any claim against any other party if it is found liable.

11There is a public policy in favour of supporting settlements. Pierringer agreements should be approved and supported if possible because there are benefits to the parties involved in the litigation but also systemic benefits to the justice system as a whole. Of course the implementation of the agreement must also be fair to the non-settling defendant which is left to face the litigation alone. I will return to this shortly.

The jurisdiction to bar or stay claims for indemnity

12I must first consider the question of jurisdiction to compel the non-settling defendant to accept dismissal of its claim for indemnity and contribution. In this case the question is really whether I can grant the order on terms other than the terms on which NAV Canada is prepared to consent to the order. It is only if the court has the jurisdiction to impose the order in the first place that it also has the jurisdiction to determine what terms to impose (if any).

13In our jurisprudence there are numerous examples of the court approving Pierringer agreements and imposing a bar order. This is a common feature in the resolution of class proceedings. The seminal case is Ontario New Home Warranty Program v. Chevron Chemical Co.⁵ (“ONHWP”) in which Justice Winkler (as he then was) conducted an extensive analysis of the reasons for a bar order and concluded that the court could impose it when approving a settlement. Importantly however, Justice Winkler found jurisdiction to grant the order in s. 12 and 13 of the Class Proceedings Act⁶. Section 13 in particular arms the court in a class proceeding with authority to stay any related actions. In addition, the class proceedings regime requires certification and court approval of any settlement. It is inherent in the class proceedings process that the court has the right to control, prune and shape complex litigation and of course there are numerous requirements for notice and opting out. Bar orders are also found in insolvency proceedings.⁷ In the latter case termination of litigation rights is a fundamental insolvency tool. It is another matter to foreclose litigation in the absence of statutory authority.

14Jurisdiction in ONHWP was anchored by specific statutory provisions that are not present here and Justice Winkler emphasised the principle that jurisdiction cannot be conferred by agreement or convenience. Still the court went on to consider whether the proposed bar interfered with the substantive rights of the non-settling defendant and concluded it did not. This analysis is instructive in relation to the liability, rights and protections afforded by the Negligence Act.⁸ It was the conclusion of the court that the provisions of s. 1, 2 and 5 of the Act could not be invoked if the plaintiff did not assert joint liability and the settling defendants surrendered their rights to claim indemnity from the non-settling defendant.

15In those circumstances the non-settling defendant could never be found liable for more than its share of the damages and could never face a claim for contribution or indemnity by other tort-feasors. The non-settling defendant could never have a claim for contribution against the other tort-feasors because it would be impossible for it to have to pay any share of the damages caused by another tort-feasor’s negligence. In effect the court ruled that the Pierrenger agreement took the case out of the Negligence Act by providing the non-settling defendant with the very same protections the Act provided.⁹

16If I permit the pleading amendments proposed by the plaintiff and dismiss the action against the settling defendants as well as the cross-claims asserted by them, it becomes self-evident that cross claims against the co-defendants based on the Negligence Act or common law principles of indemnity cannot succeed. The court could then dismiss the cross-claims of the non-settling defendant as being untenable pleas. This is precisely what occurred in Taylor v. Canada in which the Court of Appeal upheld the motion judge’s decision to dismiss the third party claims because the right of indemnity does not exist “unless the defendant is called upon to pay more than its fair share of the loss”.¹⁰

17Dismissing cross claims for indemnity based on the Negligence Act or general common law principles which are no longer tenable is not precisely the same thing as imposing a wide ranging or complete “bar-order”. A right of indemnity arising if a tort-feasor is called upon to pay more than its fair share of a judgment would be foreclosed by the proposed pleading amendment but that argument would not apply to any contractual or statutory rights of indemnity that are not based on apportionment of fault. In the case at bar, however, no other form of indemnity right is pleaded or asserted. In fact, the non-settling defendant does not oppose dismissal of the crossclaims provided the terms are fair.

18Several rules would permit dismissal of a crossclaim that is no longer tenable and while no particular rule is relied upon by the moving parties, all parties are aware that is the relief being sought. In addition, it is within the power of the court in the exercise of its case management function to permit an informal motion if it is just to do so and in my view a case management judge also has the authority to stay portions of a proceeding that serve no purpose.¹¹ As decided by the court in ONWHP the pruning of a claim that cannot succeed because it has no basis in law can be regarded as procedural and does not affect the substantive rights of the party. There is no substantive right to advance a claim that no longer has a legal basis.

19I conclude that given the public policy grounds for encouraging settlement and the clear authority from the Court of Appeal that indemnity cannot be claimed by the defendant if the plaintiffs limit their claim in the manner proposed, the court would have the jurisdiction to dismiss the crossclaims for contribution and indemnity. As pleaded they will become untenable when the plaintiffs’ claim is narrowed and it would be unjust to permit them to continue only to claim costs.¹² In any event at this point it is highly unlikely given the manner in which this action has proceeded that there are any costs attributable solely to the crossclaims.

Justification for terms to protect the remaining defendant

20Having satisfied myself that I can make the orders, I can of course do so on terms.¹³ I recognize that the settling parties have not agreed to any terms and if I grant the relief only on terms that are unacceptable to them, it may imperil the settlement. That concern does not justify granting the orders unconditionally if doing so prejudices the rights of the non-settling defendant.

21If I conclude that justice requires the orders only be granted on terms then it will be up to the settling defendants to determine if they are prepared to live with the terms. Having regard to the public policy identified above, the court should not impose terms unnecessarily and should attempt not to undermine the settlement by imposing terms which eliminate the benefit of settling.

22What the settling parties achieve through the Pierringer agreement is a limit on their exposure to liability and certainty regarding their contribution to the damages but they also hope to end the need to incur further costs as a party to the litigation. Of course they cannot extract themselves entirely from the litigation because they are in possession and control of relevant documents and they have personnel who will be necessary witnesses at the trial but it would undermine one of the benefits of settling if they continue to have the same obligations as a party.

23I was referred to a 1994 article written by Peter Knapp, an American law professor.¹⁴ Extracts from this article were referred to by the Supreme Court of Canada in Sable Offshore, supra. It is an interesting read because it deals with the development, rationale and difficulties encountered with such agreements in several American states. Amongst other things the article underscores for the reader that tort litigation in the United States takes place in a myriad of jurisdictions in which negligence law may be both procedurally and substantively different from our own. In particular at least when the article was written, not all states had an equivalent to the Negligence Act and some states had legislation which responded in some manner to the existence of Pierringer agreements. So caution is needed before automatically importing features of tort litigation found in other jurisdictions. Proportionate share settlements have been found useful in Canada and the term “Pierringer” has become widespread and useful shorthand. That does not mean that all features of the original prototype should automatically apply. Each agreement must be evaluated in context.

24With that caveat, and also recognizing that the article is now 20 years old, Professor Knapp’s analysis remains instructive. For example he raises interesting questions about the effect of Pierringer agreements and releases in cases of vicarious liability, agency and intentional tortfeasors. To date Canadian courts have had little experience wrestling with these issues. For purpose of this motion, pages 43 – 56 of the article are particularly useful because they discuss the impact of these agreements on the trial, on discovery and on preservation of evidence. He makes the important point that even though the plaintiff has the burden of proving fault against the non-settling defendant who remains in the litigation, the “plaintiff no longer has any incentive to prove the settling defendant’s fault” and that at least at a practical level, the “Pierringer settlement transfers to the remaining defendant the burden to prove the settling defendant’s fault.”

25Here Nav Canada was originally one of three co-defendants all interested in proving that there was no negligence on the part of the defendants and all interested in showing that all blame lay with the plaintiff airline or the third party pilots. Now NAV Canada stands alone and while it may still hope to convince the court there was no fault on its part, it may also have to demonstrate that if there was fault, the largest component of that fault lies with one of its former co-defendants. This is a significant change to the litigation landscape.

26The non-settling defendant faces procedural prejudice when it is the sole remaining defendant. Although its liability for damages will be limited to its proportionate share, it will now be faced with defending the allegation it is 100% at fault and in asserting its defence it may well be faced with proving the fault of the other former defendants even though they are non-parties. In fact it will be in the interests of NAV Canada to assert that all fault (if any) lies with one or both of its former co-defendants if it does not lie with the pilots or the airline.

27The evidence shows that at a time when the three co-defendants appeared to have common cause, they pleaded relatively broadly and they agreed amongst themselves that they would not conduct discoveries of each other at least at that time. It was not in the interest of any of them to help the plaintiff by pointing fingers at each other. As of December of 2016 when the Pierrenger agreement was revealed to NAV Canada this situation changed. It is now very much in NAV Canada’s interest to point the finger elsewhere. Conversely it may be faced with witnesses who would previously have been witnesses called by one of the other defendants who will now be witnesses for the plaintiff. That is unknown at this point.

28NAV Canada is not a party to the agreement. In implementing the agreement, it is unfair not to recognize that there were originally three defendants and it is important to recognize the evidentiary difficulties that may potentially arise when the court is asked to assign fault to a party that will no longer be present. Some of this must be left to the trial judge. The question is whether any other terms are necessary at this stage in the proceeding.

What terms are required?

29I agree that all of the documents produced in the litigation and all of the discovery transcripts should continue to be available to NAV Canada. It will be for the trial judge to determine precisely how these may be used by whom considering that they were produced or examined at a time when there were other parties in the litigation. I do not see how I can rule in advance on the manner in which the trial will be conducted. At this point it is unclear who if anyone may seek to call the witness so it would not be appropriate to rule in advance on whether or not transcripts may be read in. The transcripts will remain useful because they stand as a summary of what the witness will likely say if called and can be used to refresh memory or to impeach the witness in appropriate cases.

30I also acknowledge the very real possibility that NAV Canada may have to seek discovery of the former co-defendants if they have information that has not already been elicited during their discovery by the plaintiff or cannot be obtained voluntarily. I do not agree it is appropriate to give leave in advance of the need being identified. It is not necessary to provide NAV Canada with open ended authority.

31Noonan v. Alpha-Vico ¹⁵ was a case decided by me when I was a master and it was cited by both parties. Although that case was decided in 2010 it contains a useful analysis of proportionate share settlements and their impact on the litigation. I will note in passing that the case was partly concerned with disclosure of the terms of the Pierringer agreement and at the time there were two schools of thought about whether the executed agreement was privileged and the amount of the settlement had to be disclosed to the non-settling party. The Supreme Court has since resolved both of those questions in Sable Offshore and the answer now is that the agreement is covered by settlement privilege. The fact of the agreement and certain features of the agreement must be disclosed to the court and to the non-settling defendant but the amount of the settlement need not be.¹⁶ That is a different conclusion than the one I reached in Noonan and to that extent the case has been overruled by later jurisprudence. In the case at bar, the settling parties have disclosed all of the terms of their agreement except for the amount. This is the correct approach.

32They have also prepared a proposed amended pleading. Since it is an amended pleading and not a fresh pleading, it is readily apparent that there were originally co-defendants and what the allegations were against those defendants. I also think that is appropriate as it will show the trier of fact that the litigation has changed since it was begun.

33The other aspect of Noonan was the request by the defendant to conduct discovery of the former defendants. In deciding not to grant that request, I analyzed much of the same jurisprudence cited to me by the parties today.¹⁷ I concluded that “Ontario courts have generally not imposed a term requiring the settling party to produce documents or submit for discovery but have left it open for the non-settling defendants to obtain that relief under the ordinary rules of civil procedure.”¹⁸ Those mechanisms are motions under Rule 30.10 and 31.10 and if such motions are brought, the court will have to consider the unique circumstances in which NAV Canada finds itself as the result of the Pierringer agreement.

34In Noonan the defendants had actually been sued in separate actions and there were no crossclaims. In fact the first action had been quietly settled and there had been no discoveries. Nevertheless it appeared consistent with the weight of authority and with the Ontario discovery regime to require the defendant to bring a motion if and when it required access to evidence or documents and could not obtain that information through non coercive processes. In the case at bar NAV Canada is in a much better position than was Alpha-Vico. It has affidavits of documents from its former co-defendants. It attended all of the discoveries. There do not appear to be outstanding undertakings.

35This does not mean that terms are inappropriate. Certain orders are appropriate with respect to the preservation of evidence and the use that can be made of it prior to trial. It is reasonable to require the settling-defendants to take steps to make their evidence available should it be necessary. It will not do for those defendants to be treated as if they are complete strangers to the litigation and were never involved. By reason of their involvement in the litigation to date they may well have relevant information in useful and accessible form. That information may be necessary and useful to the remaining parties and to the court. In keeping with the principle I enunciated earlier, the terms I am imposing will be only those necessary to ensure the protection of NAV Canada’s rights and will not undermine the benefits of settlement.

36The plaintiffs as well as NAV Canada are now in possession of copies of all documents produced by the settling defendants. There should be a mechanism to avoid the need for each party to include those documents in new affidavits of documents. More importantly there should be a mechanism for identifying which party intends to make use of those documents and to avoid a chaotic situation and effective trial planning there should be a mechanism to determine which witnesses from the settling defendants will be called at trial and by which party. This mechanism however is likely to be found in discovery planning, case management and trial management rather than trying to anticipate all possible scenarios in an order.

Terms of the Order

37Having regard to the issues identified above and having reviewed the various orders proposed by the parties I am prepared to make the following orders.

a. An order permitting amendment of the amended statement of claim in the form proposed to remove all allegations against the settling defendants and to confine the claim against the remaining defendant NAV Canada to its proportionate share of the damages if any. As set out in the proposed pleading, the plaintiffs will waive any right to recover from NAV Canada any portion of the loss or damages attributable to any fault attributed to the settling defendants.

b. An order that NAV Canada is entitled to prove at trial the proportion of liability attributable to Transport Canada, the airport authority or the airlines and pilots.

c. An order that the plaintiffs are only entitled to recover from NAV Canada the several apportionment of fault and liability of NAV Canada, if any, and not for any portion of damages attributable to the fault of any other person or entity.

d. An order as proposed by the plaintiff dismissing the action and all crossclaims against and between the settling defendants with prejudice and without costs.

e. An order dismissing crossclaims by the settling defendants against the non-settling defendant with prejudice and without costs and barring any subsequent claim for indemnity against NAV Canada arising out of the claims made in this litigation.

f. An order as proposed by the plaintiffs dismissing the third party claims against the pilots with prejudice and without costs.

g. An order that the former defendants The Attorney General of Canada and the Ottawa International Airport Authority preserve all documents listed in their affidavits of documents and any other documents subsequently produced for use in this litigation.

h. An order that the former defendants The Attorney General of Canada and the Ottawa International Airport Authority advise the plaintiffs and the remaining defendant of the contact information for the witnesses who were deposed at the discovery, whether they continue to be employed by the former defendant, and whether they may be contacted directly or only through counsel. They shall update that information on request.

i. An order that The Attorney General of Canada and the Ottawa International Airport Authority co-operate with the plaintiffs and the defendants by providing contact information for any other employees or former employees who may be required as witnesses upon request.

j. An order permitting the remaining parties to use the affidavits of documents, documentary production and discovery transcripts relating to the former parties for purposes of this litigation subject to direction by the trial judge.

k. An order confirming that the defendant NAV Canada may if necessary bring motions seeking production and discovery orders against the settling defendants having regard to the fact that they were defendants but are now non-parties.

l. An order requiring the plaintiffs to amend and serve the amended amended statement of claim on NAV Canada within 21 days and permitting NAV Canada 30 days following receipt to deliver an amended Statement of Defence.

m. An order that NAV Canada may not add any other party (including any of the parties released from the action ) by way of third party claim or other form of claim for indemnity without leave of the court.

n. An order providing that immediately after the exchange of amended pleadings, counsel are to meet and confer with a view to updating a discovery and production plan including agreement if possible concerning the admissibility and use of discoveries previously conducted and documents previously produced.

o. An order that the action will continue under case management. I will be seized of the matter as the case management judge pursuant to Rule 77.06 (1) and will hear any further motions subject to Rule 77.07 (3).

38If counsel cannot agree on the form of the order or orders or if the parties to the Pierringer agreement no longer wish to proceed with the agreement upon reviewing these terms, I may be spoken to for further direction.

39I may also be spoken to regarding costs if counsel are not able to agree on costs.

Footnotes

1. 1Named after the American case of Pierringer v. Hoger, 124 N.W.2d 106 (Wis. 1963), the utility of such agreements was expressly accepted by the Supreme Court of Canada in Sable Offshore Energy Inc. v. Ameron, 2013 SCC 37, [2013] 2 SCR 623
2. 2The factual background is set out in more detail at 2014 ONSC 4198 (Master) and 2016 ONSC 29 (Master)
3. 3See Sable Offshore, supra @ para. 11
4. 4Ibid, @ para. 23
5. 5(1999) 1999 CanLII 15098 (ON SC), 46 O.R. (3d) 130 (SCJ)
6. 6Class Proceedings Act, 1992, S.O. 1992, c. 6
7. 7Re Hollinger Inc., 2012 ONSC 5107
8. 8RSO 1990, c. N.1
9. 9NHWP v. Chevron, supra @ para.s 51 -
10. 10Taylor v. Canada, 2009 ONCA 487, (2009) 95 OR (3d) 561 (CA)
11. 11See for example Rule 77.07 (4) and Rule 50.13 (6)
12. 12See Packard v. Fitzgibbon, 2017 ONSC 566, a recent decision of Justice Mew
13. 13Rule 37.13 (1)
14. 14Keeping the Pierringer Promise: Fair Settlements and Fair Trials, (1994) 20 William Mitchell Law Review 1, (1994) Faculty Scholarship, Paper 25 Available at: http://open.mitchellhamline.edu/wmlr/vol20/iss1/1
15. 152010 ONSC 2720 (Master)
16. 16See Sable Offshore at paras 18 – 25. The amount must be disclosed to the court after judgment in order to ensure the plaintiff is not over compensated. See Laudon v. Roberts 2009 ONCA 383
17. 17See Noonan, supra, paras 33 - 43
18. 18Supra, para. 42