The duty to disclose Mary Carter agreements immediately: new guidance from the BC Court of Appeal
Mary Carter agreements are settlement agreements between a plaintiff and defendant in multiparty litigation wherein the defendant ostensibly remains an active party to the litigation while the plaintiff’s claim in fact targets the other parties. On September 5, 2017, the B.C. Court of Appeal (the “Court") released its decision in Northwest Waste Solutions Inc. v. Super Save Disposal Inc., 2017 BCCA 312 affirming that Mary Carter agreements must be disclosed immediately and outlining potential remedies for a failure to make such disclosure. Parties and their counsel will need to keep this in mind when considering the merits of entering into a Mary Carter agreement. In the event that such agreements are entered into, parties must act quickly to discharge their now-clear duty of disclosure.
In February 2012, Northwest Waste Solutions Inc. (“Northwest”) filed a notice of claim alleging that several of its former employees were induced by Super Save Disposal Inc. (“Super Save”), one of Northwest’s competitors, to leave Northwest’s employ and join Super Save. The claim named Super Save and the former Northwest employees as defendants.
After the claim was filed, one of the personal defendants, Mr. Lamb, left Super Save and was hired by a company controlled by Northwest. Northwest then entered into a two-part agreement with Mr. Lamb in January and May 2014 (the “Arrangement”) by which Northwest agreed:
- to cover Mr. Lamb’s legal expenses to defend against the action initiated by Northwest, and
- not to enforce any judgment Northwest might obtain against him.
Northwest did not immediately disclose the Arrangement to the other defendants. One and a half years later, after learning about the non-enforcement aspect of the Arrangement, Super Save applied to have the claim struck or the proceedings stayed as an abuse of process.
Chambers Judge’s Decision
The chambers judge found that Northwest had a legal obligation to disclose the Agreement immediately and that the non-disclosure constituted an abuse of process. However, the judge also accepted Northwest’s explanation that the non-disclosure was attributable to an honest error made by Northwest’s lawyer at the time as to the law, and that there had been no intent to mislead. The judge also found that none of the defendants had been irremediably prejudiced by the non-disclosure. Under these circumstances, the judge concluded that no remedy was required. The application was dismissed.
B.C. Court of Appeal’s Decision
The main issue before the Court of Appeal was whether the failure to disclose immediately a Mary Carter agreement must necessarily result in the claim being struck or the proceedings being stayed, or instead whether a judge retains a discretion to order some other remedy or even no remedy at all.
The court observed that the Ontario Court of Appeal in Aecon Buildings v. Stephenson Engineering Limited, 2010 ONCA 898 had issued a “strong statement” that Mary Carter agreements must be disclosed immediately to all other parties and to the court, and that failure to do so must result in “the most severe remedy the court can impose in a civil proceeding”—which, in Aecon, took the form of a stay of proceedings. This, despite the absence of any prejudice to the parties resulting from the lack of immediate disclosure. In Ontario, there had long been a duty to disclose Mary Carter agreements, and the bar of that province was expected to be aware of that duty.
The same duty to disclose had not been clearly articulated in B.C. until recently, however: Bilfinger Berger (Canada) Inc. v. Greater Vancouver Water District, 2014 BCSC 1560, released in August 2014, was the first case in which a B.C. court required immediate disclosure of a Mary Carter agreement.
Accordingly, in Northwest, the Court of Appeal held that when the Arrangement with Mr. Lamb was concluded, the duty to disclose Mary Carter agreements in B.C. was unclear. Consequently, the court upheld the chambers judge’s decision not to stay the proceedings or strike the claim. As a remedy for Northwest’s failure to disclose immediately the Arrangement, however, the court awarded Super Save full indemnity for the costs it incurred in obtaining disclosure of the Arrangement and in bringing the application.
In light of the court’s unequivocal adoption of the duty to disclose Mary Carter agreements immediately, B.C. courts will be unlikely to grant any future leeway in discharging this duty. Parties must make immediate disclosure—both to all other parties and to the court—of such agreements. A failure to make immediate disclosure may be considered an abuse of process and result in a stay of proceedings. There may also be cost consequences.
It is unclear how courts will view prejudice—or lack thereof—to the other parties following a failure to disclose a Mary Carter agreement. The chambers judge disagreed that failure to disclose must necessarily result in a dismissal of the action even in the absence of prejudice. The Court of Appeal declined to establish an absolute rule, but noted the absence of irreparable harm to the parties as a factor suggesting that proceedings should not be stayed.
Northwest Waste Solutions Inc. v. Super Save Disposal Inc., 2017 BCCA 312
Date of Decision: September 5, 2017
British Columbia Court of Appeal disclosure failure to disclose Mary Carter Mary Carter Agreements remedies