Pettey v. Avis Car Inc.

Pettey et al. v. Avis Car Inc. et al.
13 O.R. (3d) 725

June 23, 1993

The Honourable Mr. Justice Ferrier

The plaintiffs claimed damages arising from a tragic accident in the Town of Barrhead, Alberta involving two motor vehicles. The five defendants were: A Inc., the owner of the vehicle in which the plaintiff CP was a passenger; DP, the driver of that vehicle; R Ltd., the owner of the second vehicle; Y, the driver of the second vehicle; and, the Town of Barrhead. There were cross-claims for contribution and indemnity between all the defendants. On the second day of a non-jury trial, the plaintiff and the defendants A Inc. and DP advised the court that they were in the process of signing a "Mary Carter" type of settlement agreement. Under this type of agreement, the action continues but the contracting defendant guarantees that the plaintiff will recover a certain sum, which sum fixes the contracting defendant's maximum liability. Under the agreement, the contracting defendant's obligation to pay is reduced in direct proportion to any increase in the non-contracting defendant's liability; viz. , if the contracting defendant guaranteed $3,000,000 and the court assessed damages at $6,000,000 with liability attributed equally between the defendants, then the plaintiff would receive $1,500,000 from the contracting defendant and $3,000,000 from the non-contracting defendant. In the case at bar, the terms but not the monetary amounts in the agreement were disclosed and a copy of the complete text in a sealed envelope was provided should the court wish disclosure. The other defendants moved for a stay of the action on the grounds that the agreement was an abuse of process and void as against public policy, or, alternatively, for a mistrial because the agreement was disclosed after the trial was underway.

Held, the defendants' motion should be dismissed.

No blanket approval of all Mary Carter type agreements should be given; each particular agreement should be assessed in the light of (a) the general principles that: parties are free to contract and to settle lawsuits, the court will not lightly interfere with such settlements, and the court encourages settlements, and (b) the following particular principles for Mary Carter agreements. Excepting the dollar amounts and gratuitous and self-serving language, the agreement must be disclosed to the parties and to the court as soon as it is made. Immediate disclosure is necessary as a matter of procedural fairness and to allow the court to properly control the judicial process. It is in the discretion of the court in the circumstances of each case whether the dollar amounts should also be disclosed. It is not objectionable that the agreement is disclosed after the trial has commenced, if that is when the agreement was made. It is not objectionable that the contracting defendants have a right to pursue their cross-claims against the non-contracting defendants. However, since the structure of this type of agreement makes it in the interest of the contracting defendant that the plaintiff's damages be assessed as high as possible, procedural safeguards must be introduced to prevent any distortion and abuse of the judicial process. Accordingly, in the case at bar, the contracting defendants may not cross-examine on issues about the quantum of damages, except with leave.

The agreement in this case did not constitute champerty or maintenance. There was no improper purpose, no officious intermeddling with a law suit, and no stirring up of litigation. The agreement did not change the position of the parties on questions of liability, and both before and after the agreement, the contributing defendants had reasons for pursuing their cross-claims.

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