Canada: Revisiting Settlement Privilege In Canadian Law: Three Case Studies

Last Updated: February 26 2014
Article by Justin R. Seitz

The Supreme Court of Canada's (SCC) latest word on settlement privilege was delivered in the June 2013 decision of Sable Offshore Energy Inc. v Ameron International Corp., 2013 SCC 37 (Sable). The SCC upheld settlement privilege and denied the disclosure of the plaintiff's settlement agreement with one of the numerous defendants, finding that the remaining defendants' reasons for disclosure did not outweigh the public interest in promoting settlement.

In a blog post published in August 2013, I discussed this decision and the merits of maintaining settlement privilege, mainly to promote access to justice by encouraging early settlement. In this post I revisit Sable and see how the Canadian courts have subsequently treated the decision as it applies to settlement privilege. All three cases address settlement privilege in different contexts – a personal injury matter, an estate matter, and an arbitration matter – and each suggest settlement privilege is alive and well in Canadian jurisprudence.

Fillmore v Estate of Earl Ivan Trenholm, 2013 NBQB 400

This case dealt with the administration of the estate of Earl Ivan Trenholm who died intestate. One of the deceased's daughters brought an application to have the Letters of Administration revoked on the grounds that the current Administrators, the deceased's wife and other daughter, failed to fulfill their responsibilities as Administrators by misleading the court in their application for appointment.

At the initial hearing of the matter objections were raised with respect to numerous paragraphs in affidavits that were filed which contained references to "without prejudice" communications and attempts to settle the matter. The Court went through the affidavits with Counsel for the parties and portions of the affidavits were struck. Briefs were to be submitted and oral submissions were to be made in court regarding the admissibility of the paragraphs in the affidavits relating to settlement. It was the Applicant's position that since administrators fall into the category of fiduciary who hold the estate property in trust for the beneficiaries, of which she was one, they are held to a high standard of care and their actions are reviewable by the beneficiaries; therefore settlement privilege is precluded.

The Court relied on the numerous authorities supplied by the parties, including Sable. As was acknowledged in Sable there are exceptions to settlement privilege (at para. 19). The Applicant referred to Lederman, J.'s comment in additional reasons in Ballard Estate Attorney General of Ontario et al. v Stavro et al. (1994) O.R. (3d) 350, which stated that, "[n]o privilege attaches to communications between solicitor and client as against person having a joint interest with the client in the subject matter of the communication". The Court acknowledged that this kind of 'all or nothing' approach was altered by authorities such as Haydu v Nagy 2012 BCSC 1870, which is in line with Sable, and stands for the position that there can be a selective waiver of privilege (at para. 30).

The Court concluded that "settlement negotiations fall into the category of privilege which must be protected, while any other correspondence which relates to how the administrators are managing the estate do not fall into the privilege category" (at para. 19). This is in line with the Sable decision.

Hermitage-Kilkenny v Morris, 2013 NBQB 407

As with the Fillmore case, at issue was whether an exception to settlement privilege existed in the circumstances. Ms. Hermitage-Kilkenny (the Plaintiff) and the Defendants were in a motor vehicle accident and she sued for damages. Prior to the accident the Plaintiff was also involved in two other separate motor vehicle accidents in which Consent Orders for Discontinuance were filed; both accidents were settled by global sums being paid with no apportionments amongst the various heads of damages. The Defendant was seeking disclosure of the global sum settlements and the Plaintiff was claiming settlement privilege to deny disclosure.

The Defendant argued that the settlement amounts were relevant to the present action and should be disclosed to prevent double-recovery (at para. 7). After reviewing the relevant case law, particularly Sable, the Court acknowledged that that there are exceptions to settlement privilege but that the issue before the Court came down to relevancy (at para. 12). At paragraph 12 the Court quoted The Law of Evidence in Canada, Sopinka, Lederman and Bryant, 3rd ed., which states that "[...] it must be established that disclosure of the communication is necessary, either to achieve that agreement of the parties to the settlement or to address a compelling or overriding interest of justice".

The Court concluded that "settlements in personal injury cases are not relevant enough to warrant an exception to settlement privilege" (at para. 13).

Thomson v University of Alberta, 2013 ABQB 410

At issue in this case was whether a letter written by the Chair of the Department of Medicine in a grievance process initiated by the Association of Academic Staff University of Alberta was producible. The Master found that the letter was privileged and therefore not producible because it was part of the grievance process, which is in effect, a settlement negotiation process. Furthermore, the Master found that there had been no waiver of the privilege and no exceptional circumstances applied to lift the privilege. The Plaintiff appealed.

Essentially the Court held that the Master applied the rule of settlement privilege too widely (at para. 5). Both parties agreed that the correct test which sets out when settlement privilege attaches to any form of communication was given in Costello v City of Calgary (1997) 53 Alta. L.R. (3d) 15, 2009 A.R. 1 (C.A.); The three conditions that must be complied with are:

  1. there is a litigious dispute;
  2. the communication was made with the intention that it would not be disclosed to the Court; and
  3. whether the purpose of the communication is to attempt a settlement (at para. 8).

It was the third test which was at issue. With reference to precedent the Court stated that the correspondence must be reviewed and determine whether it invites compromise, outlines approaches towards settlement, recognizes weaknesses, or makes admissions (at para.11). To put another way, as was stated in Bellatrix Exploration Ltd. v Penn West Petroleum Ltd. 2013 ABCA 10 at para. 2, there must be "at least a hint of potential compromise or negotiation" in the correspondence (at para.11). The Court mentioned and supported the Sable decision in that the negotiated amount in that case, to which privilege attached, was found to be a key component of the "content of a successful negotiation" (at para. 11).

The Court found that the correspondence "should not be cloaked with privilege" as there was no hint of potential compromise; it was basically an unconditional assertion of rights (at para. 15).

Canadian Courts Will Continue to Favour Settlement Privilege in Negotiations

As with any class privilege there are exceptions as the above cases have noted. When it comes to determining whether an exception is warranted each case will have to be examined on its facts. Given the increasing cost of legal fees and the corresponding effect of limiting access to justice for those who cannot afford lawyers, I suspect that the Canadian courts will continue to promote and protect settlement privilege. This is indeed an welcomed trend.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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