Canada: Only Express Contractual Language Ousts Settlement Privilege

The Supreme Court of Canada recently rendered a decision of interest to parties engaging in, or contemplating, mediation of a dispute. In Union Carbide Canada Inc v Bombardier Inc¹ (Union Carbide), the court considered whether a confidentiality clause found in a mediation agreement could displace the common law evidentiary rule of settlement privilege, which provides an exception to privilege where necessary to prove the existence or scope of a settlement. The court held that parties are free to contract out of the usual rule, but only where there is evidence of their express intent to do so.

Background

This litigation involved a decades-long, multi-million dollar dispute commenced in the Quebec Superior Court regarding allegedly defective gas tanks manufactured by the appellant, Dow Chemical. In an attempt to resolve the dispute, the parties agreed to a private mediation and signed a standard mediation contract to this effect. The contract contained a confidentiality provision (the Confidentiality Clause), which stated that, "Nothing which transpires in the Mediation will be alleged, referred to or sought to be put into evidence in any proceeding."

Following the mediation, the respondent, Bombardier, accepted a settlement offer made by Dow Chemical. However, after reaching the agreement, the parties disagreed about the scope of the settlement.

Dow Chemical considered the settlement to apply globally, meaning that the settlement would absolve it of future liability not only in Quebec, but anywhere in the world. Bombardier, on the other hand, understood the settlement to apply to the scope of the existing litigation, which was commenced only in Quebec.

Dow Chemical did not deliver the amount promised in the settlement agreement, and Bombardier brought a motion for enforcement of the settlement in the Quebec Superior Court. In its submissions, Bombardier included reference to events that had taken place during the mediation to establish what it thought the parties had agreed to. Dow Chemical brought a motion to strike the references to the mediation, arguing that they were inadmissible by virtue of the Confidentiality Clause. While Dow Chemical was successful in motions court, Bombardier was successful on appeal. Dow Chemical then appealed to the Supreme Court of Canada.

Supreme Court of Canada decision

In rendering the Supreme Court of Canada's unanimous decision, Justice Wagner held that although parties are free to contract for further confidentiality protection than what exists at common law, they must do so explicitly: "Where an agreement could have the effect of preventing the application of a recognized exception to settlement privilege, its terms must be clear."

Justice Wagner noted the Confidentiality Clause was part of a standard form contract that had not been altered by the parties, and there was no evidence that the parties thought they were deviating from the usual common law settlement privilege protections. The court held that it was unreasonable and illogical to assume that parties who agree to a mediation to reach a settlement would renounce their right to prove the settlement terms, in the absence of express language to that effect.

The takeaway

Union Carbide echoes the Supreme Court's earlier sentiments in Sable Offshore Energy Inc v Ameron International Corp² (Sable), in which the court confirmed the "vital importance" of settlement privilege in promoting the settlement of disputes and improving access to justice. In both Sable and Union Carbide, the court emphasized the role of settlement privilege in encouraging honest and frank discussion between parties to a litigation.  

The flip side is that settlement privilege can be dispensed with to prove the terms of a settlement. To deprive a party from calling evidence to this effect would remove an important impetus to engage in settlement negotiations. The court provided clear guidance in Union Carbide that it will not depart from the well-recognized exceptions to common law settlement privilege in the absence of clear language to the contrary.

The author wishes to thank Dana Carson, articling student, for her help in preparing this legal update.

Footnotes

1 2014 SCC 35.

2 2013 SCC 37.

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