In May 2020, the Alberta Court of Appeal (CA) released its decision in Phoa v Ley, 2020 ABCA 195. The decision, upholding an order to strike parts of an affidavit, gives useful guidance on the application of the principle of settlement privilege. The CA held that settlement privilege is as applicable in the context of a preliminary application as it is at trial. It also held that courts should not sift through privileged documents to separate out and admit otherwise non-privileged portions, because to do so would undermine the rationale behind settlement privilege.
The case involves allegations of a trust over shares in a Singapore private company. The Statement of Claim alleges that sometime prior to 1976, the shares were put into trust by WK, to be held on behalf of his sister-in-law EP. EP moved to Alberta in 1976; she and WK are deceased.
In March 2018, EP's personal representative (PR) brought an action on behalf of EP's estate and heirs (the claimants) against WK's children and other members of their families (the defendants) alleging, among other things, breach of fiduciary duty, breach of trust, and fraud in relation to the shares allegedly held in trust.
The defendants challenged the claimants' jurisdiction to bring the action in Alberta, claiming that Singapore was the proper forum to hear the dispute. In response, the PR swore an affidavit with reference to certain communications between the parties. Attached as exhibits to the affidavit were letters and email correspondence evidencing such communications.
The defendants applied to strike portions of the PR's affidavit on the basis the communications were subject to settlement privilege and therefore inadmissible. Justice Jeffrey granted the application and struck parts of the affidavit and the associated exhibits (the challenged documents).
On the claimants' appeal, a three-member panel of the CA upheld Justice Jeffrey's decision.
Court of Appeal Decision
Settlement privilege is an important legal principle that applies to communications about potential settlement between parties for whom litigation is on the horizon or has already commenced. Such communications are protected from being used in litigation between the parties.
As explained by the CA, the rationale behind the principle is that it facilitates the settlement of litigious disputes by allowing parties to freely and openly discuss and offer terms of settlement. Making it easier for parties to reach settlements reduces the delays, cost and stress that come with litigation.
On their appeal, the claimants argued, among other things, that Justice Jeffrey failed to:
- recognize the challenged documents fell within exceptions to the settlement privilege rule, and
- admit non-privileged parts of the challenged documents.
Issue 1 – do the challenged documents fall within exceptions to settlement privilege?
There are exceptions to the settlement privilege rule. If a document falls within one of the exceptions, it can be used as evidence despite otherwise meeting the test for settlement privilege.
The claimants argued an exception exists "when privileged documents are sought to be used on a preliminary application that does not involve adjudication of the merits of the underlying action."
The argument, in other words, was that if only the chambers justice hearing the preliminary application will consider the potentially privileged documents (as opposed to the trial judge hearing the full case), then privilege doesn't apply.
In support of this argument, the claimants relied on a 2004 Alberta Court of Queen's Bench decision, Guccione v Bell.
In Guccione, the court held that settlement privilege does not apply to settlement discussions where evidence of the discussions is "offered as an excuse for delay in the context of an application to dismiss an action for want of prosecution."
The court's view in Guccione was that parties would not be deterred from free and open settlement discussions simply because those communications might later be referenced in an application to dismiss for delay. In such a case, reasoned the court, only the chambers justice hearing the application would see the communications, whereas the trial judge responsible for determining liability and damages would not.
In Phoa, however, the CA declined to follow this reasoning. It distinguished Guccione on the basis that in the context of dismissal for delay, it is typically enough to refer to the existence of settlement-related communications (as an explanation for the delay). The content of the communications is immaterial.
By contrast, in most other contexts, including the jurisdictional challenge in Phoa, the content of the communications matters, and there is no exception to settlement privilege based on the reasoning in Guccione.
The court emphasized that "[t]he exceptions to settlement privilege are to be construed narrowly."
Issue 2 – should Justice Jeffrey have admitted non-privileged parts of the challenged documents?
The claimants contended there were portions of the challenged documents – for example, a separate document enclosed by a privileged letter – that were not properly subject to settlement privilege. They argued that Justice Jeffrey should have gone through the challenged documents to separate out these non-privileged portions so they could be admitted into evidence.
The CA also rejected this argument. It acknowledged that sometimes, within a document, one part is privileged but another part is not. However, the CA said that doesn't mean the court should "parse a single document ... to dissect statements that might not independently qualify as privileged."
The reason why, explained the CA, is that such an approach would "undercut the privilege." If courts were to dissect documents to separate out admissible chunks, parties would be forced to monitor more carefully the content of their discussions. The result would be an impairment of free and open settlement discussions.
The CA noted there may be cases where settlement privilege does not apply to all parts of a privileged document. But where an attachment, for example, is provided within a document as "part of the overall communication, made with a view to settlement," and in the absence of some other "special reason," settlement privilege will adhere to all parts of the document, including the attachment.
The CA's decision gives useful guidance on the scope of settlement privilege. There are two key takeaways for anyone engaged in settlement discussions:
- Settlement privilege is as important (and as applicable) on a preliminary application as it is at trial. The Guccione decision should be confined to the narrow context of dismissal for delay applications, where what matters is usually the existence, rather than the content, of settlement-related communications.
- Courts will not dissect documents to separate out the non-privileged portions. Settlement privilege will attach to the document as a whole, even if it contains, for example, attachments or enclosures that on their own would not be privileged.
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.