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Evidence - Settlement Privilege

Union Carbide Canada Inc. v. Bombardier Inc. (SCC, 2014)

In this case the Supreme Court of Canada expounded on the nature of settlement privilege, the evidentiary rule of law that renders communications made for the purpose of settlement privileged. Here the specific issue was whether a contractual confidentiality clause could override the exception to settlement privilege where a party seeks to prove the terms of the settlement for purposes of enforcement:
[1] This Court recently confirmed the vital importance of the role played by settlement privilege in promoting the settlement of disputes and improving access to justice: Sable Offshore Energy Inc. v. Ameron International Corp., 2013 SCC 37 (CanLII), 2013 SCC 37, [2013] 2 S.C.R. 623. Settlement privilege is a common law evidentiary rule that applies to settlement negotiations regardless of whether the parties have expressly invoked it. This privilege is not the only tool available to parties, however, as parties like the appellants and the respondents in the case at bar often sign mediation agreements that provide for the confidentiality of communications made in the course of the mediation process.

......

[31] Settlement privilege is a common law rule of evidence that protects communications exchanged by parties as they try to settle a dispute. Sometimes called the “without prejudice” rule, it enables parties to participate in settlement negotiations without fear that information they disclose will be used against them in litigation. This promotes honest and frank discussions between the parties, which can make it easier to reach a settlement: “In the absence of such protection, few parties would initiate settlement negotiations for fear that any concession they would be prepared to offer could be used to their detriment if no settlement agreement was forthcoming” (A. W. Bryant, S. N. Lederman and M. K. Fuerst, The Law of Evidence in Canada (3rd ed. 2009), at para. 14.315).

[32] Encouraging settlements has been recognized as a priority in our overcrowded justice system, and settlement privilege has been adopted for that purpose. As Abella J. wrote in Sable Offshore, at para. 12, “[s]ettlement privilege promotes settlements.” She explained this as follows, at para. 13:
Settlement negotiations have long been protected by the common law rule that “without prejudice” communications made in the course of such negotiations are inadmissible (see David Vaver, “‘Without Prejudice’ Communications — Their Admissibility and Effect” (1974), 9 U.B.C. L. Rev. 85, at p. 88). The settlement privilege created by the “without prejudice” rule was based on the understanding that parties will be more likely to settle if they have confidence from the outset that their negotiations will not be disclosed. As Oliver L.J. of the English Court of Appeal explained in Cutts v. Head, [1984] 1 All E.R. 597, at p. 605:
. . . parties should be encouraged so far as possible to settle their disputes without resort to litigation and should not be discouraged by the knowledge that anything that is said in the course of such negotiations . . . may be used to their prejudice in the course of the proceedings. They should, as it was expressed by Clauson J in Scott Paper Co v. Drayton Paper Works Ltd (1927) 44 RPC 151 at 157, be encouraged freely and frankly to put their cards on the table.
What is said during negotiations, in other words, will be more open, and therefore more fruitful, if the parties know that it cannot be subsequently disclosed.
[33] There have been other occasions on which this Court discussed the importance of encouraging parties to settle their own disputes. For example, LeBel J., writing for the Court in Globe and Mail cited Kosko v. Bijimine, 2006 QCCA 671 (CanLII), 2006 QCCA 671 (CanLII), a case in which the Quebec Court of Appeal had commented as follows, at paras. 49-50:
The protection of confidentiality of these “settlement discussions” is the most concrete manifestation in the law of evidence of the importance that the courts assign to the settlement of disputes by the parties themselves. This protection takes the form of a rule of evidence or a common law privilege, according to which settlement talks are inadmissible in evidence.

The courts and commentators have unanimously recognized that, first, settlement talks would be impossible or at least ineffective without this protection and, second, that it is in the public interest and a matter of public order for the parties to a dispute to hold such discussions.

(See also Kelvin Energy Ltd. v. Lee, 1992 CanLII 38 (SCC), [1992] 3 S.C.R. 235, at p. 259, citing Sparling v. Southam Inc. 1988 CanLII 4694 (ON SC), (1988), 41 B.L.R. 22, at p. 28.)
[34] Settlement privilege applies even in the absence of statutory provisions or contract clauses with respect to confidentiality, and parties do not have to use the words “without prejudice” to invoke the privilege: “What matters instead is the intent of the parties to settle the action . . . . Any negotiations undertaken with this purpose are inadmissible” (Sable Offshore, at para. 14). Furthermore, the privilege applies even after a settlement is reached. The “content of successful negotiations” is therefore protected: Sable Offshore, at paras. 15-18. As with other class privileges, there are exceptions to settlement privilege:
To come within those exceptions, a defendant must show that, on balance, “a competing public interest outweighs the public interest in encouraging settlement” (Dos Santos Estate v. Sun Life Assurance Co. of Canada, 2005 BCCA 4 (CanLII), 2005 BCCA 4, 207 B.C.A.C. 54, at para. 20). These countervailing interests have been found to include allegations of misrepresentation, fraud or undue influence (Unilever plc v. Procter & Gamble Co., [2001] 1 All E.R. 783 (C.A. Civ. Div.), Underwood v. Cox (1912), 26 O.L.R. 303 (Div. Ct.)), and preventing a plaintiff from being overcompensated (Dos Santos).

(Sable Offshore, at para. 19)
[35] The exception to settlement privilege at issue in the case at bar is the rule that protected communications may be disclosed in order to prove the existence or scope of a settlement. This exception is explained by Bryant, Lederman and Fuerst:
If the negotiations are successful and result in a consensual agreement, then the communications may be tendered in proof of the settlement where the existence or interpretation of the agreement is itself in issue. Such communications form the offer and acceptance of a binding contract, and thus may be given in evidence to establish the existence of a settlement agreement. [para. 14.340]
The rule is simple, and it is consistent with the goal of promoting settlements. A communication that has led to a settlement will cease to be privileged if disclosing it is necessary in order to prove the existence or the scope of the settlement. Once the parties have agreed on a settlement, the general interest of promoting settlements requires that they be able to prove the terms of their agreement. Far from outweighing the policy in favour of promoting settlements (Sable Offshore, at para. 30), the reason for the disclosure — to prove the terms of a settlement — tends to further it. The rule makes sense because it serves the same purpose as the privilege itself: to promote settlements.

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