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Evidence - Privilege - Settlement (2)

. Rak v. Ontario College of Pharmacists

In Rak v. Ontario College of Pharmacists (Div Court, 2022) the Divisional Court considered an exception to settlement privilege:
[45] This was not a situation where the settlement privilege should be pierced because the interpretation or existence of a settlement agreement is in issue (Sable Offshore Energy Inc. v. Ameron International Corp., 2013 SCC 37 at para. 17). The task of the Committee was to interpret the order made by the previous Discipline Committee in 2014, not the settlement agreement. The parties’ negotiations with respect to the interpretation of the agreed statement of facts and the joint penalty were not relevant to that interpretive exercise.
. Stronach v. Stronach

In Stronach v. Stronach (Div Ct, 2021) the Divisional Court raises the issue of how to plead (and proceed) where the admissibility of matters that may be settlement privileged is disputed:
[2] The motion judge struck out portions of fresh as amended statements of defence of the appellants on the ground that they pleaded documents and communications that are subject to settlement privilege.

[3] The impugned pleadings concern matters that are prima facie subject to settlement privilege. It is not clear that this privilege has been waived or that there is another basis for admitting these privileged matters into evidence. Therefore, these matters ought not be pleaded and ought not be the subject of disclosure and discovery prior to trial. Admissibility of evidence that is prima facie covered by settlement privilege remains an evidentiary ruling that may be raised with the trial judge, who will decide that issue on the foundation provided to assess the privilege issues on the complete record before them at trial. Accordingly, for the reasons that follow, we dismiss the appeals.


[25] As a matter of general principle, pleadings motions are not the appropriate stage in an action to engage in what is essentially a trial judge’s function of determining the admissibility of evidence at trial. Nevertheless, when issues of privilege are raised in the context of a pleadings motion, it is necessary for the court to consider whether a pleaded communication or document is subject to privilege. This is primarily because the pleadings define the issues in an action and, hence, the scope of discovery.

[26] As a general rule, a judge hearing a Rule 25.11 motion must refrain from engaging in an evaluation of the admissibility of evidence, a task which is more appropriately undertaken by a trial judge, while at the same time ensuring that a fair trial is not prejudiced or delayed.

[27] In the context of a motion to strike portions of a pleading that refer to what are alleged to be privileged communications or documents, Rule 25.11 permits a court to determine the issue where it is feasible and appropriate to do so. This will depend, in large measure, on the nature of the impugned allegations and the evidentiary record that is available to the motion judge.

[28] The question of whether the motion judge properly applied the test under Rule 25.11 boils down to whether it was appropriate for the motion judge to make a finding that the IO communications, the EY valuation and the July communications were prima facie covered by privilege. In Belsat Video Marketing Inc. v. Zellers Inc., 2003 CanLII 44163 (ON SC), Master MacLeod (as he then was), at para. 23, stated that unless the pleading is self-evidently an improper reference to the contents of a settlement discussion, it is not possible at the pleadings motion stage to determine whether settlement privilege should apply. In Bellatrix Exploration Ltd. v. Penn West Petroleum Ltd., 2013 ABCA 10, the Alberta Court of Appeal observed, at para. 28:
… not only must the ambit of the settlement privilege be broad, but the exceptions to the exclusionary rule must be narrowly construed and only be given effect where another policy objective can be shown to outweigh any impact that may arise to the settlement objective.
[29] In the present case, the motion judge had before him a substantial evidentiary record. Unlike many strikeout motions, which occur at a very early stage of the litigation, the litigation was already mature at the time that the strikeout motion arose, directed as it was to a fresh as amended statement of defence which was responding to a fresh as amended statement of claim.

[30] That said, the appellants raise concerns which would be more valid if the effect of the motion court judge’s decision had been to make evidentiary rulings that were binding on the trial judge. He did no such thing. Even without the struck-out portions of their defences, the defendants have joined issue with the allegations made with the plaintiffs. The impugned sections of the pleadings relate essentially to evidence that they wish to be able to tender in support of their defences that they did not breach their fiduciary obligations or engage in self dealing.

[31] We find no fault in the conclusion of the motion judge that he had before him a sufficient record to deal with the settlement privilege issues raised by the plaintiffs on the Rule 25.11 motion before him. That record was sufficient for him to conclude it was plain and obvious that the impugned paragraphs addressed documents and communications that were prima facie privileged.
. Stronach v. Stronach

In Stronach v. Stronach (Div Ct, 2021) the Divisional Court considered a complex issue of settlement privilege waiver:
Did the plaintiffs waive settlement privilege?

[32] The position of the appellants is that the plaintiffs, having pleaded the elements of the May 2020 Agreement and the 2020 Belinda/Frank Agreement, and having made allegations concerning a pressure campaign and pleaded the express and repeated objections made by the plaintiffs to the settlement agreements, waived any settlement privilege that might otherwise apply.

[33] That privilege may be waived expressly or by implication. In Hallman v. Pure Spousal Trust (Trustee of), 2009 CanLII 49643 (ON SC), D.M. Brown J. observed, at para. 8, that:
Whether intended or not, waiver may occur when fairness requires it, for example if a party has taken positions which would make it inconsistent to maintain the privilege.
[34] The motion judge accepted the submissions of the plaintiffs that their allegations related only to conduct prior to and outside of the judicial mediation. That finding was consistent with his earlier ruling on the plaintiffs’ motions for leave to amend their statements of claim, which was not appealed.

[35] The appellants maintain that the judge erred. The plaintiffs in their pleadings are said to have put in issue the trustees’ state of mind. They are accused of not having properly taken into account the plaintiffs’ interests. Throughout the mediation and the settlement discussions the trustees would doubtless have heard the plaintiffs advocating their positions and interests. It would be implausible for them to say that they were not aware of those positions and the interests of the plaintiffs as perceived by them. But in such circumstances the settlement privilege does not evaporate in the face of the trustees’ desire to use what was communicated (or not said or done) during a settlement process to subsequently defend themselves against the allegations that they engaged in self-dealing and breached their fiduciary obligations be entering into the 2020 Belinda/Frank Agreement. Put another way, the appellants would not be entitled to rely upon privileged settlement discussions and events to the prejudice of the plaintiffs. The fact that they may allege that they did so would not defeat the privilege.

[36] The motion judge’s conclusion, based on the record before him, was that the plaintiffs had not expressly or implicitly waived settlement privilege, was reasonable and supported by the evidence and by the correct application of legal principle. It is entitled to deference.

Does the justice of the case require an exception in the circumstances?

[37] Courts will not interfere with the trustees’ actions, unless:
(a) Such actions are unauthorised by the power conferred by the trust;

(b) The trustees would not have acted as they did if they had considered things that they should not have, or failed to take things into account that they ought to have considered: Edell v. Sitzer (2001), 2001 CanLII 27989 (ON SC), 55 OR (3d) 198 (S.C.J.)
[38] The moving parties argue that they will need to adduce evidence about what they did and did not consider in coming to the terms of the Frank/Belinda settlement (including the involvement of the IO’s, the Ernst & Young valuation, and correspondence that occurred in July 2020). They also submit that the effect of striking out the impugned portions of their pleadings is to render them unable to fully defend themselves against the plaintiffs’ claims.

[39] One of the issues remaining in dispute between the parties to these actions concerns the value of certain shares. During the course of the mediation, a valuation was obtained from Ernst & Young. It was obtained expressly without prejudice and for use in the mediation. The trustees may well have relied on the valuation when they agreed to settle with Frank and Elfriede. They argue that the justice of the case demands that they be able to refer to the valuation as evidence of their state of mind and, specifically their repudiation of the allegations of self-dealing and breach of fiduciary duty.

[40] According to the appellants, the motion judge misapplied Mueller Canada Inc. v. State Contractors Inc. (1989), 1989 CanLII 4117 (ON SC), 71 O.R. (2d) 397 (H.C.J.). In that case, the two defendants in an action had settled a dispute between them. The plaintiff then sued both defendants, alleging that one defendant had breached its fiduciary duty to the plaintiff. In the course of discovery, the plaintiff sought production of a letter containing the settlement between the defendants, a term of which was that details of the settlement would not be disclosed to third parties. Production was ordered. According to Doherty J. (as he then was), at para. 13:
Where documents referable to the settlement negotiations or the settlement document itself have relevance apart from establishing one party’s liability for the conduct which is the subject of the negotiations, and apart from showing the weakness of one party’s claim in respect of those matters, the privilege does not bar production.
[41] Doherty J. noted that the plaintiff had pleaded the contractual relationship between the defendants, as established by the settlement letter, in issue, the existence of the agreement having been admitted by the defendants.

[42] The motion judge regarded the decision in Mueller as distinguishable because the plaintiff in that case had not been a participant in the settlement process between the defendants. The agreement between the defendants lay at the heart of the plaintiff’s claim against them.

[43] By contrast, in the present cases, the terms of the settlement agreements are known. The plaintiffs, while they did not ultimately settle, were participants in judicial mediation. These are important distinctions and the motion judge correctly recognised them as such.

[44] The appellants want to plead that the IOs were kept fully informed and that the IOs did not express concerns about the settlement. The IOs, like the mediator or a pre-trial judge are neutrals. What they say, or fail to say, is and must be entirely without prejudice.

[45] We do not accept that the overarching interests of justice require that the defendants be able to plead, as material facts, things that were said or not said by the participants in the judicial mediation process, including the IO’s. The same logic would apply to documents created for the purpose of the mediation, such as the valuation.

[46] It bears remembering that pleadings shall contain a concise statement of the material facts on which a party relies for the claim or defence, but not the evidence by which those facts are to be proved: Rule 25.06. This is a provision that is all too often honoured in the breach, rather than the observance. While it was not raised before the motion judge as a basis for striking out the impugned portions of the defendants’ pleadings, it might well have formed an alternative ground for doing so.

[47] We see no issue of fairness or public interest which outweighs the preservation of the settlement privilege. The defendants have joined issue on all of the allegations made against them by the plaintiffs. They dispute that their actions have the purpose or intention of preferring their own interests to those of the plaintiffs. That issue is squarely before the court and the nature and extent of the evidence that will be adduced in relation to their defence will be a matter for the trial judge.

[48] We would add this. The motion judge was alert to the potential mischief of permitting the impugned pleadings to stand. Not only would the extent of the evidence that might be adduced on discovery be significantly broadened, but there would be the spectre of the lawyers representing the various parties involved in the mediation ending up as witnesses. In Singh v. PCPO, 2018 ONSC 203 (Div. Ct.), at para. 57, this court reiterated that exceptions to the settlement privilege must be narrowly construed and only be given effect where another policy objective can be shown to outweigh any impact to the settlement objective. And as Mr. Laubman put it in argument, “truth seeking is not a recognised exception to settlement privilege”.

[49] In conclusion, it is important to underscore that the motion judge was dealing with a pleadings motion. His rulings are not evidentiary rulings. At the pleadings stage the impugned allegations should not be permitted. The resulting potential mischief is too great. The responding parties (plaintiffs) should not be required to plead over to them, provide disclosure in respect to them, conduct discoveries in respect to them.

[50] The motion judge’s decision does not preclude a proper foundation being laid to adduce the evidence which the appellants seek to rely on at trial. At that juncture, the trial judge can rule on admissibility. If admissibility is sought on the basis of special circumstances, there is a balancing to be done that would have to take into account the effect on the trial (for example, if allowing it in would require counsel to go into the witness box). But these points cannot be taken in isolation, and on their face would open up to the trial process a large part of the mediation process. In the absence of waiver, that should not be allowed to happen. Certainly not at this stage of the litigation.


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