On May 8, 2014 the Supreme Court of Canada reaffirmed the importance of protecting settlement discussions – and of a party’s ability to prove the existence of a settlement agreement or its terms.

Union Carbide Canada Inc. and Dow Chemical Canada Inc. v. Bombardier Inc. was a multi-million dollar dispute. The parties agreed to try to resolve it in mediation. They signed off on a “standard” mediation agreement that included a confidentiality clause stating “anything” in the mediation was confidential and nothing that transpires in it “will be alleged, referred to or sought to be put into evidence in any proceeding”. They settled the dispute – but subsequently disagreed about its terms. In a hearing, one tried to enter mediation discussions as evidence to prove the settlement terms; others objected, saying the confidentiality clause was absolute and the settlement discussions confidential for any purposes.

The SCC disagreed that the parties intended to renounce their right to prove the settlement agreement by agreeing to the confidentiality clause. The SCC’s decision is based in part on Quebec contract laws that don’t apply elsewhere in Canada, but also on general legal principles that do:

  • Settlement Privilege Vital. The SCC reaffirmed the vital importance of settlement, and of settlement privilege (the legal rule that protects communications between parties relating to efforts to settle a dispute from disclosure). But the SCC also reaffirmed the exception to it: communications that led to a settlement aren’t protected if disclosure is necessary to prove the settlement’s existence or scope.
  • Clear Contract Terms To Change. Parties can agree to expand the scope of the settlement privilege rule, including agreeing to renounce their ability to use settlement discussions to prove a settlement agreement – but any such agreement must be express and clear.

The decision emphasizes the value the SCC puts on settling disputes – but not at the price of a party’s ability to prove either the existence or the terms of a settlement agreement. Parties seeking to displace this exception to the settlement privilege rule must do so in terms that leave no doubt of their intention to do so.

Click here to read the SCC’s decision in Union Carbide Canada Inc. and Dow Chemical Canada Inc. v. Bombardier Inc. 2014 SCC 35