You may be sued by a client in regard to the same or similar facts that are at issue in a regulatory matter (Securities Commission, IIROC or MFDA). Most regulatory proceedings settle before a hearing, however, resulting in the creation of publicly available documents that may include prejudicial admissions. What impact will these settlement documents have on civil litigation? Can a defendant include a clause within the settlement documents indicating that the facts contained within the settlement documents are for the purpose of that particular regulatory proceeding only (i.e. a “privative clause”) and attempt to exclude such evidence at trial?

Traditionally, the Ontario courts have held that a privative clause contained within a settlement agreement or Settlement Order of a regulatory body may be sufficient, if properly worded, to prevent the use of the settlement documents in a civil proceeding. However, in 2008, an Ontario court rejected this view. The court held that a privative clause may assist the defendant in denying that the settlement agreement was conclusive as to the facts, or in arguing that it excluded relevant evidence that should affect the weight to be given to it, but it would not make the documents inadmissible, per se, in a civil proceeding.

Therefore, it is prudent for a person or company seeking to settle a proceeding brought before a regulatory body to assume that anything contained within the settlement documents, whether it is the settlement agreement, agreed statement of facts, settlement order or reasons of the regulatory body, can be used in a future civil proceeding to establish liability. Accordingly, all settlement documents must be drafted with care and anticipation as to their likely future use. The documents should be drafted in such a manner that they limit any agreement to facts that may potentially prejudice the defendant in a subsequent civil proceeding. Moreover, as the case law is not settled at this time, the settlement documents, including the settlement order from the regulatory body, should contain a properly drafted privative clause indicating that the settlement documents are not an admission of liability and exclude potentially relevant evidence that may affect the weight to be given to the documents in a civil proceeding.

Ultimately, the only way that one can be absolutely certain that admissions made in a proceeding before a regulatory body do not prejudicially affect him or her in a subsequent civil proceeding is to avoid the temptation to settle the proceeding and move to a full hearing on the merits. It is well established law that, while the regulator’s decision is admissible as evidence, the reasons for the decision, including any review of the evidence after a hearing or trial, are inadmissible.