A decision of the Supreme Court of Canada released on May 8, 2014 has clarified that a confidentiality clause in a mediation contract will not restrict a party from producing evidence of communications made in the mediation context in order to prove the terms of the settlement, unless that is the clearly intended effect of the mediation contract.
In Union Carbide Canada Inc. v. Bombardier, 2014 SCC 35, the Supreme Court of Canada addressed the question of whether a mediation contract with an absolute confidentiality clause displaces the exception to common law settlement privilege which allows a party to disclose protected communications in order to prove the existence or scope of a settlement. The Court held that a confidentiality clause in a mediation contract will not restrict a party from producing evidence of communications made in the mediation context in order to prove the terms of the settlement, unless that is the clearly intended effect of the mediation contract.
The parties had entered into private mediation and signed a standard mediation contract, which included a confidentiality clause. Dow Chemical Canada (a defendant) had submitted a settlement offer, which was accepted by Bombardier, but a disagreement arose as to the scope of the settlement. When Bombardier filed a motion, Dow sought to strike out allegations contained in the motion materials on the ground that they referred to events that had taken place during the course of mediation, in violation of the mediation contract’s confidentiality clause.
The Court held that Bombardier could refer to events that had taken place in the course of the mediation process in order to prove the terms of the settlement. Settlement privilege protects communications exchanged during the process of settling legal disputes. It promotes honest and frank discussions between the parties, which can make it easier to reach a settlement. A communication that has led to a settlement will cease to be privileged, however, if disclosing it is necessary to prove the existence or scope of the settlement. Both the privilege and its exception help to promote out-of-court settlements.
The Court held that parties may contract out of these common law rules, including the exception to settlement privilege. The Court held, however, “Where an agreement could have the effect of preventing the application of a recognized exception to settlement privilege, its terms must be clear.”
In this case, the parties did not clearly intend to override the common law exception. Neither party amended the standard mediation contract by adding any provisions relating to confidentiality. There was also no evidence that the parties thought they were deviating from the settlement privilege that usually applies to mediation when they signed the mediation contract.