The Supreme Court of Canada has recently decided an interesting case regarding the intersection of an absolute confidentiality clause in mediation with the exception to the common law settlement privilege that allows a party to rely on what was said in the mediation to enforce any settlement reached in the mediation.

In Union Carbide Canada Inc. v. Bombardier Inc., 2014 SCC 35, the parties had been involved in lengthy litigation involving defective gas tanks used on Sea-Doo personal watercrafts. The parties agreed to mediate the dispute and entered into a standard mediation agreement that contained the following confidentiality clause: “Nothing which transpires in the Mediation will be alleged, referred to or sought to be put into evidence in any proceeding.” The parties proceeded to settle the matter during the mediation; however, one party thought the settlement was a global settlement amount whereas the other party thought the settlement was only in respect of the Montreal litigation. A dispute arose as to what the settlement terms were and a motion was filed regarding the issue before the Superior Court of Quebec. The respondent party to the motion objected to six paragraphs in the application documents which referred to events that had taken place during the mediation.

The motion judge ordered that four of the six offending paragraphs be struck because they referred to discussions that had occurred in the mediation. The Court of Appeal took a different approach and found that when mediation results in an agreement, communications made in the course of the mediation process cease to be privileged and a party can produce evidence of those confidential communications in order to prove the existence of a disputed settlement agreement.

The Supreme Court of Canada held that where an agreement could have the effect of overriding the established exception to the common law settlement privilege, its terms had to be clear. A standard confidentiality clause, like the one in this case, would not meet that hurdle as it did not evidence an intention to disregard the usual rule that settlement privilege is overridden where it is necessary to prove the terms of the settlement. In the interests of promoting settlements between the parties, it is necessary that they be able to prove the terms of the settlement. However, mediation is also a “creature of contract” and therefore, it was open to the parties to develop their own rules regarding the confidentiality of the process. If it was clearly expressed, it would be possible for the parties to override the exception to the common law settlement privilege and truly ensure that everything that happens in mediation, stays in mediation.

It is interesting that the Supreme Court of Canada is sanctioning the ability of parties to contract regarding the extent of the confidentiality of mediation. However, one would suspect most litigants will want the ability to prove any settlement that may arise from mediation and would be wary of closing off this avenue through a contract they freely entered into. While this case was an appeal from the Quebec Court of Appeal, given the universal nature of the subject matter, it is most likely to be applied nationally.