Parties who seek to ensure the ongoing confidentiality of communications in furtherance of settlement through mediation should take heed of the Supreme Court of Canada’s recent unanimous decision in Union Carbide Inc. v. BombardierInc., 2014 SCC 35. The Court’s decision addresses the narrow issue of whether and when a confidentiality clause in a mediation contract can displace the common law rule that evidence regarding settlement communications may be disclosed in certain circumstances, and the case offers broad lessons in the benefits of planning for mediation.

Settlement privilege is a rule of evidence that applies to all settlement negotiations and  which prevents parties from disclosing communications exchanged in an attempt to settle a dispute, even after a settlement is reached. The privilege is intended to promote out-of-court settlements by incentivizing parties to have honest and frank discussions.  There are exceptions to the privilege; where fraudulent or unlawful communications are made to procure a settlement, threats are uttered, to prevent double recovery in cases involving multiple defendant, and to prove the existence or scope of a settlement. Only the last exception is addressed by the Court in Union Carbide.

The facts of the case are straightforward. After decades of litigation, Union Carbide (now Dow Chemical) and Bombardier decided to mediate their dispute concerning defective gas tanks on Sea-Doo watercraft. On the eve of the mediation, the parties signed a standard form mediation agreement provided by the mediator, which stated that, “Nothing which transpires in the Mediation will be alleged, referred to or sought to be put into evidence in any proceeding.” Dow Chemical made a settlement offer, which Bombardier accepted after the mediation had concluded. The parties later disagreed on the scope of the settlement, and Dow Chemical did not pay the settlement amount.  Bombardier brought a motion to enforce the settlement, relying on evidence of what occurred both during and after the mediation. Dow Chemical moved to strike out certain allegations in the notice of motion on the basis that they disclosed evidence of what took place in the confidential mediation process.  

Writing on behalf of the unanimous Court, Wagner, J. determined that the allegations should not be struck from the notice of motion, reasoning that only through express and explicit language may parties contract out of the common law rule of settlement privilege and its exceptions.  The confidentiality clause in the standard form mediation agreement signed by the parties, although broadly worded, did not do so. 

Parties who wish to maintain complete confidentiality of their mediation negotiation (i.e., those who wish to oust the settlement privilege exceptions) now have clear guidance on the necessary steps to follow. Clearly worded mediation contracts that leave no doubt that the parties intend to waive their right to rely on communications made at mediation for the purpose of enforcing a settlement (or for purposes of any of the other exceptions to the settlement privilege rule) are required. Language in standard form mediation contracts is unlikely to suffice.

As a result of this decision, prudent mediating parties and their counsel will add confidentiality to the list of considerations that they discuss before mediation. Advance consideration of these issues will promote clear communication at the mediation, and ensure all parties understand what information they reveal at a mediation might be subject to later disclosure.