In the Alberta Court of Appeal’s words, settlement privilege ‘should not normally give way to answer a limitations defence’: Bellatrix Exploration Ltd v Penn West Petroleum Ltd, 2013 ABCA 10. In that case, the parties had attempted to settle various points in dispute that related to a commercial venture, but ultimately failed to reach agreement. Bellatrix filed a statement of claim against Penn West; in response, Penn West pleaded a defence based on the Limitations Act. Bellatrix argued that Penn West could not rely on a limitations defence because it had made representations which gave rise to some kind of estoppel or acknowledgment of the validity of Bellatrix’s claims. Penn West applied for a declaration that correspondence between May and August 2009 ought to be excluded from the record because it was subject to settlement privilege. An Alberta master agreed that the correspondence form this period was covered by the privilege because the necessary preconditions were present: (a) a litigious dispute, either in existence or in prospect; (b) express or implied intent that the communications would not be disclosed to the court in the event that settlement negotiations failed and (c) an underlying purpose to effect a settlement. The master went on, however, to conclude that settlement privilege is ‘not as robust’ a form of privilege as solicitor-client or litigation privilege, and that the ‘overall interests of justice’ favoured the lifting of the privilege in order to allow Bellatrix to respond to the limitations defence (which was not the substance of the negotiations between the parties).

The Court of Appeal held that the master correctly determined that settlement privilege applied to the correspondence in question. Where she erred was in assessing the scope of the privilege, which in the court’s view is broad – and the exceptions to it correspondingly narrow. The court then reviewed the exceptions which have been identified in the case law, noting that one ought to ‘proceed cautiously before establishing exceptions to settlement privilege’. Merely saying that it is ‘not fair’ to recognise the privilege or, vaguely, that the ‘overall interests of justice’ require it to be lifted, is an error in law which will undermine the purposes of the privilege: to permit parties to proceed with their settlement discussions with maximum candour. Ordinarily, answering a limitations defence will not oust the privilege; it would be necessary to show that the ‘alternative policy objective’ to leaving the privilege intact ‘clearly outweighs’ the underlying objective of the privilege. In this case, the parties could simply have entered into a tolling or standstill agreement to stop the limitations clock while they conducted their negotiations.

[Link available here].