Settlement Privilege and Mediation Contracts

June 27, 2014

This decision originating from Quebec may be of interest for Canada’s legal community.

In the judgment Union Carbide Canada Inc. v. Bombardier Inc. authored by Justice Wagner (with no dissents) and released on May 8, 2014, the Supreme Court of Canada unanimously concluded that in the context of a mediation, the parties can agree to a mediation contract that provides for more confidentiality than the common law settlement privilege. Such contract, if clearly drafted to that effect, can even remove the possibility for a party to rely on the settlement privilege exception to prove the existence or scope of a settlement.

During the course of a multi-million dollar law suit, the parties agreed to a private mediation and signed a standard mediation agreement which contained the following clause:

Nothing which transpires in the Mediation will be alleged, referred to or sought to be put into evidence in any proceeding.

A settlement offer was made by Dow Chemical and accepted by Bombardier, but because of a divergence in the interpretation of the scope of the settlement, the settlement amount was never paid. A motion for homologation of the settlement agreement was filed by Bombardier before the Superior Court. Said motion contained allegations referring to what had been said and done during the mediation. Dow Chemical filed a motion to strike out these allegations.

The Superior Court granted the motion to strike allegations based on the confidentiality clause of the mediation agreement, this ruling was overturned by the Court of Appeal and Dow Chemical appealed to the Supreme Court of Canada.

The issue before the Court was whether a mediation contract with an absolute confidentiality clause modified the common law settlement privilege including its exception, foreclosing parties from proving the terms of a settlement.

The Court answered by rejecting “the presumption that a confidentiality clause in a mediation agreement automatically displaces settlement privilege, and more specifically the exceptions to that privilege that exists in common law”. To confirm if it did displace the exception to the privilege, the Court applied Quebec’s contract law and its principles of contractual interpretation.

Reviewing the nature of the contract, the circumstances in which it was formed and the contract as a whole, the Court found that Bombardier had not signed away its ability to prove a settlement, if need be.

In Union Carbide Canada Inc. v. Bombardier Inc. the Supreme Court of Canada therefore reasserted the common law settlement privilege and its exception but set out the parameters on how it may be set aside.


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