NOTE TO READER
Pursuant to the order made in this case, the reasons for this order
contain redactions. All references to the terms of the settlement agreement
have been omitted.
REASONS
FOR ORDER
D'Auray J.
I.
Background
[1]
An oral motion was filed on February 2,
2015, in the Tax Court of Canada by Konica Minolta Business Solutions (Canada) Ltd.
(the applicant) pursuant to section 65 of the Tax Court of Canada Rules
(General Procedure).
[2]
This motion pertains to an appeal from an
assessment made under the Income Tax Act (the Act) by Jacques Abenaim
(the appellant) against the Minister of National Revenue (the Minister),
concerning the taxation of a lump sum paid by the applicant to the appellant
after the appellant was dismissed, in accordance with a settlement agreement
entered into by these same parties.
[3]
The motion seeks to prohibit any testimony,
including testimony by the appellant, regarding the terms of an agreement
entered into by the applicant and the appellant. [Confidential].
[4]
On July 6, 1994, the applicant and the
appellant signed a contract of employment for an indeterminate term under which
the appellant agreed to become the company's chief executive officer as of
July 1, 1994.
[5]
The applicant terminated the appellant’s
employment on June 9, 2009, by sending him a notice of termination
effective July 20, 2006, in accordance with clause 5(d) of the
contract of employment.
[6]
On October 2, 2006, the appellant filed a
civil suit against the applicant and its parent company in the Superior Court
of Québec, District of Montréal, following the resiliation of his contract of
employment. The motion seeks the following remedies:
−
the resolution of the contract of sale of shares
entered into on July 6, 1994, by which the appellant sold his shares in
the company to the applicant, and the restitution of said shares;
−
$2,000,000 in damages for the dividends lost as
a result of selling the shares;
−
the resiliation of the contract of employment
dated July 6, 1994;
−
all commissions and bonuses not paid since
July 6, 1994;
−
$2,000,000 in damages for lost income;
−
the reinstatement of the appellant in his
employment;
−
damages of $500,000 per year, from July 20,
2006, for lost wages (or, in the alternative, a lump sum of $1,500,000 in lieu
of notice);
−
$150,000 in damages for extrajudicial fees; and
−
$1,500,000 in damages for moral damage.
[7]
[Confidential]. The parties resolved the dispute
by signing a settlement agreement. Counsel representing the parties were Mr. Fournier
for the appellant and Mr. Manzo for the applicant.
[8]
[Confidential]
[9]
The agreement also provided that its content
would remain confidential. To this end, the appellant and the applicant
undertook not to disclose the content of the agreement. [Confidential].
[10]
[Confidential]
[11]
[Confidential]
[12]
[Confidential]
[13]
[Confidential]
[14]
[Confidential]
[15]
[Confidential]
[16]
[Confidential]
[17]
However, the confidentiality clauses did not
apply if disclosure of the terms of the agreement was required by law.
[Confidential]
[18]
When he filed his tax return for the 2009
taxation year, the appellant included the full amount [Confidential] as a
retiring allowance in computing his income.
[19]
On June 3, 2010, the Minister issued a Notice
of Assessment confirming the taxation of the amount [Confidential] as a
retiring allowance.
[20]
The appellant objected to the assessment dated
June 3, 2010. Despite having reported the entire amount as a retiring
allowance, the appellant argues that the Minister erred in taxing the entire
amount. He submits that a portion of the amount [Confidential] is non-taxable.
[21]
On February 21, 2102, the Minister
confirmed the assessment dated June 3, 2010.
[22]
On May 22, 2012, the appellant filed an
appeal in this Court.
[23]
On May 2, 2014, at the hearing to determine
the nature of the payment for tax purposes, counsel for the appellant stated
that she intended to call Mr. Fournier as a witness. Counsel for the
respondent, meanwhile, stated that he intended to call Mr. Manzo as a
witness. The testimony of Mr. Fournier and Mr. Manzo addressed in
part their discussions during the negotiations leading to the settlement of the
dispute between the appellant and the applicant that was before the Superior
Court of Québec.
[24]
The appellant argues that the testimony of
Mr. Fournier is necessary for the Court to determine the true nature of
the payment made by the applicant to the appellant.
[25]
With regard to settlement privilege and the
agreements signed by the applicant and the appellant, it was agreed at the
hearing that the appellant and the respondent would notify the applicant of
their intention to call Mr. Fournier and Mr. Manzo as witnesses,
thereby giving the applicant the opportunity to challenge any disclosure of the
terms of the agreements. The hearing was therefore adjourned.
[26]
Between the adjournment and the resumption of
the hearing, I did not hear from the parties. However, on
February 2, 2015, when the hearing resumed, counsel for the
applicant, Mr. Létourneau, made an oral motion in which he asks that
Mr. Manzo and Mr. Fournier be barred from testifying on the existence
and terms of the settlement agreement and the negotiations leading up to it.
The applicant also asks that the appellant's testimony on the terms of the
agreements be declared inadmissible. The motion is primarily based on
settlement privilege, to which Mr. Fournier and Mr. Manzo are
subject.
[27]
The applicant raises four arguments in support
of his motion.
[28]
First, it submits that Mr. Manzo cannot
testify regarding the terms of the settlement because of professional secrecy.
It states that professional secrecy applies not only between a client and his
or her counsel, but also when counsel enters into settlement negotiations with
opposing counsel or a mediator.
[29]
Second, the applicant argues that the appellant,
Mr. Manzo and Mr. Fournier cannot testify regarding the terms of the
agreement because they are bound by settlement privilege.
[30]
The applicant also submits that the confidentiality
clauses in the agreement are absolute confidentiality clauses. As such, they
take precedence over the exceptions to settlement privilege in common law, more
specifically, the exception that permits disclosure when one party wants to
establish the existence or scope of a settlement.
[31]
Furthermore, the applicant submits that the
exception allowing the disclosure of the terms of a settlement agreement apply
only between the parties and not to third persons. On this point, the applicant
further submits that, even if the Court ruled that the exception permitting
disclosure applied to third persons, in the light of the absolute
confidentiality clauses in the agreement, these clauses take precedence over
the exception permitting disclosure with regard to the existence or scope of a
settlement agreement.
[32]
According to the applicant, the language of the
confidentiality clauses in the settlement agreement is strict and severe. These
are not standard clauses. The breach of these clauses carries serious financial
consequences for the appellant and certain members of his family [Confidential].
[33]
The applicant notes that the confidential nature
of a settlement conference is codified in article 151.21 of the Code of
Civil Procedure (CCP)
of Quebec. The Court must therefore give effect to this principle by refusing
to hear the witnesses’ testimony.
[34]
Finally, should the Court allow the appellant,
Mr. Manzo and Mr. Fournier to testify on the terms of the settlement,
the applicant asks that these witnesses be heard in camera, or by any
other confidential process that it deems appropriate.
[35]
The appellant objects to the motion, for four
reasons.
[36]
First, he submits that settlement privilege must
be set aside to ensure that he has a fair trial. Although the appellant is appealing
from an assessment by the Minister, he submits that the motion is designed to interfere
with a related principle, the right to make “full answer and defence”.
[37]
Second, the appellant argues that settlement
privilege cannot apply because he was not physically present when Mr. Manzo
and Mr. Fournier signed the agreement.
[38]
Third, the appellant disputes the applicant's
argument that settlement privilege can be set aside only between the parties.
According to the appellant, the exception that permits disclosure has broad
application and applies to the Minister.
[39]
Finally, the appellant submits that the motion
must be dismissed because Mr. Manzo, Mr. Fournier and he himself are
free to discuss the terms of the agreement as required by law, [Confidential].
[40]
Given that the Act requires that the appellant
report the amount he received under the settlement agreement, he submits that
it would be illogical to prevent persons who can shed light on the agreements
from giving testimony so that the true nature of the amount can be determined
for tax purposes.
The respondent
[41]
The respondent supports the applicant’s
arguments. However, she raises two additional grounds.
[42]
First, the respondent submits that the appellant
cannot rely on the “as required by law” exception [Confidential]. According to
the respondent, although reporting income is required by the Act, objecting to
an assessment made on the basis of one’s own information is not. This exception
to the settlement agreement therefore does not apply.
[43]
Second, according to the respondent, the fact
that the confidentiality clause was negotiated in the agreement itself, rather
than as part of a distinct prearrangement, suggests that the parties undertook
not to discuss the agreement no matter what the circumstances. According to the
respondent, the form chosen by the parties shows that they intended to give the
confidentiality clauses precedence over the exceptions to settlement privilege.
IV.
Issues
[44]
(a) Is Mr. Manzo barred from
testifying on the terms of the agreements because of professional secrecy?
(b) Are
Mr. Manzo, Mr. Fournier and the appellant barred from testifying on
the terms of the agreements because of settlement privilege?
(c) Do the
confidentiality clauses in the settlement agreements defeat the exception allowing
the terms of a settlement agreement to be disclosed?
(d) Do
articles 151.14 et seq. of the CCP prevent Mr. Manzo, Mr. Fournier
and the appellant from testifying on the terms of the agreement, owing to
settlement privilege?
(e) If the
testimonies of Mr. Manzo, Mr. Fournier and the appellant are
admissible, should an application to hear the matter in camera or other
appropriate processes for protecting the confidentiality of the settlement be granted?
V.
Analysis
(a) Is Mr. Manzo barred from testifying on the terms of the
agreements because of professional secrecy?
Applicable law
[45]
In Quebec law, the professional secrecy of
advocates has two components. First, there is a general obligation of
confidentiality, which imposes a duty of discretion on lawyers and creates a
correlative right to their silence on the part of their clients; then, in
relation to third parties, there is an immunity from disclosure that protects
confidential information, particularly in judicial proceedings.[2]
[46]
This privilege exists forever in space-time.
Indeed, professional secrecy is a personal and extra-patrimonial right which persists
even after the death of the person who communicated the confidential
information.[3]
[47]
Professional secrecy is both a substantive rule
and a rule of evidence.[4] The substantive rule
[Translation] “protects
information exchanged between counsel and clients by keeping it confidential in
relation to the general public”,[5] while the rule of
evidence [Translation] “concerns the
right of clients not to be forced to disclose in court the communications that
they have had with their counsel”.[6]
[48]
The issue in the present case relates to, among
other things, the second rule.
[49]
The courts have noted on numerous occasions that
professional secrecy is very broad in scope and “must be as close to absolute
as possible”.[7]
It must therefore be given a broad and liberal interpretation,[8] and statutory
provisions that recognize exceptions to it must be interpreted restrictively.[9]
[50]
That approach preserves the social importance
that the case law attaches to this privilege for its role in “maintaining a
properly functioning justice system and preserving the rule of law in Canada”.[10]
Indeed, it “serves to both protect the essential interests of clients and
ensure the smooth operation of Canada’s legal system”.[11]
[51]
That said, there is a tendency to think that all
facts and events that lawyers deal with in the execution of their mandates are
covered by professional secrecy. But that is not the case:[12]
Despite the intense nature of the obligation
of confidentiality and the importance of professional secrecy, not all facts
and events that lawyers deal with in the execution of their mandates are
covered by professional secrecy . . . .
[52]
For professional secrecy to apply, the following
three conditions must be met simultaneously:[13]
1. There
must be a consultation with counsel;
2. There
must be an intention to keep this consultation confidential; and
3. Counsel’s opinion must
be given in his or her capacity as counsel.
[53]
That list of conditions is derived from the
following comments of Justice Lamer of the Supreme Court of Canada in Descôteaux
et al. v Mierzwinski, supra:[14]
The following statement by Wigmore (8
Wigmore, Evidence, para. 2292 (McNaughton rev, 1961)) of the rule
of evidence is a good summary, in my view, of the substantive conditions
precedent to the existence of the right of the lawyer's client to
confidentiality:
Where legal
advice of any kind is sought from a professional legal adviser in his capacity
as such, the communications relating to the purpose made in confidence by the
client are at his instance permanently protected from disclosures by himself or
by the legal adviser, except the protection be waived.
[54]
When the above conditions are not met, counsel
can be required to testify about facts involving their clients:[15]
[N]or does the legal institution of
professional secrecy exempt lawyers from testifying about facts involving their
clients in all situation.
Application to the facts
[55]
In my opinion, the communications with Mr. Manzo
that led to the settlement are not protected by professional secrecy. He is
therefore not barred from testifying because of this privilege.
[56]
The applicant argues that professional secrecy
applies not only to discussions between counsel and clients, but also to
discussions between one’s own counsel and opposing counsel, or a mediator, in
mediation cases.
[57]
I do not share that opinion, as the applicant is
trying to expand professional secrecy to Mr. Manzo’s entire mandate. That is
precisely the reasoning that Justice Lebel rejected as incorrect in Wheeler
Power Company Ltd. v Société intermunicipale de gestion et d'élimination des
déchets (SIGED) inc.[16]
[58]
As was mentioned above, the professional secrecy
of advocates cannot apply unless (i) there was a consultation with
counsel; (ii) there was an intention to keep the consultation
confidential; and (iii) counsel's opinion must be
given in his or her capacity as counsel.
[59]
In my view, Justice Fish could not have been
clearer in his choice of words in Blank v Canada (Minister of Justice), supra,
when he characterized professional secrecy as “legal advice privilege”.[17]
If there is no consultation between counsel and a client in which legal advice
is provided, professional secrecy cannot apply. Therefore, the discussions between
Mr. Manzo and Mr. Fournier are not covered by professional secrecy.
Waiver of professional
secrecy
[60]
That said, even if the information exchanged by
Mr. Manzo and Mr. Fournier were protected by professional secrecy,
the applicant could not rely on this privilege because professional secrecy
would have been waived by disclosing the information to the opposing party.
[61]
When professional secrecy is waived, counsel can
be called to testify to shed light on [Translation]
“any action that may have been taken in a case and any discussions that
may have been held with third parties".[18] On
this point, the Quebec Court of Appeal justice stated as follows in Développement
Bouchard et Lefebvre c Gagné:[19]
[Translation]
Whereas the
letters described in the application for production (i.e., the exhibits filed
as P-2) are not privileged communications between the parties' counsel for the
purposes of resolving a dispute, there being no dispute at that time, but were
intended as a response to an offer to purchase a piece of land of which the
appellant was co-owner;
Whereas the
appellant’s response to this offer to purchase does not constitute information
protected by professional secrecy, from the time it was disclosed to another
party’s counsel;
[Emphasis added.]
[62]
In that case, the entire dispute centred on [Translation] “whether the offer to
purchase a piece of land was accepted, and whether the draft contract was valid”.[20]
[63]
To prove that the offer to purchase had been
accepted, the plaintiffs wanted to have counsel for the defendant testify,
particularly regarding the letters sent out on the defendant's behalf to
explain its position on the offer to purchase. The defendant objected to the
testimony on the basis of professional secrecy. The trial judge overruled the
objection, and the Quebec Court of Appeal upheld her decision.
[64]
According to the Court of Appeal, the letters
were not protected by professional secrecy because sending them to opposing
counsel constituted a waiver of that privilege.[21] Counsel was
therefore [Translation] “competent
to testify to recognize [the] letters that he apparently prepared and sent, for
and on behalf of his client”.[22]
[65]
I am therefore of the opinion that, in the case
at hand, professional secrecy is not a bar to having Mr. Manzo testify.
The discussions between him and Mr. Fournier do not meet the conditions
set out by Justice Lamer in Descoteaux, supra, regarding the
applicability of professional secrecy. The applicant's objection concerns,
rather, settlement privilege.
(b) Are Mr. Manzo, Mr. Fournier and the appellant barred from
testifying on the terms of the agreements because of settlement privilege?
Applicable law
[66]
Settlement privilege is a rule of evidence that
makes communications inadmissible if they have been exchanged between parties
as they try to settle a dispute:[23]
Settlement privilege is a common law rule of
evidence that protects communications exchanged by parties as they try to
settle a dispute. Sometimes called the “without prejudice” rule, it enables
parties to participate in settlement negotiations without fear that information
they disclose will be used against them in litigation. This promotes honest and
frank discussions between the parties, which can make it easier to reach a
settlement . . . .
[67]
That rule of evidence applies to all communications
exchanged for the purposes of settling a dispute:[24]
. . . For instance, settlement privilege
applies to all communications that lead up to a settlement, even after a
mediation session has concluded.
[68]
Settlement privilege applies throughout Canada,
in the common law provinces and in Quebec alike.[25]
[69]
The purpose of this privilege is to promote the
out-of-court settlement of disputes:[26]
Encouraging settlements has been recognized
as a priority in our overcrowded justice system, and settlement privilege has
been adopted for that purpose.
[70]
Moreover, the privilege applies by operation of
law, as it exists in the absence of any contractual or statutory provisions to
that effect:[27]
Settlement privilege applies even in the
absence of statutory provisions or contract clauses with respect to
confidentiality, and parties do not have to use the words “without prejudice”
to invoke the privilege . . . .
[71]
Like professional secrecy, but unlike litigation
privilege, settlement privilege does not expire. It continues to apply even after
a settlement is reached.[28]
Indeed, “successful negotiations are entitled to no less protection than ones
that yield no settlement”.[29]
[72]
If a settlement is reached, the privilege
protects against disclosure of the settlement’s terms, the negotiations surrounding
the settlement, and the settlement itself.[30]
[73]
Despite all the protection it affords,
settlement privilege includes exceptions.
[74]
One of these exceptions is that protected
communications may be disclosed “in order to prove the existence or scope of a
settlement”.[31]
[75]
The underlying objective of this exception is
the same as that of the general principle, that is, promoting out-of-court
settlements:[32]
. . . Far from outweighing the policy in
favour of promoting settlements (Sable Offshore, at para. 30),
the reason for the disclosure — to prove the terms of a settlement — tends to
further it. The rule makes sense because it serves the same purpose as the
privilege itself: to promote settlements.
[76]
Another exception to settlement privilege arises
where it is proved that “a competing public interest outweighs the public
interest in encouraging settlement”.[33]
[77]
More concretely, these countervailing interests
have been found to include “allegations of misrepresentation, fraud or undue
influence and preventing a plaintiff from being overcompensated”.[34]
[78]
Although these exceptions are the only ones that
will be addressed in this judgment, it is important to note that there are
other exceptions.[35]
Application to the facts
[79]
According to the applicant, the settlement
privilege exception relating to proving the existence or scope of a settlement
can apply only when a dispute concerns the enforcement of the settlement
between the parties. The applicant submits that the exception cannot apply to
third parties.
[80]
When considering whether settlement privilege
applies to third parties, I think that it is important to distinguish between
the privilege per se and the exceptions to it.
[81]
Settlement privilege is not limited to the
parties trying to resolve a dispute; it may be set up against third parties as
well.
[82]
The courts have recognized this principle on
many occasions,[36]
notably by the Supreme Court of Canada in Sable Offshore Energy Inc. v
Ameron International Corp.[37]
In that case, Justice Abella cited, with approval, the following passage by
Chief Justice McEachern of the British Columbia Court of Appeal:[38]
. . . In my
judgment this privilege protects documents and communications created for such
purposes both from production to other parties to the negotiations and to
strangers, and extends as well to admissibility, and whether or not a
settlement is reached.
[Emphasis
added.]
[83]
Some authors hold a similar view:[39]
§14.336 If it is accepted
that the basis of the privilege is a public policy to encourage settlement,
then it follows that the privilege should extend to subsequent proceedings not
related to the dispute which the parties attempted to settle. Any possibility
of subsequent adverse use could deter full and frank discussion. The principle “once
privileged, always privileged” applies. This is illustrated in I. Waxman
& Sons Ltd. v. Texaco Canada Ltd. The issue in that proceeding was
whether or not production could be compelled of letters written “without
prejudice” and with a view to settlement of the issue between A and C, upon the
demand of B, in subsequent litigation between A and B on the same subject
matter. Justice Fraser, whose decision was affirmed by the Ontario Court of
Appeal, concluded that a party to a correspondence within the “without
prejudice” privilege is protected from being required to disclose it on
discovery or at trial in proceedings by or against a third party. [Citations
omitted.]
[84]
In the light of the foregoing, it seems clear
that settlement privilege must be maintained in a dispute between a party to
the settlement and the Minister, even if the Minister was not involved in the
action that gave rise to the settlement.
[85]
That being said, the applicant submits that the
exception which permits disclosure to prove the existence or terms of a
settlement can apply only between the parties and cannot be raised in a dispute
with a third party, in this case, the Minister.
[86]
I do not have to rule on this issue, as I am of
the opinion that in the present case, the appellant has established that
settlement privilege was ousted by the exception where “a competing public
interest outweighs the public interest in encouraging settlement”.[40]
However, it should be noted that in Fink, my
colleague Judge Bonner appears to use the exception to settlement privilege to
prove the terms of a settlement agreement vis-à-vis a third party,
contrary to what the applicant is contending.
[87]
In that case, the appellant’s company was under
investigation by the Ontario Securities Commission. The appellant’s company and
a Swiss bank reached an out-of-court settlement calling for the payment of
$2.60 per share in the appellant’s company to a group of the shareholders that
included that appellant.
[88]
A dispute then arose between the appellant and
the Minister regarding the nature of the payment made under the out-of-court
settlement. To shed light on the situation, the Minister wanted details on the
negotiations leading to the settlement, but the appellant objected, raising
settlement privilege as a defence.
[89]
Judge Bonner rejected the appellant’s argument
on the basis that settlement privilege could not apply when disclosure is
necessary to interpret the settlement agreement and to determine the nature of
the payment for tax purposes. He stated the following at paragraph 28:
Counsel for the appellant asserts that a party to settlement
negotiations is neither required nor permitted to disclose the contents of such
negotiations in proceedings by or against the third party. He relies on a
number of authorities none of which deal with disclosure in the context of tax
litigation in which the true substance and nature of the payment and of the
injury which the payment is intended to compensate are central to the issue.
The settlement privilege is one which is intended to encourage the resolution
of a dispute without litigation by permitting the parties to the dispute to
discuss their differences frankly and without fear that admissions made by them
for the purpose of arriving at a settlement will be used against them later. It
does not prevent disclosure in later litigation between persons neither of
whom was a party to the litigation in which the offer of settlement was
made. Furthermore, in my view, when the ambit of the privilege is properly
understood, it is evident that the privilege does not attach to cases where the
discussion or settlement document is relevant to establish not the liability of
a party to the settlement for the conduct which gave rise to the dispute but
rather to arrive at a proper interpretation of the agreement itself. The
appellant’s reliance on this privilege is in my view wholly unwarranted both as
to the production of documents and as to discussions and events.
[Emphasis
added.]
[90]
It should be noted that Justice Little adopted
Judge Bonner’s reasoning in Tremblay Estate v Canada.
[91]
In Sable Offshore Envery Inc. v Ameron
International Corp, supra, the Supreme Court of Canada stated that an
exception to settlement privilege applies when the person raising the exception
is able to prove that, on balance, “a competing public interest outweighs the
public interest in encouraging settlement”.
[92]
On this point, the British Columbia Court of
Appeal in Dos Santos v Sun Life Assurance of Canada[43] stated that
settlement privilege is ousted when the defendant can show that the documents
relating to the settlement are both relevant and necessary in the
circumstances. Justice Finch stated as follows:
. . . [T]he defendant
must shows that a competing public interest outweighs the public interest in encouraging
settlement. An exception should only be found where the documents sought are
both relevant, and necessary in the circumstances of the case to achieve either
the agreement of the parties to the settlement, or another compelling or
overriding interest of justice.
[93]
In my opinion, the present case involves two competing
public interests that outweigh the interest in encouraging out-of-court settlements.
Preserving Canada’s tax base
[94]
The first opposing public interest is the
preservation of Canada’s tax base and the taxpayer’s right to not have to pay
more than his or her fair share of tax. I will outline my reasoning in three
steps.
[95]
First, settlement privilege is in the public
interest because it encourages out-of-court settlements. The practical effect
of this privilege is that it “allow[s] parties to reach a mutually acceptable
resolution to their dispute without prolonging the personal and public expense
and time involved in litigation”.[44]
[96]
When two parties reach a settlement in a tax
dispute, how the negotiated amount is taxed is determined on the basis of the
nature of the payment that the amount is intended to replace. This approach is
called the “surrogatum principle”, which may be explained as follows:[45]
A person who
suffers harm caused by another may seek compensation for (a) loss of income,
(b) expenses incurred, (c) property destroyed, or (d) personal injury, as well
as punitive damages. For tax purposes, damages or compensation received, either
pursuant to a court judgment or an out-of-court settlement, may be
considered as on account of income, capital, or windfall to the recipient. The
nature of the injury or harm for which compensation is made generally
determines the tax consequences of damages.
Under the surrogatum
principle, the tax consequences of a damage or settlement payment depend on the
tax treatment of the item for which the payment is intended to substitute: [citation omitted]
[Emphasis added.]
[97]
This principle has been recognized by the
courts, including the Supreme Court of Canada,
and most recently by the Federal Court of Appeal in Goff Construction Limited.[47]
[98]
In general terms, compensation for lost income
is taxable, but compensation for moral damage is not. It is therefore essential
that an amount paid under an out-of-court settlement be characterized correctly
for tax purposes.
[99]
Upholding settlement privilege in this context
would interfere with this inquiry into the true nature of the payment and, by
extension, would undermine the integrity of government revenues, especially
since Canada’s tax regime is based on a system of self-assessment.
[100] If, in a tax file, the Minister were unable to gain access to the
documents and discussions leading to a settlement to determine the true nature
of an amount received by a taxpayer, taxpayers would be able to evade their tax
liabilities by characterizing the amount such that it was not taxable.
[101] In the case at hand, I am aware that the situation is different.
Indeed, it is the appellant who is asking that the discussions surrounding the
settlement between him and the applicant be disclosed to establish the true
nature of the payment. The Minister is the one who wants to preserve privilege
(at the appellant’s expense) to that the amount is taxed. In my opinion, it is
not relevant that it is the taxpayer who is requesting that the discussions and
documents surrounding the settlement be disclosed.
[102] Although the Minister must be able to ensure the integrity of Canada’s
tax revenues, I am of the view that Canadian taxpayers have an interest in not
being assessed more than their fair share by tax authorities. That view follows
from the principle that taxpayers are entitled to order their affairs so as to
reduce their tax burden.[48]
This exception to settlement privilege thus applies to the Minister and to
taxpayers.
[103] In Dos Santos v Sun Life Assurance Co of Canada,[49]
the British Columbia Court of Appeal excluded the settlement privilege to
ensure that the plaintiff was not overcompensated by receiving an indemnity
from his insurer, under an insurance policy, as well as compensation from the
party at fault, further to an action in tort. The exception in the present case
would serve essentially the same purpose, that is, to ensure that the Canadian
government does not benefit from a tax overpayment at the expense of the
appellant.
[104] That competing public interest should also prevail because
disclosure could have beneficial effects beyond its income tax consequences. As
Wagott and Morris have explained, the need to properly characterize an amount
paid under a settlement is also important in determining the mandatory contributions
to the public employment insurance scheme, which funds itself from these
contributions:[50]
In structuring a settlement, the tax
implications related to proposed payments, from both the employer’s and the
former employee’s perspective, will be an important consideration. Tax issues
may include the appropriate tax characterization of the payments, the amount of
tax to be deducted from the payments, the amount that may be contributed to a
Registered Retirement Savings Plan (“RRSP”), and the amount of money, if any,
that must be paid to Human Resources and Skills Development Canada as an
Employment Insurance overpayment.
Right to a fair trial
[105] Second, the countervailing public interest also takes precedence
over the interest in encouraging out-of-court settlements when it can be shown
that, without disclosure, the appellant will be denied a fair trial. In Dos
Santos v Sun Life Assurance Co, Justice Finch, writing on behalf of
the British Columbia Court of Appeal, cited Ruloff v Rockshore (1981)
Ltd, BCSC 751, in which Justice Chamberlist applied the exception so
that the party could defend herself adequately. He stated the following at
paragraph 28 of his reasons:
. . . Chamberlist J. found an exception to
settlement privilege where the plaintiff would otherwise be “muzzled in her
attempts to justify her position taken in the petition or to adequately defend
by evidence available to her”.
[106] The right to a fair trial also applies to administrative disputes,
such as the present case, where the burden of proof falls on the party invoking
this right:[51]
. . . Although in the context of a civil
proceeding this does not engage a Charter right, the right to a fair
trial generally can be viewed as a fundamental principle of justice: M. (A.)
v. Ryan, [1997] 1 S.C.R. 157, at para. 84, per L’Heureux-Dubé J.
(dissenting, but not on that point). Although this fair trial right is directly
relevant to the appellant, there is also a general public interest in protecting
the right to a fair trial. Indeed, as a general proposition, all disputes in
the courts should be decided under a fair trial standard. The legitimacy
of the judicial process alone demands as much. Similarly, courts have an
interest in having all relevant evidence before them in order to ensure that
justice is done.
[Emphasis added.]
[107] The right to fair trial is a fundamental principle of justice in the
general public interest.[52]
It cannot be said that such an interest is unique to the appellant. Moreover, a
fair trial is key in seeking the truth and achieving a just result, which are
in the interests of both the public and the judiciary.
[108] In the case at bar, the testimony of Mr. Manzo and Mr. Fournier
is clearly essential to the appellant’s case. Without this testimony, he cannot
adequately defend himself against the assessment made by the Minister, and his
right to a fair trial would therefore be compromised.
[109] For these reasons, I conclude that the public interest in the right
to a fair trial, too, must outweigh the interest in encouraging out-of-court settlements.
(c) Do the
confidentiality clauses in the settlement agreements defeat the exception
allowing the terms of a settlement agreement to be disclosed?
Applicable
law
[110] In Union Carbide Inc. v Bombardier, supra, the Supreme Court
of Canada clearly decided that the parties may, by contract, expand the
confidentiality afforded to communications by common law privilege. In a
mediation, for example, the parties may enter into a contractual agreement
under which their communications are given broader protection than is offered
through settlement privilege:[53]
But mediation is also a “creature of
contract” (Glaholt and Rotterdam, at p. 13), which means that parties can
tailor their confidentiality requirements to exceed the scope of that privilege
and, in the case of breach, avail themselves of a remedy in contract.
[111] That expanded protection is not limited to “litigation strategy”. As
Justice Wagner explained, the justification for this may be based on
concerns that go beyond the proceeding in which the parties are involved:[54]
. . . Owen V. Gray states the following in
this regard in "Protecting the Confidentiality of Communications in
Mediation" (1998), 36 Osgoode Hall L.J. 667:
When [the parties] have resorted to
mediation in an attempt to settle pending or threatened litigation, they will
be particularly alert to the possibility that information they reveal to others
in mediation may later be used against them by those others in that, or other,
litigation. The parties may also be concerned that their communications
might be used by other adversaries or potential adversaries, including public
authorities, in other present or future conflicts. . . . Parties may also be
concerned that disclosure of information they reveal in the mediation process
may prejudice them in commercial dealings or embarrass them in their personal
lives. [Emphasis added; p. 671.]
Incentives for
choosing confidential mediation include both “a disinclination to ‘air one’s
dirty laundry’ in the neighborhood” and legitimate concerns such as the
protection of trade secrets (L. R. Freedman and M. L. Prigoff, “Confidentiality
in Mediation: The Need for Protection” (1986), 2 Ohio St. J. Disp. Resol.
37, at p. 38).
[112]
Freedom of contract can therefore lead the
parties to negate certain exceptions to settlement privilege. Indeed, “[i]t is
open to contracting parties to create their own rules with respect to
confidentiality that entirely displace the common law settlement privilege”. However,
the mere fact that the parties have agreed on a confidentiality clause does not
necessarily mean that they intended to defeat the exceptions to this privilege:[55]
. . . However, the mere fact of signing a
mediation agreement that contains a confidentiality clause does not
automatically displace the privilege and the exceptions to it. . . . The
protection afforded by the privilege does not evaporate the moment the parties
contract for confidentiality with respect to the mediation process, unless that
is the contract’s intended effect.
[113] When the parties wish to override these exceptions, they must do so
clearly:[56]
Where an agreement could have the effect of
preventing the application of a recognized exception to settlement privilege,
its terms must be clear. It cannot be presumed that parties who have contracted
for greater confidentiality in order to foster frank communications and thereby
promote a settlement also intended to displace an exception to settlement
privilege that serves the same purpose of promoting a settlement. Parties are
free to do this, but they must do so clearly.
[114] To determine whether the parties intended to prevent the application
of a recognized exception to settlement privilege, the Court must analyze the
contract in the light of the law where the contract was signed and performed,
in this case, Quebec. Consequently, in this case, the mediation contract will
have to be analyzed in accordance with Quebec law.[57] The legal
principles governing the contract are found in the Civil Code of Québec[58]
(CCQ), at articles 1425 et seq.:[59]
1425. The common intention of the
parties rather than adherence to the literal meaning of the words shall be
sought in interpreting a contract.
1426. In
interpreting a contract, the nature of the contract, the circumstances in which
it was formed, the interpretation which has already been given to it by the
parties or which it may have received, and usage, are all taken into account.
1427. Each
clause of a contract is interpreted in light of the others so that each is
given the meaning derived from the contract as a whole.
1431. The
clauses of a contract cover only what it appears that the parties intended to
include, however general the terms used.
[115] The procedure for finding the common intention can be explained as
follows:[60]
[Translation]
. . . To establish
the true will of the parties, and their common intention within the meaning of
article 1425 C.C.Q., it is of course necessary to consider the actual words of
the contract, but it is also necessary, as required by article 1426 C.C.Q., to
consider the nature of the contract, the circumstances in which it was formed,
the interpretation which has already been given to it by the parties or which
it may have received, and usage.
[116] In Quebec, contractual interpretation is centered on the intention
of the parties.[61]
[117] As for broad or exhaustive confidentiality clauses, it has been held
that any clause of this nature is still subject to scrutiny by the courts. If a
competing interest takes precedence over the parties’ interests, the courts may
exclude that protection:[62]
Although the
confidentiality provided for in a clause of a mediation contract may be
broader, and set out in greater detail, than the common law settlement
privilege, several authors caution that such a clause nevertheless does not
represent a “watertight” approach to confidentiality and that a court may
refuse to enforce it after balancing competing interests, such as the role of
confidentiality in encouraging settlement, and evidentiary requirements in
litigation (see Boulle and Kelly, at pp. 309 and 312-13; F. Crosbie,
“Aspects of Confidentiality in Mediation: A Matter of Balancing Competing
Public Interests” (1995), 2 C.D.R.J. 51, at p. 70; K. L. Brown,
“Confidentiality in Mediation: Status and Implications”, [1991] J. Disp.
Resol. 307; E. D. Green, “A Heretical View of the Mediation Privilege”
(1986), 2 Ohio St. J. Disp. Resol. 1, at pp. 19-22; Freedman and
Prigoff, at p. 41).
[Emphasis added.]
[118] In Union Carbide Inc. v Bombardier, the Supreme Court of
Canada weighed the interests of the parties and decided to adopt the fourth
part of the Wigmore test to settle the controversy. That part provides that
privilege must be upheld if the injury caused to the relationship by disclosure
of the communications is greater than the benefit gained for the correct resolution
of the litigation:[63]
The intervener Arbitration Place Inc. suggests
that the four-part Wigmore test, sometimes used by common law courts to
determine whether evidence of communications is admissible, be applied to
balance the competing interests. The four parts of the test are:
(i) The communications
must originate in a confidence that they will not be disclosed.
(ii) The element of
confidentiality must be essential to the maintenance of the relationship in
which the communications arose.
(iii) The relationship
must be one which, in the opinion of the community, ought to be “sedulously
fostered.”
(iv) The injury caused to
the relationship by disclosure of the communications must be greater than the
benefit gained for the correct disposal of the litigation.
. . . Only the fourth step of the Wigmore
test — the balancing of interests — is potentially relevant in this case. In my
view, the first three steps of the Wigmore test are redundant where parties
have not only opted for a confidential dispute resolution process, but have
also signed a confidentiality agreement.
Application to the facts
[119] I am of the opinion that, with regard to the contract, the
circumstances in which the settlement agreement was reached and the agreement’s
clauses, taken as a whole, do not show that the parties intended to displace
the exceptions to settlement privilege. Nowhere is it stated, directly or
indirectly, that the parties intended to override the exceptions to settlement
privilege.
[120] In Union Carbide, Justice Wagner noted that settlement
privilege is simply a rule of evidence. Thus, “[i]t does not prevent a party
from disclosing information; it just renders the information inadmissible in
litigation”.[64]
[121] In other words, if a confidentiality clause had not been agreed upon
in this case, the appellant would have been free to discuss the agreement and
its content as he saw fit. The applicant would not have been able to stop him.
[122] However, by signing the confidentiality clause, the appellant waived
his right to discuss the agreement and its content. This was, in my view, the
sole purpose of that clause.
[123] It is important to bear in mind that the settlement agreement
between the appellant and the applicant is the product of a long and
contentious relationship. Although compensation was granted to the appellant
without any admission of fault, the evidence showed that the situation between
the appellant and the applicant was tense.
[124] In the context of the antagonistic relationship that existed between
the applicant and other employees [Confidential], it is easy to understand why
these employees had an interest in knowing the terms of the settlement
agreement negotiated between the appellant and the applicant. It is clear that
the applicant did not want this agreement to serve as a precedent in similar
cases.
[125] As stated in The Essential Guide to Settlement in Canada,[65]
whether parties decide to include a confidentiality clause in a settlement may
depend on many factors, including the interest that potential claimants could
have:[66]
Confidentiality
– The parties should consider whether they want any particular aspect of the
settlement to be kept confidential. For instance, the terms upon which a
commercial dispute was resolved may be highly relevant to competitors or
perhaps to other potential claimants who may be motivated by learning of the
terms of a settlement to pursue their claims against the defendant.
[Emphasis
added.]
[126] [Confidential]
[127] Moreover, [Confidential] the settlement agreement stipulates that
the parties may disclose the terms of the settlement if they are required to do
so by law:
[Confidential]
[128] According to the respondent, a settlement agreement that states that
the content will be disclosed “as required by law” only allows the appellant to
report to tax authorities the amount it received under the agreement; it does
not allow him to disclose any other details in the agreement, be it though a
Notice of Objection or in before this Court.
[129] In my opinion, this argument is without merit.
[130] The phrase “as required by law” is not limited to statutory law. It
encompasses all the law applicable to the parties, including common law
privileges and their exceptions, which are applicable in Quebec as well.
[131] Thus the words [Confidential] “as required by law” confirm that the
exceptions to settlement privilege apply, if a court decides that they do.
[132] In addition, if the phrase “Disclosure Order” is used to designate
the circumstances in which a party may be required to disclose the content of
the agreement. In my opinion, the phrase refers to a court order. The parties
have thus left it to the courts to decide whether disclosure is required by law
(which includes settlement privilege and its exceptions).
[133] [Confidential]
[134] It is implicit in the agreement that, when the parties signed it,
they were aware that the agreement and its terms could be made available to a
public authority. Without a clear expression of intent, it cannot be concluded
that the parties wanted to preserve confidentiality in this situation by
displacing the exceptions to settlement privilege.
[135] The applicant also argues that the serious consequences of a breach
of the confidentiality clause necessarily leads to the conclusion that the
parties intended to displace the privilege exceptions.
[136] [Confidential]
[137] For her part, the respondent submits that the fact that the
confidentiality clause was included in the settlement agreement, rather than in
a pre-mediation conference agreement, proves that the parties intended to
displace the exception to settlement privilege.
[138] In my opinion, those arguments are without merit.
[139] In Union Carbide, supra, Justice Wagner stated that it
cannot be presumed that the parties to a transaction intended to displace the
exceptions to settlement privilege unless there is a clear indication to that
effect.
[140] I am therefore of the opinion that, in the light of the evidence,
the parties did not intend to displace the exceptions to settlement privilege
through the confidentiality clauses.
[141] Moreover, as I have already mentioned in my reasons, the Supreme
Court of Canada has stated that the confidentiality provided in a broader
confidentiality clause is not watertight, and that “a court may refuse to
enforce it after balancing competing interests”.
[142] This determination must be made in the light of the fourth branch of
the Wigmore test, which provides that confidentiality must be protected if “[t]he
injury caused to the relationship by disclosure of the communications [is]
greater than the benefit gained for the correct disposal of the litigation”.
[143] The fourth branch is based on policy grounds:[67]
The fourth branch of the Wigmore test is
based on the balancing of various public policy factors. Private
interests, such as an individual's privacy, come into play only to the extent
that they serve the greater purpose of promoting a particular relationship
valued by the community.
[144] Moreover, the purpose of the fourth branch of the Wigmore test is to
balance public policy considerations:[68]
The balancing of the injury to the
relationship against the benefit of the correct disposal of the matter involves
purely public policy considerations.
[145] So even if I had decided that the confidentiality clauses in the
agreements were watertight, I would have set them aside in applying the fourth
branch of the Wigmore test.
[146] In tax law, a judge must be able to determine the true nature of a
payment. In cases where the only way to objectively prove the nature of a
payment is through the disclosure of documents and discussions relating to the
settlement agreement and those documents and discussions are relevant and
necessary, I conclude that the Court may order disclosure.
[147] As stated by Justice Wagner in Union Carbide Inc. v Bombardier,
supra, the other means are available to the parties to prevent sensitive
information being made public. Either party may apply for a confidentiality
order and to consider the evidence in camera.
(d) Do articles 151.14
et seq. of the CCP prevent Mr. Manzo, Mr. Fournier and the
appellant from testifying?
[148]
The applicant argues that article 151.21 of the
CCP, which provides that “[a]nything said or written during a settlement
conference is confidential”. The applicant argues that, on basis of this
provision alone, the witnesses at trial cannot testify on the content of the
agreement.
[149] In my opinion, this argument must fail.
[150] I am of the opinion that the articles under Section IV of the
CCP, entitled “Settlement Conference”, serve to codify settlement privilege in
the context of judicial mediation.
[151] These provisions do not abolish the exceptions to settlement
privilege.
[152]
On this point, Justice Thibault of the
Quebec Court of Appeal made her position abundantly clear in Bombardier c
Union Carbide Inc, where she wrote as follows at paragraph 44:[69]
[Translation]
[44] The
respondent cited three cases decided by the Court which, in its opinion,
support the idea that the confidentiality of discussions and communications in
an out-of-court mediation is absolute where the mediation agreement contains a
confidentiality clause. In those three cases, the Court recognized the
confidential nature of the communications and exchanges in a judicial
conciliation, a judicial mediation or a settlement conference. It did not,
however, express an opinion contrary to those of the above-referenced authors,
according to whom such evidence is admissible with regard to the parties to
prove the existence or scope of a transaction between them.
[Emphasis
added.]
[153] Moreover, in Union Carbide Inc. v Bombardier, supra,
Justice Wagner confirmed this comment by the Quebec Court of Appeal,
stating as follows at paragraph 36:
In Globe and
Mail, this Court confirmed that the common law settlement privilege applies
in Quebec. As the Court of Appeal demonstrated in its reasons in the instant
case, the exception for the purpose of proving the terms of a settlement
also clearly applies in Quebec.
[Emphasis added.]
[154] In Weinberg c Ernst & Young LLP,[70] a decision in which
articles 151.14 et seq. of the CCP applied, Justice Forget of
the Quebec Court of Appeal expressed his agreement with the words of the
British Columbia Court of Appeal in Dos Santos. In a unanimous judgment,
Justice Forget stated that a confidentiality clause in an agreement does
not prevent a judge from allowing a third party to have access to documents if
this is necessary or relevant to allow a litigant to fully assert his or her
rights in a dispute. In Dos Santos, the Court of Appeal had referred to
the words “relevant” and “necessary”. Justice Forget stated as follows:
[Translation]
In any event, the controversy is somewhat moot in this case because
the parties chose to protect the confidentiality of the agreement through a
contractual clause, as it was open to them to do. It must therefore be assumed
that the settlement agreement between Cinar and the appellants is confidential,
at least on the basis of a valid contract between the signatories.
Although it is recognized that the settlement
agreement is confidential, this does not prevent a judge from granting a third
party access to it—or even admitting it in evidence, where appropriate—if this
is necessary or relevant to allow that party to fully assert his or her rights
in a dispute.
. . .
If I had to set out a test for verifying whether a confidential
document has a semblance of relevance, I would favour the genuine connection
test.
[Emphasis added.]
[155] In the present case, the settlement agreement was signed at a
settlement conference [Confidential]. The confidentiality of this agreement and
the negotiations that led to its conclusion is therefore guaranteed by
article 151.21 of the CCP.
[156] To determine the true nature of the payment received by the
appellant, I am of the opinion that, in this case, it is relevant and necessary
in the circumstances to allow the disclosure of the documents, if any, and the
communications between Mr. Manzo and Mr. Fournier during the
negotiation of the settlement.
[157] This will allow the appellant to fully assert his rights. Moreover,
the burden of proof being on the appellant, to deprive the appellant of the
opportunity to question the key figures in the negotiations would amount to
denying him the right to appeal to this Court.
[158] Furthermore, as articles 151.14 et seq. of the CCP apply only
to judicial mediation, if I accepted the applicant's argument, only the parties
that participated in an out-of-court mediation could avail themselves of the
exceptions to settlement privilege, which makes no sense.
[159]
For these reasons, I am of the opinion that
article 151.21 of the CCP cannot prevent the testimony in question.
(e) If the testimonies of Mr. Manzo,
Mr. Fournier and the appellant are admissible, should an application to
hear the matter in camera or other appropriate processes for protecting
the confidentiality of the settlement be granted?
[160] Section 16.1 of the Tax Court of Canada Act provides that the
Court may, on application, hold a hearing in camera if the circumstances
justify it:
16.1 A hearing before the Court
may, on the application of any party to a proceeding, other than Her Majesty in
right of Canada or a Minister of the Crown, be held in camera if it is
established to the satisfaction of the Court that the circumstances of the case
justify in camera proceedings.
[161] In Union Carbide, the Supreme Court of Canada noted that a
party that wants to keep confidential, or sensitive, evidence from the public
may apply to have it considered in camera. Any application of this
nature must be assessed in accordance with the conditions laid down by the
Supreme Court of Canada in Sierra Club of Canada v Canada (Minister of Finance):
. . . If either party would prefer that
potentially sensitive information tendered in support of those paragraphs not
be made available to the public, an application can be made to the motion judge
for a confidentiality order and to consider the evidence in camera, as
long as the parties meet the test from Sierra Club of Canada v. Canada
(Minister of Finance), [2002] 2 S.C.R. 522.
[162] Specifically, an applicant must show that
1.
a confidentiality order is necessary in order to prevent a serious risk to an
important interest, including a commercial interest, in the context of
litigation because reasonably alternative measures will not prevent the risk;
and
2. the
advantages of the confidentiality order, including the effects on the right of
civil litigants to a fair trial, outweigh its disadvantages, including the
effects on the right to free speech, which in this context includes the public
interest in open and accessible court proceedings.
[163]
The first condition consists in turn of three
elements:
(i) the
risk in question must be real and substantial, in that the risk is well
grounded in the evidence, and poses a serious threat to the interest in
question;
(ii) to
qualify as an “important interest”, the interest in question cannot merely be
specific to the party requesting the order; the interest must be one which can
be expressed in terms of a public interest in confidentiality; and
(iii)
the Court must consider not only whether reasonable alternatives to a
confidentiality order are available, but also restrict the order as much as is
reasonably possible while preserving the interest in question.
[164] I will now address each of the above elements.
[165] In my opinion, the application for an in camera hearing
should be allowed. The facts in the case at hand show that each of the
conditions set out in Sierra Club has been met.
First condition in Sierra Club
[166] The first condition has been met because the three subordinate
criteria have been met.
[167] First, there is a real and substantial risk to an important interest
if an order for an in camera hearing is not made. Indeed, there is not
just one interest at risk of being compromised, but two.
[168] For one, there is the interest in keeping settlement negotiations
confidential. As we have seen, this interest is important because it serves to
make the administration of justice more efficient by encouraging out-of-court
settlements.
[169] In addition, where the parties want to use a contractual agreement
to keep a document confidential, there is an interest in giving effect to that
contract and preserving contractual relations:
The immediate
purpose for AECL’s confidentiality request relates to its commercial interests.
The information in question is the property of the Chinese authorities. If
the appellant were to disclose the Confidential Documents, it would be in
breach of its contractual obligations and suffer a risk of harm to its
competitive position. This is clear from the findings of fact of the motions
judge that AECL was bound by its commercial interests and its customer’s
property rights not to disclose the information (para. 27), and that such
disclosure could harm the appellant’s commercial interests (para. 23).
. . .
Thus, the
interests which would be promoted by a confidentiality order are the
preservation of commercial and contractual relations, as well as the right of
civil litigants to a fair trial.
[Emphasis added.]
[170] If an in camera order is not made, the privileged
communications will be disclosed.
The risk of violating each of the above interests is therefore real and
substantial.
[171] Second, the interest in keeping settlement negotiations confidential
is not an interest that relates solely to the applicant; it is one of general
concern:
Settlements allow parties to reach a
mutually acceptable resolution to their dispute without prolonging the personal
and public expense and time involved in litigation. The benefits of settlement
were summarized by Callaghan A.C.J.H.C. in Sparling v. Southam Inc.
(1988), 66 O.R. (2d) 225 (H.C.J.):
. . . the courts consistently favour the
settlement of lawsuits in general. To put it another way, there is an
overriding public interest in favour of settlement. This policy promotes the
interests of litigants generally by saving them the expense of trial of
disputed issues, and it reduces the strain upon an already overburdened
provincial court system. [p. 230]
[Emphasis
added.]
[172] Third, apart from an in camera order, the Court has no other
reasonable means of ensuring that important interests are not seriously
affected.
Second condition in Sierra Club
[173] The second condition is also met.
[174] In my opinion, maintaining the confidentiality of settlement
negotiations and contractual relationships must outweigh the public’s freedom
of expression.
[175] The right to freedom of expression to which the Supreme Court of
Canada refers in this second condition relates to the public’s right to express
ideas and opinions about the operation of the courts.
[176] However, while I must consider the public interest, I must also take
into account the context of the dispute in this case and the importance of out-of-court
settlements in the Canadian judicial system.
[177] The parties signed a settlement agreement containing confidentiality
clauses to prevent disclosure of the agreements. It would be inconsistent to
give the public access to the content of an exchange of communications that is,
on its face, (i) extrajudicial in nature; and (ii) confidential.
Moreover, if I did not grant an in camera hearing in this case, this could
stop the settlement in its tracks, whether or not judicial mediations take
place. This would mean that the parties, who thought they were protected by
confidentiality clauses, would see their information disclosed in the public
sphere. I understand that the balance between the public’s right to be informed
and the parties’ expectation that their information will remain confidential is
a delicate one, but in the present case, I am of the opinion that the parties’
expectation that the information will remain confidential takes precedence.
[178] I adopt the reasoning of Justice Langlois of the Quebec
Superior Court in Joli-Coeur, Lacasse, Geoffrion, Jetté, St-Pierre c Fiset.
[179] In that case, the respondent, Fiset, sued the lawyers he had worked
with in several related class actions for his share of the professional fees
related to those actions.
[180] The class actions were resolved through an out-of-court settlement with
a confidentiality clause that read as follows:
[Translation]
The parties and their counsel confirm that
the terms and conditions of this settlement shall in any event remain
confidential and private. The parties and their counsel also confirm that the
amount of the settlement, the nature of the settlement negotiations, and the
value and any categorization of the settlement must remain confidential and
private in any event, except where a court and/or judge orders otherwise.
. . . Any application relating to the termination of the judicial
proceedings shall receive in response a declaration to the effect that the case
has been settled, without any additional comment. . . .
[181] The amount of the professional fees earned by the lawyers in Joli-Cœur
et al., supra, was supposed to depend on the date the litigation was
terminated. It was therefore important for the respondent to file the
settlement agreements and the communications between counsel in evidence. The
respondent made a preliminary application to Justice Langlois to have the
evidence heard in camera because of the confidential and privileged
nature of the information that had to be discussed.
[182] Justice Langlois ordered an in camera hearing. In his
opinion, the interest in maintaining the integrity of the confidentiality
clause, as well as settlement privilege, should take precedence over the open
court rule. She explained as follows:
[Translation]
The individual claims never having resulted in judicial proceedings,
it cannot be inferred that the claimants have waived the confidentiality of the
personal information concerning them, particularly since this information was
disclosed in a context that was itself privileged in nature.
Therefore,
allowing settlement information to be disclosed in violation of the
confidentiality clause and settlement privilege, without protecting it from the
publicity that normally results from the judicial process, would bring the
administration of justice into disrepute, particularly since the individual
claimants chose to settle their dispute privately.
There is a
public interest in confidentiality here.
The dispute
between the parties involves purely private interests and is thus not public in
nature, and it has not been shown that Joli-Cœur would suffer any harm as a
result of the in camera order.
In the circumstances, there does not appear
to be any reasonable alternative to an in camera hearing.
[183] Neither the appellant nor the respondent objected to having this
appeal heard in camera or to having a confidentiality order made with
regard to the settlement agreement.
VI.
Disposition
[184] The motion is allowed with regard to the application to conduct the
hearing in camera.
[185] The appeal between Jacques Abenaim and Her Majesty the Queen, docket
number 2012-2005(IT)G, will be heard in camera, at 30 McGill Street,
Montréal, Quebec, at a date to be determined later.
[186] The reasons for the order and the settlement agreements shall be
treated as confidential. These documents shall be placed separately in
envelopes and sealed. These envelopes shall be marked as follows:
These envelopes shall not be opened, nor
shall their contents be disclosed, except upon order of the Court.
[187] This order shall continue in effect until the Court orders
otherwise, including for the duration of any appeal of the proceeding and after
final judgment.
[188] The transcript of the hearing of the motion relating to this order
shall remain confidential and shall not be disclosed except to one of the
parties to this order.
[189] In all other respects, the motion is dismissed with costs against
the applicant, in favour of the appellant, to be paid within 30 days of
the date of this order.
Signed at Ottawa, Canada, this 24th day of July 2015.
“Johanne D'Auray”
Translation
certified true
on this 25TH
day of May 2016
François Brunet, Revisor
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