SUPREME
COURT OF CANADA
Between:
Union
Carbide Canada Inc. and Dow Chemical
Canada
Inc. (now known as Dow Chemical Canada ULC)
Appellants
and
Bombardier
Inc., Bombardier Recreational Products Inc. and
Allianz
Global Risks US Insurance Company
Respondents
- and -
Attorney
General of British Columbia and Arbitration Place Inc.
Interveners
Coram: McLachlin C.J. and LeBel, Rothstein, Cromwell, Moldaver,
Karakatsanis and Wagner JJ.
Reasons
for Judgment:
(paras. 1 to 69)
|
Wagner J. (McLachlin C.J. and LeBel,
Rothstein, Cromwell, Moldaver and Karakatsanis JJ. concurring)
|
union carbide canada inc.
v. bombardier inc., 2014 SCC 35, [2014] 1
S.C.R. 800
Union Carbide Canada Inc. and Dow
Chemical
Canada Inc.
(now known as Dow Chemical Canada ULC) Appellants
v.
Bombardier Inc., Bombardier Recreational Products Inc. and
Allianz
Global Risks US Insurance Company Respondents
and
Attorney General of British Columbia and
Arbitration Place Inc. Interveners
Indexed as: Union Carbide
Canada Inc. v. Bombardier Inc.
2014 SCC 35
File No.: 35008.
2013: December 11; 2014: May 8.
Present: McLachlin C.J. and LeBel, Rothstein, Cromwell, Moldaver,
Karakatsanis and Wagner JJ.
on appeal from the court of appeal for quebec
Civil procedure — Offer to settle — Settlement
privilege — Exception — Allegations in motion for homologation of settlement
opposed on ground that mediation contract prevented parties from referring to
events taking place during mediation process — Whether mediation contract with
absolute confidentiality clause can displace common law settlement privilege,
including exception to privilege where party seeks to prove existence or scope
of settlement — Whether clause permitted parties to use confidential
information to prove terms of settlement — Code of Civil Procedure, CQLR, c. C‑25,
art. 151.21.
The
parties are entangled in a decades‑long, multi‑million dollar civil
suit about defective gas tanks used on Sea‑Doo personal watercraft. B
claimed that the tanks supplied by D were unfit for the use for which they had
been intended and commenced an action for damages against D in Montréal, in the
Quebec Superior Court. The parties agreed to private mediation and a standard
mediation agreement was signed. It contained the following clause regarding
the confidentiality of the process: “Nothing which transpires in the Mediation
will be alleged, referred to or sought to be put into evidence in any
proceeding”. The next day D submitted a settlement offer which B subsequently
accepted. Two days after B’s acceptance, counsel for D stated that his client
considered this to be a global settlement amount. Counsel for B replied that
the settlement amount was for the Montréal litigation only. D did not send the
discussed settlement amount, and B then filed a motion for homologation of the
transaction in the Superior Court. D brought a motion to strike out the
allegations contained in six paragraphs of the motion for homologation on the
ground that they referred to events that had taken place in the course of the
mediation process.
The
motion judge held that in light of the confidentiality clause in the mediation
agreement, the mediation proceedings were covered by art. 151.21 of the Code
of Civil Procedure. She granted D’s motion to strike in part, ordering
that four of the six allegations be struck because they referred to discussions
that had occurred or submissions that had been made in the context of the
mediation. The Court of Appeal allowed the appeal and found that the rules of
the Code of Civil Procedure with respect to confidentiality do not apply
to extrajudicial mediation proceedings. It observed that when mediation has
resulted in an agreement, communications made in the course of the mediation
process cease to be privileged and held that settlement privilege does not
prevent a party from producing evidence of confidential communications in order
to prove the existence of a disputed settlement agreement arising from
mediation or to assist in the interpretation of such an agreement. The court
declined to strike the allegations and left it to the judge hearing the motion
for homologation to consider whether the impugned paragraphs were relevant to
the identification of the terms of the agreement, in which case the exception
to the common law settlement privilege would apply.
Held: The appeal should be dismissed.
At
common law, settlement privilege is a rule of evidence that protects
communications exchanged by parties as they try to settle a dispute. It
applies even in the absence of statutory provisions or contract clauses with
respect to confidentiality. The rule promotes honest and frank discussions
between the parties, which can make it easier to reach a settlement. However,
a communication that has led to a settlement will cease to be privileged if
disclosing it is necessary in order to prove the existence or the scope of the
settlement. Both the common law privilege and this exception to it form part
of the civil law of Quebec, which applies in this case.
A
form of confidentiality is inherent in mediation in that the parties are
typically discussing a settlement. This means that their communications are
protected by the common law settlement privilege. However, parties can tailor
their confidentiality requirements by contract, to exceed the scope of that
privilege. Settlement privilege and a confidentiality clause are not the same,
and they may in some circumstances conflict. One is a rule of evidence, while
the other is a binding agreement; they do not afford the same protection, nor
are the consequences for breaching them necessarily the same. While allowing
parties to freely contract for confidentiality protection furthers the valuable
public purpose of promoting settlement, contracting out of the exception to
settlement privilege that applies where a party seeks to prove the terms of a
settlement might prevent parties from enforcing the terms of settlements they
have negotiated.
To
determine whether an absolute confidentiality clause in a mediation agreement
displaces this common law exception to settlement privilege, one must begin
with an interpretation of the contract. It must be asked whether the
confidentiality clause actually conflicts with settlement privilege or with the
recognized exceptions to that privilege. Where parties contract for greater
confidentiality protection than is available at common law, the will of the
parties should presumptively be upheld absent such concerns as fraud or
illegality. 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. Where an agreement could have the effect of
preventing the application of a recognized exception to settlement privilege,
its terms must be clear.
Here,
the mediation contract shows on its face a common intention on the part of the
parties to be bound by confidentiality in respect of anything that might
transpire in the course of the mediation. However, the nature of the contract,
the circumstances in which it was formed and the contract as a whole reveals
that the parties did not intend to disregard the usual rule that settlement
privilege can be dispensed with in order to prove the terms of a settlement.
The mediation agreement was signed on the eve of the mediation with the
apparent purpose of settling an ongoing dispute. It was a standard form
contract provided by the mediator, and neither party amended it or added any
provisions relating to confidentiality. There is no evidence that the parties
thought they were deviating from the settlement privilege that usually
applies. Absent an express provision to the contrary, it is unreasonable to
assume that parties who have agreed to mediation for the purpose of reaching a
settlement would renounce their right to prove the terms of the settlement.
Consequently, in the course of the motion for homologation, parties may produce
evidence insofar as it is necessary in order to prove the terms of the settlement.
If sensitive information should 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.
Cases Cited
Applied:
Sobeys Québec inc. v. Coopérative des consommateurs de Sainte‑Foy,
2005 QCCA 1172, [2006] R.J.Q. 100; Quebec (Agence du revenu) v. Services
Environnementaux AES inc., 2013 SCC 65, [2013] 3 S.C.R. 838; considered:
Slavutych v. Baker, [1976] 1 S.C.R. 254; Sierra Club of Canada v.
Canada (Minister of Finance), 2002 SCC 41, [2002] 2 S.C.R. 522; referred
to: Sable Offshore Energy Inc. v. Ameron International Corp., 2013
SCC 37, [2013] 2 S.C.R. 623; Globe and Mail v. Canada (Attorney General),
2010 SCC 41, [2010] 2 S.C.R. 592; Ferlatte v. Ventes Rudolph inc., [1999]
Q.J. No. 2735 (QL); Kosko v. Bijimine, 2006 QCCA 671 (CanLII); Kelvin
Energy Ltd. v. Lee, [1992] 3 S.C.R. 235; Sparling v. Southam Inc.
(1988), 41 B.L.R. 22; Luger v. Empire, cie d’assurance vie, [1991] J.Q.
no 2635 (QL); Bloom Films 1998 inc. v. Christal Films productions
inc., 2011 QCCA 1171 (CanLII); Stewart v. Stewart, 2008 ABQB 348
(CanLII); R. v. Gruenke, [1991] 3 S.C.R. 263.
Statutes and Regulations Cited
Civil Code of Québec, arts. 1414, 1425,
1426, 1427, 1431.
Code of Civil Procedure, CQLR, c. C‑25,
arts. 151.16, 151.21.
Commercial Mediation Act, S.N.S. 2005,
c. 36.
Commercial Mediation Act, 2010, S.O.
2010, c. 16, Sch. 3.
Authors Cited
Baudouin, Jean-Louis, et Pierre-Gabriel Jobin. Les obligations,
7e éd. par Pierre-Gabriel Jobin et Nathalie Vézina. Cowansville, Qué.: Yvon Blais, 2013.
Boulle, Laurence, and Kathleen J. Kelly. Mediation: Principles,
Process, Practice. Markham, Ont.: Butterworths, 1998.
Brown, Kent L. “Confidentiality in Mediation: Status and
Implications”, [1991] J. Disp. Resol. 307.
Bryant, Alan W., Sidney N. Lederman and Michelle K. Fuerst. The
Law of Evidence in Canada, 3rd ed. Markham, Ont.: LexisNexis, 2009.
Crosbie, Fiona. “Aspects of Confidentiality in Mediation: A Matter
of Balancing Competing Public Interests” (1995), 2 C.D.R.J. 51.
Freedman, Lawrence R., and Michael L. Prigoff. “Confidentiality in
Mediation: The Need for Protection” (1986), 2 Ohio St. J. Disp. Resol.
37.
Glaholt, Duncan W., and Markus Rotterdam. The Law of ADR in
Canada: An Introductory Guide. Markham, Ont.:
LexisNexis, 2011.
Grammond, Sébastien, Anne-Françoise Debruche and Yan Campagnolo. Quebec Contract Law. Montréal: Wilson
& Lafleur, 2011.
Gray, Owen V. “Protecting the Confidentiality of Communications in
Mediation” (1998), 36 Osgoode Hall L.J. 667.
Green, Eric D. “A Heretical View of the Mediation Privilege” (1986),
2 Ohio St. J. Disp. Resol. 1.
Lluelles, Didier, et Benoît Moore. Droit des obligations, 2e
éd. Montréal: Thémis, 2012.
Royer, Jean-Claude, et Sophie Lavallée. La preuve civile, 4e
éd. Cowansville, Qué.: Yvon Blais, 2008.
Silver, Michael P. Mediation and Negotiation: Representing Your
Clients. Markham, Ont.: Butterworths, 2001.
Thibault, Joëlle. Les procédures de règlement amiable des
litiges au Canada. Montréal: Wilson &
Lafleur, 2000.
United Nations. Commission on International Trade Law. UNCITRAL
Model Law on International Commercial Conciliation with Guide to Enactment and
Use 2002. New York: United Nations, 2004, art. 9.
APPEAL
from a judgment of the Quebec Court of Appeal (Thibault, Rochette and Morissette
JJ.A.), 2012 QCCA 1300, SOQUIJ AZ‑50874424, [2012] J.Q.
no 6890 (QL), 2012 CarswellQue 7252, setting aside a decision of Corriveau
J., 2012 QCCS 22, SOQUIJ AZ‑50819121, [2012] J.Q. no 39 (QL),
2012 CarswellQue 72. Appeal dismissed.
Richard A. Hinse, Robert W. Mason and Dominique Vallières, for the appellants.
Martin F. Sheehan and Stéphanie Lavallée, for the respondents.
Jonathan Eades and Mark Witten, for the intervener the Attorney
General of British Columbia.
William C.
McDowell and
Kaitlyn Pentney, for the intervener Arbitration
Place Inc.
The judgment
of the Court was delivered by
Wagner J. —
I.
Introduction
[1]
This Court recently confirmed the vital importance of the role played by
settlement privilege in promoting the settlement of disputes and improving
access to justice: Sable Offshore Energy Inc. v. Ameron International Corp.,
2013 SCC 37, [2013] 2 S.C.R. 623. Settlement privilege is a common law
evidentiary rule that applies to settlement negotiations regardless of whether
the parties have expressly invoked it. This privilege is not the only tool
available to parties, however, as parties like the appellants and the
respondents in the case at bar often sign mediation agreements that provide for
the confidentiality of communications made in the course of the mediation
process.
[2]
This case concerns the interaction between these two protections: confidentiality
of communications provided for in a private mediation contract and the common
law settlement privilege. More specifically, it relates to a common law
exception to settlement privilege that applies where a party seeks to prove the
existence or the scope of a settlement. At issue is whether a mediation
contract with an absolute confidentiality clause displaces the common law
settlement privilege, including this exception, thereby foreclosing parties
from proving the terms of a settlement.
[3]
Ironically, both the appellants and the respondents argue that the
Court’s answer could negatively affect the development of mediation in Canada,
either by undermining its confidential nature or by frustrating its main
objectives. I disagree. I reach this decision bearing in mind the overriding
benefit to the public of promoting the out-of-court settlement of disputes
regardless of the legal means employed to reach a given settlement. For the
reasons that follow, I find that parties are at liberty to sign mediation
contracts under which the protection of confidentiality is different from the
common law protection. This enables parties to secure the safeguards they deem
important and fosters the free and frank negotiation of settlements, thereby
serving the same purpose as settlement privilege: the promotion of settlements.
However, I reject the presumption that a confidentiality clause in a mediation
agreement automatically displaces settlement privilege, and more specifically
the exceptions to that privilege that exist at common law. The exceptions to
settlement privilege have been developed for public policy reasons, and they
exist to further the overall purpose of the privilege. A mediation contract
will not deprive parties of the ability to prove the terms of a settlement by
producing evidence of communications made in the mediation context unless a
court finds, applying the appropriate rules of contractual interpretation, that
that is the intended effect of the agreement.
[4]
Because this dispute arose in Quebec, Quebec contract law
applies. I find that although it was open to the parties to contract out of the
exception to settlement privilege, they did not do so. They therefore retain
their right to produce evidence of communications made in the mediation context
in order to prove the terms of their settlement. I would affirm the Court of
Appeal’s decision, albeit for different reasons.
II.
Facts
[5]
The parties are entangled in a decades-long,
multi-million dollar civil suit about defective gas tanks used on Sea-Doo
personal watercraft. The appellants, Dow Chemical Canada Inc. and Union Carbide
Canada Inc., now known as Dow Chemical Canada ULC (“Dow Chemical”), manufacture
and distribute gas tanks for personal watercraft. The respondent Bombardier
Inc. manufactured and distributed Sea-Doo personal watercraft before selling
its recreational products division to the respondent Bombardier Recreational
Products Inc. (jointly “Bombardier”). A dispute arose over the fitness of the
gas tanks as a result of consumer complaints.
[6]
This appeal results from an allegation by
Bombardier that two gas tank models supplied by Dow Chemical were unfit for the
use for which they had been intended. More specifically, Bombardier alleged
that the material used and recommended by Dow Chemical for the gas tanks had
been cracking and that this had in some cases caused explosions as a result of
which owners and users of the watercraft had suffered property damage and
bodily injury. Bombardier recalled the watercraft equipped with the gas tanks
in question in 1997, 1998 and 2003, and it has been sued by a number of
consumers.
[7]
In March 2000, Bombardier Inc. commenced an
action against Union Carbide Canada Inc. in the Quebec Superior Court (file No.
500-05-056325-002) for $9,980,612.07 in damages. Dow Chemical Canada Inc. was
subsequently added as a defendant, as a result of its merger with Union
Carbide. They filed their defence to the action on May 6, 2003. On May 29,
2007, Bombardier Inc. amended the declaration to add Bombardier Recreational
Products Inc., which had since acquired its recreational products division, and
Allianz Global Risks US Insurance Company as co-plaintiffs (Allianz is also a
respondent to this appeal). In this amended declaration, the amount of the
claim was raised to $30,019,505, and an additional claim for $1,786,445.23 was
made on behalf of Allianz. Finally, on or about July 31, 2008, Dow Chemical
filed an amended defence.
[8]
Bombardier claimed three separate amounts: (1)
$15,153,394 for the cost of the safety recall campaigns; (2) $13,474,142 for
the cost of settlements with and lawsuits by consumers for damage and injuries
caused by the gas tanks; and (3) $1,391,969 for other costs incurred by
Bombardier.
[9]
After signing a joint list of admissions on the
value of the claims, the parties agreed to private mediation to be conducted in
Montréal by lawyer Max Mendelsohn. On April 26, 2011, before the mediation
commenced, a standard mediation agreement was signed. It contained the
following clause regarding the confidentiality of the process:
2. Anything which transpires in the Mediation will be
confidential. In this regard, and without limitation:
(a) Nothing which transpires in the Mediation will be alleged,
referred to or sought to be put into evidence in any proceeding;
(b) No statement made or document produced in the Mediation will
become subject to discovery, compellable as evidence or admissible into
evidence in any proceeding, as a result of having been made or produced in the
Mediation; however, nothing will prohibit a party from using, in judicial or
other proceedings, a document which has been divulged in the course of the
Mediation and which it would otherwise be entitled to produce;
(c) The recollections, documents and work product of the Mediator
will be confidential and not subject to disclosure or compellable as evidence
in any proceeding.
[10]
The agreement also contained a clause regarding
the mediator’s role:
4. The Mediator will have no decision-making power, but will merely
assist the parties in attempting to arrive at a settlement of their dispute.
[11]
At the mediation session on April 27, 2011, Dow
Chemical submitted a settlement offer for $7 million. Counsel for Bombardier
asked Dow Chemical to keep this offer open for 30 days, as he had to ask his
client for instructions, and Dow Chemical agreed to do so. On May 17, 2011,
before the 30 days expired, counsel indicated to Dow Chemical that Bombardier
was accepting the offer:
My clients, BRP, Bombardier
and Allianz have given me instructions to accept Dow Chemical’s offer to settle
the above-mentioned case for an amount of CAN$ 7 million in capital, interest
and costs.
I would ask that you request
a check from your client to the order of Fasken Martineau in trust at your
earliest convenience or have the amount wired to our trust account using the
following coordinates.
. . .
In the meantime, I will prepare
a draft release that I will forward to you very shortly. Of course, Fasken
Martineau will undertake to hold the sums until the release documents have been
signed and returned to Lavery.
[12]
Two days later, on May 19, 2011, counsel for Dow
Chemical emailed counsel for Bombardier, stating that his client considered
this to be a global settlement amount. Dow Chemical thus wanted Bombardier to
sign a release absolving it of liability in any future litigation not only in
Quebec and with respect to the two gas tank models at issue, but anywhere in
the world and involving any gas tank models:
It is my client’s expectation that this
settlement will put an end to all present and future litigation arising out of
any fuel tanks supplied to Bombardier, BRP et al by Wedco, Union Carbide and
Dow Chemicals et al. My client realizes that it may be conceivably named as a
co-defendant with your client in matters arising out of one of the fuel tanks
delivered, but expects that the settlement document will be clear so that
neither party would institute a warranty or third party proceedings against the
other. It is my client’s feeling that litigation with respect to fuel tanks
supplied by Wedco, Union Carbide, Dow Chemicals et al has been going on long
enough and has proven to be very expensive for both parties and it wants to put
an end to the dispute once and for all.
[13]
After a short follow-up email from Dow
Chemical’s counsel on June 1, 2011, counsel for Bombardier replied, on June 6,
2011, that the settlement amount was for the Montréal litigation only. His
email also detailed further courses of action:
As you well know, the object
of the discussions at the mediation and the offer that Dow presented at that
time never encompassed the type of release referred to in your e-mail of May
19th. The numbers exchanged were always based on the claim before the Superior
court of the district of Montreal and the third party claims covered by that
action. These were limited to existing claims at the time the admissions were
made and no other. . . .
I therefore enclose a release
that reflects the scope of your offer and our binding acceptance. For the
purpose of buying the peace, BRP has agreed to extend the release to any
exi[s]ting or potential claims involving 109 and 183 tanks manufactured by
Wedco regardless of whether or not they existed at the time the admissions were
made. However, they will not go so far as to settle existing or potential
claims for fuel tanks that are not the object of the Montreal litigation.
It appears to me we now have
3 choices:
1) Dow significantly
increases its offer to cover the release it now wants;
2) We settle the Montreal
action and attempt to settle the other existing and potential claims you now
want to settle (with or without the assistance of a mediator). If you wish to
go this latter route I suggest Dow obtain settlement authority before we engage
in the process to avoid a take it or leave position as occurred last time
around.
3) Dow refuses to settle and
BRP will either a) continue the suit or b) decide to file an homologation
action. [Emphasis in original.]
[14]
On June 14, 2011, counsel for Bombardier sent
counsel for Dow Chemical a demand letter for payment of the $7 million
settlement amount. Counsel for Dow Chemical replied on June 16, 2011, reiterating
their position on the release sought by their client:
Your clients were fully aware
of the nature of the release that our clients required and at no time suggested
that they would provide a narrower release. If your clients are not prepared to
grant the release that we have outlined to you, then no payment will be
forthcoming and any proceedings will be contested.
I remind you of the
confidentiality provisions of the mediation agreement signed by yourself on
your own behalf and on behalf of your clients on April 26, 2011. Any attempt to
violate the confidentiality of what transpired in the mediation will be met
with the appropriate proceedings.
[15]
Counsel for Bombardier replied to that letter on
June 29, 2011, stating that they would proceed by filing a motion if they did
not receive the payment:
We understand that your client
is no longer willing to abide by the agreement that was reached in the
above-mentioned matter.
As such, unless Dow Chemical
revisits its position, BRP will have no other choice but to file the attached
Motion.
We have considered the
arguments raised in your letter with regard to the confidentiality of
discussions that may have taken place during the mediation. However, these are
without merit.
First of all, as you know,
there is an exception to confidentiality when settlement discussions have led
to a transaction.
Moreover, the contract between
the parties is not applicable in this case as Dow Chemical agreed to keep its
offer open for consideration after the mediation and the acceptance of BRP was
sent outside of the mediation forum.
[16]
In a further letter dated July 6, 2011, counsel
for Dow Chemical argued that neither the correspondence from Bombardier nor the
draft motion had addressed the issue of the consideration to be provided by
Bombardier in return for the sum to be paid by Dow Chemical. Counsel for Dow
Chemical reiterated that in their client’s opinion, there was “no agreement and
no transaction”.
[17]
Dow Chemical did not send the discussed
settlement amount, and Bombardier then filed a motion for homologation of the
transaction on July 8, 2011, in the Superior Court, District of Montréal. The
motion detailed the history of the dispute between the parties and referred to
both the mediation and the subsequent settlement discussions.
[18]
Dow Chemical brought a motion to strike out the
allegations contained in six paragraphs of the motion for homologation on the
ground that they referred to events that had taken place in the course of the
mediation process, which was in violation of the confidentiality clause in the
mediation agreement. The paragraphs at issue were the following:
[translation]
17. The Joint List of Admissions was the sole basis for discussion
by the Parties at the mediation session of April 27, 2011;
18. All the discussions in the course of the mediation related
exclusively to the Covered Claims and the other costs claimed in the Re-amended
Action R-4. No claims concerning tanks other than tanks 275 500 109 and 275
500 183 were ever discussed;
19. Moreover, the mediation related exclusively to the existing
dispute between the parties as described in the Pleadings, as can be seen from
a copy of the mediation contract signed by the Parties on April 26, 2011 that
is attached hereto as Exhibit R-8;
20. The mediation was terminated unsuccessfully on April 27, 2011 when Dow Chemical submitted to BRP and Allianz an
offer to settle the Re-amended Action for $7,000,000 in capital, interest and costs, but
indicated to BRP and to the
mediator that it had no authority to increase this offer;
21. Yves St-Arnaud, in-house counsel for BRP, asked Dow Chemical to keep this offer open for
thirty (30) days and promised to get back to them shortly. Dow Chemical
acceded to this request;
22. On May 17, 2011, that is, twenty (20) days after the end of the
mediation, counsel for BRP and for Allianz advised counsel for Dow Chemical
that the applicants accepted the settlement offer for $7,000,000 in capital,
interest and costs in full and final settlement of the claims made in the case
bearing court file No. 500-05-056325-002 (the “Transaction”), as can be seen
from a copy of an email attached hereto as Exhibit R-9;
[19]
In oral argument in this Court, counsel for Dow
Chemical stated that no settlement had been reached between the parties. This is
not completely accurate. The record of communications between the parties shows
that there was a settlement offer and that it was accepted, but that the
parties subsequently disagreed on the scope of the release. In short,
Bombardier’s view is that the settlement is limited to the ongoing Montréal
litigation, and seeks to admit evidence from the mediation session to enable it
to prove this. Dow Chemical disagrees on the scope of the settlement, viewing
it as a global settlement, and argues that the evidence from the mediation
session on which Bombardier seeks to rely in its motion for homologation is
inadmissible by virtue of the confidentiality agreement.
III. Judicial History
A. Quebec Superior Court, 2012 QCCS 22 (CanLII)
[20]
Corriveau J. based her analysis on art. 151.16
of the Code of Civil Procedure, CQLR, c. C-25 (“CCP”), as well as
on art. 151.21, which provides that anything said or written during a
settlement conference is confidential. She cited cases from the Quebec Court of
Appeal which confirmed the confidential nature of mediation or settlement
conferences, and reasoned that those cases applied regardless of whether the
mediation was conducted by a judge or, as in the instant case, by a lawyer. She
held that in light of the confidentiality clause in the mediation agreement,
the mediation proceedings were covered by art. 151.21 of the CCP.
[21]
On this basis, Corriveau J. granted the
appellants’ motion to strike in part, ordering that four of the six allegations
(paras. 17, 18, 20 and 21) be struck from the respondents’ motion for
homologation because they referred to discussions that had occurred or
submissions that had been made in the context of the mediation. She denied Dow
Chemical’s request to strike para. 22 from the motion for homologation, as it
referred to the settlement offer itself, which had been kept open after the
mediation session. Having struck the four paragraphs in question, Corriveau J.
explained that Bombardier could continue to rely on the remainder of the motion
for homologation relating to the claim, the mediation contract and the
discussions that followed the mediation. Bombardier applied to the Quebec Court
of Appeal for leave to appeal, which was granted on March 16, 2012.
B.
Quebec Court of Appeal, 2012 QCCA 1300 (CanLII)
(Thibault, Rochette and Morissette JJ.A.)
[22]
Thibault J.A., writing for a unanimous court,
allowed the appeal and, contrary to the motion judge, found that the rules of
the CCP with respect to confidentiality do not apply to extrajudicial
mediation proceedings. Given the absence of legislation in this regard, two
factors must be considered to determine whether mediation proceedings presided
over by someone other than a judge are confidential: (1) the mediation contract
agreed to by the parties, and (2) the common law settlement privilege as
recognized in Quebec law. In the Court of Appeal’s view, the language of the
contract (“Nothing which transpires in the Mediation will be alleged, referred
to or sought to be put into evidence in any proceeding”) indicated that what
was said in the course of the mediation session was subject to an obligation of
confidentiality, and this obligation applied to some of the facts Bombardier
sought to rely upon.
[23]
The Court of Appeal then restated the general rule
that settlement negotiations are confidential, even in the absence of a
legislated rule of procedure. It cited Globe and Mail v. Canada (Attorney
General), 2010 SCC 41, [2010] 2 S.C.R. 592, to reiterate that the purpose
of settlement privilege is to enable parties to have frank discussions about a
possible settlement without worrying that what they disclose in the course of
the negotiations will be used against them in litigation. The court noted that
settlement privilege is based on public policy considerations, as it is
preferable, in the interests of the proper administration of justice, that
parties try to resolve their own disputes before resorting to litigation.
[24]
Where mediation has resulted in an agreement,
the Court of Appeal observed, communications made in the course of the
mediation process cease to be privileged. It supported this comment by quoting
various authors, from both civil law and common law backgrounds (paras. 35-38),
as well as two decisions of the Quebec Superior Court, including Ferlatte v.
Ventes Rudolph inc., [1999] Q.J. No. 2735 (QL), in which that court had
commented as follows, at para. 12:
Unchallenged
judicial authority in Quebec, the common law provinces and in England holds
that privilege protects communications between opposing counsel aimed at
settling a dispute. Therefore offers of settlement cannot be introduced in
evidence unless they are accepted. In that case they are admissible, not as
proof that the offerors admit responsibility for the offerees’ claims, but that
they choose to end their conflict by settling on the terms of the offers. Such
communications benefit from the protection of privilege on the policy ground
that without it, disputing parties would be reluctant to attempt settlement
negotiations, fearing their initiatives will come back to haunt them at trial
if they fail. [Emphasis added.]
[25]
Thibault J.A. argued that, if a dispute arises
regarding the existence or the terms of a transaction, the obligation of
confidentiality of communications made in the course of the mediation process
is no longer necessary given that the underlying purpose of confidentiality —
to further the achievement of a settlement — is no longer relevant. If an
agreement was not in fact reached, on the other hand, such communications cannot
of course be admitted in evidence for any other purpose.
[26]
The Court of Appeal held that settlement
privilege does not prevent a party from producing evidence of confidential
communications in order to prove the existence of a disputed settlement agreement
arising from mediation or to assist in the interpretation of such an agreement.
It considered three cases cited by Dow Chemical in support of the proposition
that the confidentiality of discussions and communications from an
extrajudicial mediation process is absolute where the mediation agreement
contains a confidentiality clause, but it noted that those cases did not call
into question the application of the exception to settlement privilege that
enables a party to produce evidence of such discussions and communications in
order to prove the existence or the scope of a settlement agreement. Reversing
the motion judge’s ruling, the Court of Appeal held that the allegations at
issue should not be struck from the motion for homologation. It left it to the
judge hearing that motion to consider whether the impugned paragraphs were
relevant to the identification of the terms of the agreement, in which case the
exception to the common law settlement privilege would apply.
IV. Analysis
[27]
In my view, there are two questions to answer in
this appeal. The first is whether a confidentiality clause in a private
mediation contract can override the exception to the common law settlement
privilege that enables parties to produce evidence of confidential
communications in order to prove the existence or the scope of a settlement.
The second question, which arises only if the answer to the first is yes, is
whether the confidentiality clause at issue in the case at bar displaces that
exception. If it does, the information referred to in the impugned paragraphs
cannot be disclosed. If it does not, that information may be disclosed if it
meets the criteria of the exception.
[28]
The appellants argue that a court must give
effect to a confidentiality clause in a mediation agreement to which both
parties have freely consented, and that there are no public policy reasons to
nullify the clause. The respondents counter that a standard form
confidentiality clause cannot displace the exception to the common law
settlement privilege and that, even if it could do so, the clause at issue in
this case, if correctly interpreted, does not preclude the application of that
exception.
[29]
I see value in the submissions of both the
appellants and the respondents. On the first question, I agree with the appellants
that a court must give effect to a confidentiality clause to which both parties
have agreed, and that it is open to the parties to contract out of common law
rules, including the exception to settlement privilege. Parties may
desire that the protection of confidential information disclosed in the
mediation process be broader than that afforded by the common law privilege,
and disregarding this desire would undermine one of the main features that
encourage parties to opt for this oft-used form of alternative dispute
resolution. On the second question, however, I agree with the respondents that,
on the facts of this case, overriding the common law exception was not what the
parties intended when they signed their mediation agreement, which means that the
parties can produce communications from the mediation process to prove
the terms of their settlement.
A. Does a Confidentiality Clause Supersede the Exception to the Common
Law Doctrine of Settlement Privilege?
[30]
This case requires a review both of the common law settlement
privilege in the mediation context and of the use of confidentiality clauses in
mediation agreements. In my view, it will be helpful to consider each of these
distinct concepts — including their application in Quebec — in turn, before discussing
how they overlap.
(1)
Settlement Privilege
[31]
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: “In the absence of such protection, few parties would initiate
settlement negotiations for fear that any concession they would be prepared to
offer could be used to their detriment if no settlement agreement was
forthcoming” (A. W. Bryant, S. N. Lederman and M. K. Fuerst, The Law of
Evidence in Canada (3rd ed. 2009), at para. 14.315).
[32]
Encouraging settlements has been recognized as a
priority in our overcrowded justice system, and settlement privilege has been
adopted for that purpose. As Abella J. wrote in Sable Offshore, at para.
12, “[s]ettlement privilege promotes settlements.” She explained this as
follows, at para. 13:
Settlement
negotiations have long been protected by the common law rule that “without
prejudice” communications made in the course of such negotiations are
inadmissible (see David Vaver, “‘Without Prejudice’ Communications — Their
Admissibility and Effect” (1974), 9 U.B.C. L. Rev. 85, at p. 88).
The settlement privilege created by the “without prejudice” rule was based on
the understanding that parties will be more likely to settle if they have
confidence from the outset that their negotiations will not be disclosed. As
Oliver L.J. of the English Court of Appeal explained in Cutts v. Head,
[1984] 1 All E.R. 597, at p. 605:
. .
. parties should be encouraged so far as possible to settle their disputes
without resort to litigation and should not be discouraged by the knowledge
that anything that is said in the course of such negotiations . . . may be used
to their prejudice in the course of the proceedings. They should, as it was
expressed by Clauson J in Scott Paper Co v. Drayton Paper Works Ltd
(1927) 44 RPC 151 at 157, be encouraged freely and frankly to put their cards
on the table.
What is said during
negotiations, in other words, will be more open, and therefore more fruitful,
if the parties know that it cannot be subsequently disclosed.
[33]
There have been other occasions on which this
Court discussed the importance of encouraging parties to settle their own
disputes. For example, LeBel J., writing for the Court in Globe and Mail,
cited Kosko v. Bijimine, 2006 QCCA 671 (CanLII), a case in
which the Quebec Court of Appeal had commented as follows, at paras. 49-50:
[translation] The protection of the confidentiality
of these “settlement discussions” is the most concrete manifestation in the law
of evidence of the importance that the courts assign to the settlement of
disputes by the parties themselves. This protection takes the form of a rule of
evidence or a common law privilege, according to which settlement talks are
inadmissible in evidence.
The
courts and commentators have unanimously recognized that, first, settlement
talks would be impossible or at least ineffective without this protection and,
second, that it is in the public interest and a matter of public order for the
parties to a dispute to hold such discussions.
(See
also Kelvin Energy Ltd. v. Lee, [1992] 3 S.C.R. 235, at p. 259, citing Sparling
v. Southam Inc. (1988), 41 B.L.R. 22, at p. 28.)
[34]
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: “What matters instead is the intent of the parties to settle the
action . . . . Any negotiations undertaken with this purpose are inadmissible”
(Sable Offshore, at para. 14). Furthermore, the privilege applies even
after a settlement is reached. The “content of successful negotiations” is
therefore protected: Sable Offshore, at paras. 15-18. As with
other class privileges, there are exceptions to settlement privilege:
To come within those
exceptions, a defendant must show that, on balance, “a competing public
interest outweighs the public interest in encouraging settlement” (Dos
Santos Estate v. Sun Life Assurance Co. of Canada, 2005 BCCA 4, 207
B.C.A.C. 54, at para. 20). These countervailing interests have been found to
include allegations of misrepresentation, fraud or undue influence (Unilever
plc v. Procter & Gamble Co., [2001] 1 All E.R. 783 (C.A. Civ. Div.), Underwood
v. Cox (1912), 26 O.L.R. 303 (Div. Ct.)), and preventing a plaintiff from
being overcompensated (Dos Santos).
(Sable
Offshore, at para. 19)
[35]
The exception to settlement privilege at issue
in the case at bar is the rule that protected communications may be disclosed
in order to prove the existence or scope of a settlement. This exception is
explained by Bryant, Lederman and Fuerst:
If the negotiations are successful and
result in a consensual agreement, then the communications may be tendered in
proof of the settlement where the existence or interpretation of the agreement
is itself in issue. Such communications form the offer and acceptance of a
binding contract, and thus may be given in evidence to establish the existence
of a settlement agreement. [para. 14.340]
The rule is simple, and
it is consistent with the goal of promoting settlements. A communication that
has led to a settlement will cease to be privileged if disclosing it is
necessary in order to prove the existence or the scope of the settlement. Once
the parties have agreed on a settlement, the general interest of promoting settlements
requires that they be able to prove the terms of their agreement. 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.
[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. The Court
of Appeal cited a number of Quebec authors and cases on this point, and I find
it helpful to reiterate how J.-C. Royer and S. Lavallée explain the
application of the exception:
[translation] 1137 — Limits of this privilege — This rule for the exclusion of
evidence is grounded in a desire to promote the out-of-court settlement of
disputes. The privileged nature of the communication is accordingly limited to
facts related to the negotiation of a settlement. Thus, an expert’s report is
privileged if it is transmitted with a communication made for the purpose of
settling a dispute. Moreover, a litigant cannot object to evidence of a fact
that is independent of and separate from a settlement offer. Such an objection
will be dismissed a fortiori if the fact is contrary to public order or
to public morals, or if it is likely to cause serious injury to the recipient
of the communication. Thus, a threat made by a debtor in a settlement offer,
or a statement by a debtor that he or she cannot pay his or her creditors,
would not be privileged. A communication ceases to be privileged if it
resulted in a transaction that one of the parties wishes to prove. The
existence of negotiations between the parties and of settlement offers can also
be proven in order to prove certain relevant facts needed to resolve a question
with respect to prescription, to prove fraudulent acts or to explain and
justify a delay in pursuing litigation. [Emphasis added.]
(La
preuve civile (4th ed. 2008))
[37]
Although this rule has not been codified in
Quebec, it is discussed in the academic literature on the law of evidence and
forms part of the civil law of Quebec. The Court of Appeal cited two cases in
which the Superior Court has applied the exception: Ferlatte and Luger
v. Empire, cie d’assurance vie, [1991] J.Q. no 2635 (QL). In
Quebec law, as at common law, settlement privilege is an evidentiary rule that
relates to the admissibility of evidence of communications. It does not prevent
a party from disclosing information; it just renders the information
inadmissible in litigation.
(2)
Confidentiality in the Mediation Context
[38]
Mediation is one of several forms of alternative
dispute resolution that are available to parties in a legal dispute. It is
defined by D. W. Glaholt and M. Rotterdam in The Law of ADR in Canada: An
Introductory Guide (2011) as “a collaborative and strictly confidential
process in which parties contract with a neutral, referred to as a mediator, to
assist them in settling their dispute” (p. 10). It is unsurprising that
confidentiality is mentioned in the very definition of mediation.
Confidentiality is often described as one of the factors that induce parties to
opt for mediation (J. Thibault, Les procédures de règlement amiable des
litiges au Canada (2000), at para. 197), and as one of the
benefits of mediation (M. P. Silver, Mediation and Negotiation: Representing
Your Clients (2001), at p. 82).
[39]
A form of confidentiality is inherent in
mediation in that the parties are typically discussing a settlement, which
means that their communications are protected by the common law settlement
privilege (Bryant, Lederman and Fuerst, at para. 14.348; see also L.
Boulle and K. J. Kelly, Mediation: Principles, Process, Practice (1998),
at pp. 301-4). 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.
[40]
As both the appellants and the intervener Arbitration Place Inc.
mention, the reasons why parties might want to protect information exchanged in
the mediation process are not limited to litigation strategy. 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).
[41]
It is therefore no surprise that mediation
contracts often contain strongly worded confidentiality clauses that place
limits on the disclosure of communications exchanged in the course of the
mediation process. Such clauses have been upheld by courts, though not in a
context in which the parties were trying to prove the existence of a
settlement. In Bloom Films 1998 inc. v. Christal Films productions inc.,
2011 QCCA 1171 (CanLII), the Quebec Court of Appeal upheld a confidentiality
clause in a case in which a party was seeking to introduce evidence arising out
of the mediation process. The clause in question specifically prohibited the
use of such evidence for any purpose other than homologation or judicial
review. And in Stewart v. Stewart, 2008 ABQB 348 (CanLII), another case
involving a confidentiality clause with respect to communications made in the
course of a mediation process, albeit in a family law context, the Alberta
Court of Queen’s Bench refused to admit evidence arising out of that process.
[42]
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).
[43]
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.
(I.F., at para. 4, citing Slavutych v. Baker, [1976] 1 S.C.R.
254, at p. 260.)
This Court applied this
test in Slavutych to determine whether a confidential document signed by
the appellant at the request of the university authorities should remain
privileged in dismissal proceedings subsequently taken against the appellant.
The Court also applied it in R. v. Gruenke, [1991] 3 S.C.R. 263, to
determine whether religious communications should remain privileged in a
criminal context.
[44]
The intervener Attorney General of British
Columbia, on the other hand, suggests that the plain meaning of an unambiguous
confidentiality agreement should prevail, barring extreme circumstances. As for
the respondents, they say that courts should look beyond the plain meaning to
account for the wishes of the parties. I agree with these approaches. In
principle, there is relatively little that can displace the intent of the
parties once it is clearly established. 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.
(3) Can a Confidentiality
Clause in a Mediation Agreement Displace the Exception to Settlement Privilege
That Applies Where a Party Seeks to Prove the Terms of a Settlement?
[45]
The common law settlement privilege and
confidentiality in the mediation context are often conflated. They do have a
common purpose: facilitating out-of-court settlements. But as we saw above,
confidentiality clauses in mediation agreements can also have different
purposes. In most cases involving such clauses, the status of the common law
settlement privilege will not arise, because the two protections generally
serve the same purpose, namely to foster negotiations by encouraging parties to
be honest and forthright in reaching a settlement without fear that the
information they disclose will be used against them at a later date. However,
as I mentioned above, settlement privilege and a confidentiality clause are not
the same, and they may in some circumstances conflict. One is a rule of
evidence, while the other is a binding agreement; they do not afford the same
protection, nor are the consequences for breaching them necessarily the same.
[46]
The differences between these protections may be
muddled in a case like this one in which both of them could apply, but to
different parts of the sequence of events. The parties met for the mediation
session on April 27, 2011, the day after they had signed an agreement with a
confidentiality clause. The clause in question applied to discussions that took
place in the course of the mediation session and prohibited the disclosure of
information about those discussions at any time in the future. A settlement
offer was made at the mediation session, was kept open for 30 days after that
date, and was discussed by the parties’ lawyers after the session. Any
additional information that came up in the course of these subsequent
discussions falls outside the protection of the confidentiality clause —
however, since it formed part of negotiations aimed at reaching a settlement,
it is protected by settlement privilege. As regards the timing of the
communications, the scope of settlement privilege is broader, because it is not
limited to the duration of the mediation session.
[47]
On the other hand, there are recognized
exceptions to settlement privilege at common law that limit the scope of its
protection, but such exceptions may be lacking in the case of a confidentiality
clause. The question is whether an absolute confidentiality clause in a
mediation agreement displaces the common law exception, thereby preventing
parties from producing evidence of communications made in the mediation process
in order to prove the terms of a settlement.
[48]
There is indeed a delicate balance to be struck.
The concerns articulated by commentators about the uncertainty of
confidentiality clauses in mediation contracts are legitimate. Boulle and Kelly
accurately identify the most important of these concerns:
The principle of sanctity of contract
supports the maintenance of confidentiality where the parties have committed
themselves to it. If, however, the confidentiality is too wide, it will
sterilise too much evidence and seriously undermine the trial process. If the
confidentiality is too narrow, it will discourage parties from entering
mediation and from using their best endeavours to settle once there. A balance
is required between supporting mediation, on one hand, and not freezing
litigation or upholding illegality, on the other. [pp. 312-13]
[49]
In my view, the inquiry in each case will begin
with an interpretation of the contract. It must be asked whether the
confidentiality clause actually conflicts with settlement privilege or with the
recognized exceptions to that privilege. Where parties contract for greater
confidentiality protection than is available at common law, the will of the
parties should presumptively be upheld absent such concerns as fraud or
illegality. I have discussed reasons why parties might desire greater
confidentiality protection, and allowing parties to freely contract for such
protection furthers the valuable public purpose of promoting settlement. As
Professor Green states,
if a written confidentiality agreement
exists, the parties are in a stronger position to argue that the court should
exercise its discretion to grant a protective order assuring confidentiality
because protecting the confidentiality of mediation statements furthers the
expressed intentions of the parties as well as the public policy of encouraging
extra-judicial settlements. [p. 22]
[50]
But contracting out of the exception to
settlement privilege that applies where a party seeks to prove the terms of a
settlement is a different matter. As I mentioned above, a failure to apply this
common law exception could frustrate the broader purpose of promoting
settlements in that it might prevent parties from enforcing the terms of
settlements they have negotiated. Thus, whereas contracting for broader
protection than is afforded by the common law settlement privilege may further
the overall purpose of that privilege in most circumstances, contracting out of
the exceptions to the privilege might undermine that purpose. This may be what
was behind the Court of Appeal’s decision, as it largely favoured the exception
to settlement privilege over the confidentiality clause.
[51]
In my respectful opinion, the Court of Appeal
did not devote adequate attention in its analysis to freedom of contract. It is
open to contracting parties to create their own rules with respect to
confidentiality that entirely displace the common law settlement privilege.
This furthers both freedom of contract and the likelihood of settlement, two
important public purposes. 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. As I mentioned above, these
protections do not have the same scope. For instance, settlement privilege
applies to all communications that lead up to a settlement, even after a
mediation session has concluded. It cannot be argued that parties who agree to
confidentiality in respect of a mediation session thereby deprive themselves of
the application of settlement privilege after the conclusion of the mediation
session. 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.
[52]
I would note that there has been some
international agreement on this approach to confidentiality in the mediation
context. Jurisdictions in 14 countries with both common law and civil law
systems, including Ontario (S.O. 2010, c. 16, Sch. 3) and Nova Scotia (S.N.S.
2005, c. 36), have adopted the United Nations Commission on International Trade
Law’s Model Law on International Commercial Conciliation. Article 9 of the
Model Law states:
Unless
otherwise agreed by the parties, all information relating to the conciliation
proceedings shall be kept confidential, except where disclosure is required
under the law or for the purposes of implementation or enforcement of a settlement
agreement. [Emphasis added.]
(UNCITRAL Model Law on International Commercial Conciliation with
Guide to Enactment and Use 2002 (2004), at p. 5)
[53]
This article, with which my approach is
consistent, recognizes the need for confidentiality in the settlement context,
but also provides that parties may enter into their own agreements in this
regard. Furthermore, it indicates widespread acceptance
in both common law and civil law jurisdictions that an exception to settlement
privilege applies where a party seeks to prove the existence or the terms of a
settlement.
[54]
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. To avoid a dispute over the terms
of a settlement, they may also choose to stipulate that, to be valid, any
settlement agreed to in the mediation must be immediately put into writing.
This practice is specifically contemplated in art. 1414 of the Civil Code of
Québec, which provides that “[w]here a particular or solemn form is
required as a necessary condition of formation of a
contract, it shall be observed”. Such a stipulation
would underscore the binding nature of any agreement reached in the course of
the mediation process.
[55]
I wish to emphasize that my analysis concerns
one exception to the common law settlement privilege — the one that applies
where a party seeks to prove the terms of a settlement. I have not discussed
other exceptions, such as the one with respect to fraudulent or unlawful
communications, as they are not at issue in this case. Nor will I consider
whether the mediator could be compelled to testify in a situation such as this
one. The evidence before this Court is limited to the impugned paragraphs of
the motion for homologation, so I will not address the appropriate legal
threshold for permitting or compelling direct testimony by the mediator. I will
leave that question for another day.
[56]
In my opinion, the information the respondents
seek to disclose with the impugned paragraphs of their motion for homologation
is protected by the confidentiality clause, and not solely by settlement
privilege. It was open to the parties to displace settlement privilege, including
the exceptions to it. The question is whether they did so.
[57]
The mediation contract was signed and performed
in Quebec. It must be interpreted in accordance with the Civil Code of
Québec and with the law of obligations.
B.
Does This Mediation Contract Permit the Parties
to Use Confidential Information in Order to Prove the Terms of a Settlement?
[58]
I have concluded that it is generally open to
parties, in the mediation context, to contract for confidentiality that exceeds
that of the common law settlement privilege; in particular, parties may
contract out of the exception to that privilege that enables a party to
disclose confidential information in order to prove the terms of a settlement.
I will now inquire into whether that is what the parties did in this case. What
is the effect of the mediation contract at issue here?
[59]
In Quebec, contractual interpretation is
centered on the intention of the parties. As J.-L. Baudouin and P.-G. Jobin
explain, where the parties disagree about the scope of a contract clause, the
judge must determine what the parties originally intended, at the time of
formation of the contract (Les obligations (7th ed. 2013), P.-G. Jobin
and N. Vézina, eds., at pp. 488-89). This rule of contractual interpretation is
codified in a number of provisions of the Civil Code of Québec:
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.
[60]
The Quebec Court of Appeal explained this
interpretive approach in Sobeys Québec inc. v. Coopérative des consommateurs
de Sainte-Foy, 2005 QCCA 1172, [2006] R.J.Q. 100:
[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.
Deciphering
the parties’ intention is of course a delicate exercise, especially where that
intention conflicts with the intention expressed in a writing that is by all
appearances clear. Moreover, it can happen, which does not make things easier,
that a review of the contract itself, of its context, of the circumstances in
which it was formed, of the subsequent conduct of the parties, and so on, shows
that there was no real common intention. Pineau and Gaudet [Théorie des
obligations (4th ed. 2001), at pp. 401-2] explain this as follows:
Moreover,
the principle stated in article 1425 C.C.Q. presupposes that there is always a
common intention to “find”. But that is not always the case. Of course, for
there to be a contract, there must be a minimal common intention, but it is
very possible that the parties, although they had a genuine common intention
regarding the essential elements of the contract, also agreed on certain
incidental clauses that each of them, in his or her heart of hearts,
interpreted differently. In such a case, it is of course impossible to rely on
the common intention of the parties, as there is none. All that can then be done
is to adopt the interpretation that can most readily be reconciled with the
rest of the contract and with the circumstances in which it was concluded.
[paras. 59-60]
[61]
This approach was also confirmed by this Court
in Quebec (Agence du revenu) v. Services Environnementaux AES inc., 2013
SCC 65, [2013] 3 S.C.R. 838: “. . . the determination of the common intention,
or will, of the parties represents a true exercise of interpretation” (para.
48; see also D. Lluelles and B. Moore, Droit des obligations (2nd ed.
2012), at paras. 1587-90; S. Grammond, A.-F. Debruche and Y. Campagnolo, Quebec
Contract Law (2011), at paras. 297-301).
[62]
On its face, the mediation contract at issue in
the case at bar shows a common intention on the part of the parties to be bound
by confidentiality in respect of anything that might transpire in the course of
the mediation. But the question to be answered is more specific and concerns an
incidental aspect of the contract, for which the common intention of the
parties is not immediately clear: Was the confidentiality clause intended to
exceed the protection of the common law settlement privilege and, more
specifically, to displace the exception to that privilege that applies where a
party seeks to prove the existence or the scope of a settlement? I find that a
review of the nature of the contract, of the circumstances in which it was
formed and of the contract as a whole reveals that the parties did not intend
to disregard the usual rule that settlement privilege can be dispensed with in
order to prove the terms of a settlement.
[63]
The nature of the contract is that of a
mediation agreement signed on the eve of the mediation with the apparent
purpose of settling an ongoing dispute that was the subject of an action in the
Quebec Superior Court. The word “settlement” appears twice in the mediation
agreement, the first time in a clause relating to the mediator that reads
“[t]he Mediator will have no decision-making power, but will merely assist the
parties in attempting to arrive at a settlement of their dispute”, and the
second time in the mediator’s concluding words: “I look forward to working with
you, and hope that the Mediation will give rise to a settlement of the
dispute.”
[64]
The nature of the contract must be considered
together with the circumstances in which it was formed. Neither of the parties
drafted the mediation contract or the confidentiality clause. It was a standard
form contract provided by the mediator, who sent it to both parties to sign on
the eve of the mediation. Neither party amended the standard mediation
agreement or added any provisions relating to confidentiality when they signed
it. There is no evidence that the parties thought they were deviating from the
settlement privilege that usually applies to mediation when they signed the
agreement.
[65]
It is my opinion that the parties entered into
this mediation process with the intention of settling their dispute and that
they had no reason to assume that they were signing away their ability to prove
a settlement if necessary. There is no evidence that they had any expectation
for this mediation other than that it might help them settle the dispute. Lluelles
and Moore write that, [translation]
“[i]f the spirit pervading a contract is considered to be the best guide in
this regard (art. 1425) . . ., the common intention of the parties can
sometimes be self-evident, and a question of logic” (para. 1589). Absent an
express provision to the contrary, I find it unreasonable to assume that
parties who have agreed to mediation for the purpose of reaching a settlement
would renounce their right to prove the terms of the settlement. Such a result
would be illogical.
[66]
I therefore find that the mediation contract
does not preclude the parties from producing evidence of communications made in
the course of the mediation process in order to prove the terms of a
settlement. However, I would note that this exception is a narrow one. Parties
may produce such evidence only insofar as it is necessary in order to prove the
terms of the settlement. The judge who hears the motion for homologation will
consider the impugned paragraphs of the motion individually to determine
whether each of them is necessary for that purpose. 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 SCC 41, [2002] 2 S.C.R. 522. Not all
cases will meet that test, which requires parties to show that
(a) such an 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
(b) the salutary effects of the confidentiality order, including
the effects on the right of civil litigants to a fair trial, outweigh its
deleterious effects, including the effects on the right to free expression,
which in this context includes the public interest in open and accessible court
proceedings.
(Sierra
Club, at para. 53)
In camera hearings such as this should be reserved for cases in which
there is a genuine dispute about the scope of the confidentiality agreement.
[67]
I find that it is open to parties, in agreeing
to confidentiality for a mediation process, to go so far as to limit their
ability to prove the terms of any settlement. When any such limit is placed on
the usual rule in this regard, however, it must be clear, on applying the
principles of contractual interpretation of the relevant jurisdiction, that
that is what the parties intended. In this case, the principles of Quebec
contract law applied because the agreement at issue was entered into in Quebec.
Had the law of another jurisdiction applied, the question whether the parties
intended to renounce the common law exception to settlement privilege that
applies where a party seeks to prove the terms of a settlement would have been
decided in accordance with the principles applicable in that jurisdiction.
[68]
Although I find that the Court of Appeal failed
to conduct the necessary contractual interpretation exercise before applying
the exception to the common law settlement privilege that enables parties to
prove the terms of a settlement, I nevertheless uphold the result it reached.
The parties did not renounce the common law rule, which also applies in Quebec,
that communications made in the course of negotiations can be used to prove the
terms of a settlement.
V.
Conclusion
[69]
For the foregoing reasons, the appeal is
dismissed with costs throughout.
Appeal
dismissed with costs throughout.
Solicitors
for the appellants: Lavery, de Billy, Montréal.
Solicitors
for the respondents: Fasken Martineau DuMoulin, Montréal.
Solicitor
for the intervener the Attorney General of British Columbia: Attorney General
of British Columbia, Victoria.
Solicitors for the
intervener Arbitration Place Inc.: Lenczner Slaght Royce Smith Griffin,
Toronto.