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SETTLEMENT PRIVILEGE 101
Presented at the Law Society of Upper Canada CPD - “What Civil Litigators Need to
Know About Privilege” – April 28, 2015
Shantona Chaudhury, Pape Barristers
OVERVIEW
The purpose of this paper is to explain the current state of the law on settlement privilege,
particularly in light of recent clarifications to this area of law brought by the Supreme Court of
Canada’s decisions in Sable Offshore Energy v. Ameron International Corp., 2013 SCC 37
[“Sable”], and Union Carbide Canada Inc. v. Bombardier Inc., 2014 SCC 35 [“Union Carbide”].
The first section discusses the definition of settlement privilege and its underlying rationale. The
second section reviews the major changes and clarifications to the law emerging from Sable. The
third section examines the exceptions to settlement privilege, i.e. the circumstances in which the
privilege will not apply. The fourth section addresses the issue that faced the Court in Union
Carbide: the interaction between settlement privilege and mediation confidentiality clauses.
Finally, the fifth section gives a brief summary of the major points addressed in the paper and
offers some practical advice.
I – DEFINITION AND RATIONALE OF SETTLEMENT PRIVILEGE
Settlement privilege is a rule of evidence that protects communications exchanged by the
parties as the try to settle a dispute.1 As the Supreme Court of Canada put it, “[t]he privilege wraps
a protective veil around the efforts parties make to settle their disputes by ensuring that
communications made in the course of these negotiations are inadmissible.”2
The purpose of settlement privilege is to encourage and promote settlement. The privilege
developed in the late 18-century, when English courts began to recognize that there is an overriding
1
2
Union Carbide Canada Inc. v. Bombardier Inc., 2014 SCC 35 [Union Carbide], at para. 31.
Sable Offshore Energy v. Ameron International Corp., 2013 SCC 37 [Sable], at para. 2.
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public interest in settlement of disputes.3 As the Supreme Court explained in Sable,
“[s]ettlements allow parties to reach a mutually acceptable resolution to their dispute
without prolonging the personal and public expense and time involved in litigation.”4 In
keeping with its current concern regarding access to justice, the Court noted that settlement
is a way of meeting (or, more accurately, avoiding) the challenges of our cumbersome
justice system:
The justice system is on a constant quest for ameliorative strategies that reduce litigation’s
stubbornly endemic delays, expense and stress. In this evolving mission to confront barriers to
access to justice, some strategies for resolving disputes have proven to be more enduringly
successful than others. Of these, few can claim the tradition of success rightfully attributed to
settlements.5
The common-sense theory underpinning settlement privilege is that confidentiality begets
candour: what parties say in the course of negotiations “will be more open, and therefore more
fruitful, if the parties know that it cannot be subsequently disclosed”.6 In other words, the privilege
is needed to encourage the type of full and frank discussions between the parties that are likely to
lead to settlement.7
II - SABLE OFFSHORE ENERGY V. AMERON INTERNATIONAL: THE SUPREME COURT CLARIFIES
THE LAW OF SETTLEMENT PRIVILEGE
In Sable, the Supreme Court clarified a number of previously murky aspects of settlement
privilege.
Case summary
Sable involved a multi-party litigation where the plaintiff (Sable Offshore Energy) sued
several defendants. It settled with some but not all of these defendants by entering into so-called
Pierringer Agreements. A Pierringer Agreement allows a defendant in a multi-party action to settle
with the plaintiff and withdraw from the litigation; the plaintiff agrees to pursue the remaining (i.e.
non-settling) defendants only for the losses they actually caused, waiving any claim to joint
liability between the settling and non-settling defendants.
3
R. W. Hubbard, S. Margotiaux & S.M. Duncan, The Law of Privilege in Canada, looseleaf ed., Canada Law Book,
pp. 12-74 – 12-74..
4
Sable, para. 1.
5
Sable, at para. 1
6
Sable, at para. 13.
7
S. N. Lederman, A. W. Bryant & M. K. Fuerst, Sopinka, Lederman & Bryant: The Law of Evidence in Canada, 4th
ed. [Sopinka on Evidence], s. 14.317.
2
In Sable, all of the terms of the Pierringer Agreements between the plaintiff and the settling
defendants were disclosed to the non-settling defendants except the actual amounts of the
settlements. The non-settling defendants sought disclosure of the settlement amounts, arguing that
knowledge of the amounts was necessary for proper conduct of the litigation. The Supreme Court
agreed with the plaintiff, holding that the settlement amounts were covered by settlement privilege
and should not be disclosed. The Court found that lack of knowledge of the settlement amounts
did not affect the non-settling defendants’ ability to know and present their case; while such
knowledge might affect how much they were willing to invest in the case, this did not rise to a
level of importance sufficient to displace the public interest in maintaining settlement privilege in
order to promote settlements.8
Features of settlement privilege clarified in Sable
Settlement privilege is a class privilege
The Supreme Court confirmed in Sable that settlement privilege is a class (sometimes
called a ‘blanket’) privilege, as opposed to a case-by-case privilege.9
An important difference between a class privilege and a case-by-case privilege is the
difference in onus. A class privilege is a general rule of inadmissibility, subject to exceptions; the
onus lies on the party seeking disclosure of the communication to establish that an exception
should apply. A case-by-case privilege assumes a general rule of admissibility; the onus lies on
the party claiming privilege over the communication to establish, using the so-called Wigmore
test,10 that it should not be disclosed.
Thus the Supreme Court’s holding in Sable means that there is a prima face presumption
that any communication made in furtherance of settlement is inadmissible; there is no need to
apply the Wigmore criteria to determine whether the privilege should apply in any particular
8
Sable, at para. 27.
Sable, at para. 12.
10
The Wigmore test states that “four fundamental conditions must be met before privilege is extended to any
communication and indicated that these four conditions serve as the foundation of policy for determining all
relational privileges. They are:
(1) The communications must originate in a confidence that they will not be disclosed.
(2) This element of confidentiality must be essential to the full and satisfactory maintenance of the relation between
the parties.
(3) The relation must be one which, in the opinion of the community, ought to be sedulously fostered.
(4) The injury that would inure to the relation by the disclosure of the communications must be greater than the
benefit thereby gained for the correct disposal of litigation.” (Sopinka on Evidence, s. 14.16)
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instance. This presumption of inadmissibility can of course be displaced: as will be
discussed below, exceptions will be found “when the justice of the case requires it”.11
Settlement privilege is triggered by the intent of the parties, not the words “without prejudice”
The Supreme Court also made plain in Sable that the trigger for settlement privilege is the
intent to settle, not the words “without prejudice”.
Although settlement privilege is sometimes referred to as the “without prejudice rule”,
marking a communication “without prejudice” is neither necessary nor sufficient to trigger the
application of settlement privilege. As the Court explained, “these precise words are not required
to invoke the privilege. What matters instead is the intent of the parties to settle the action”.12 A
communication made in furtherance of settlement will be considered privileged regardless of
whether it says “without prejudice”; conversely, the words “without prejudice” do not magically
make a communication that has nothing to do with settlement fall under the umbrella of settlement
privilege.
Rather, courts will analyze the communication to determine whether it is reasonably
connected to the settlement of a litigious dispute. As the Alberta Court of Appeal wrote in Bellatrix
Exploration Ltd. v Penn West Petroleum Ltd., 2013 ABCA 10 [Bellatrix], “the types of
communications covered by the settlement privilege require at least a hint of potential compromise
or negotiation”.13 A letter that consists of an unconditional assertion of rights, with no reference to
the possibility of negotiation or settlement, will not be privileged.14
Settlement privilege applies regardless of whether or not a settlement is reached
The Supreme Court confirmed in Sable that settlement privilege applies regardless of
whether a settlement is ultimately reached. Prior to Sable, there was conflicting jurisprudence on
whether the privilege applied to concluded settlements agreements and the communications that
11
Sable, at para. 12.
Sable, at para. 14.
13
Bellatrix, at para. 24.
14
Bellatrix, at para 24; Hansraj v. Ao, 2002 ABQB 385, rev’d on other grounds 2004 ABCA 223 [Hansraj] at para.
19.
12
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led to them, or only to failed settlement negotiations. A number of cases suggested that the
privilege did not extend to concluded settlement agreements.15 The non-settling defendants in
Sable relied on these to argue that the amounts of the settlements between Sable Offshore Energy
and the settling defendants were not privileged.
The Supreme Court put an end to the debate, finding that “the rationale of promoting
settlement is no less applicable if an agreement is actually reached.” As the Court explained, “the
protection is for settlement negotiations, whether or not a settlement is reached. That means that
successful negotiations are entitled to no less protection than ones that yield no settlement.” It
further held that there is no justification for distinguishing between settlement negotiations and the
agreement that was ultimately negotiated: “[t]ypically parties no more wish to disclose to the world
the terms of their agreement that their negotiations in achieving it”.16
Settlement privilege can be waived in part, with the agreement of both parties
Although the Supreme Court did not explicitly address the issue of waiver in Sable, it is
clear from the outcome of the case that waiver of privilege over part of an agreement does not
trigger waiver over the entire agreement. Thus Sable Offshore Energy was entitled to waive
privilege over most terms of the Pierringer Agreements, while retaining privilege over the
amounts.
It is important to note that settlement privilege belongs to both parties, and therefore cannot
be unilaterally waived or overriden by either of them.17
III - EXCEPTIONS TO SETTLEMENT PRIVILEGE
Settlement privilege is not absolute: it is subject to certain exceptions, developed in the
case law. The common thread running through these exceptions is a countervailing interest that
outweighs the interest in promoting settlement of disputes. As the Supreme Court wrote in Sable,
“in order to come within one of these exceptions, a party must show that “a competing public
interest outweighs the public interest in encouraging settlement.”18
15
Sable Offshore, at para. 18; Amoco Canada Petroleum Co. v. Propak Systems Ltd., 2001 ABCA 110 at para. 40;
Hudson Bay Mining and Smelting Co. v. Wright (1997), 1997 CanLII 11529 (MB QB).
16
Sable, at para. 17; Middelkamp v. Fraser Valley Real Estate Board (1992), 71 B.C.L.R. (2d) 276 (C.A.), at paras.
19-20; Brown v. Cape Breton (Regional Municipality), 2011 NSCA 32, at para. 41.
17
Bellatrix, at para 26.
18
Sable, at para. 19.
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Although the jurisprudence on exceptions to settlement privilege is somewhat
scattered, and the Supreme Court did not provide an exhaustive list in Sable, the ABCA in
Bellatrix helpfully compiled the following list of generally recognized exceptions:19

Where there is a dispute as to the existence of a settlement agreement or a
disagreement about its terms;20

Where there is a risk that the plaintiff will be overcompensated if the information
is not disclosed;21

Where the settlement communications were
misrepresentation, fraud, or undue influence);22

Where the parties’ settlement posture is relevant to costs.23
unlawful
(e.g.
involving
The ABCA also emphasized that the exceptions to settlement privilege must be
narrowly construed if the privilege is to achieve its aim.24 In Bellatrix, it refused to find
that the privilege should give way to answer a limitations defence, holding that this would
be an unnecessary weakening of the privilege, given that it was open to the parties to invoke
a tolling or standstill agreement to stop the limitations clock while negotiations were
ongoing.25
Note that the exception relating to the existence and/or terms of the agreement is
necessary in light of the Supreme Court’s holding in Sable that settlement privilege applies
to concluded settlement agreements. Prior to Sable, it was sometimes argued that
settlement privilege did not and could not apply to a concluded agreement and the
negotiations that led to it, because this would essentially render the agreement
unenforceable: if the privilege applied, a party seeking to prove the agreement would be
hamstrung in its ability to do so. Now, the law takes the opposite approach: the privilege
attaches, prima facie, to successful negotiations and the concluded agreement, but “a
19
Bellatrix, at para 29.
Comrie v. Comrie, 2001 SKCA 53. This exception will be discussed in greater depth in the following section of
this paper, which examines the Supreme Court’s recent decision in Union Carbide.
21
Dos Santos v. Sun Life Assurance Co. of Canada, 2005 BCCA 4.
22
Sable Offshore, at para. 19; 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.).
23
Mahe v. Boulianne, 2010 ABCA 74; Calderbank v. Calderbank, [1975] ADR L.R. 06/05.
24
Bellatrix, at para. 28.
25
Bellatrix, at para. 39.
20
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communication that has led to settlement will cease to be privileged if it disclosing it is necessary
in order to prove the existence or scope of the settlement.”26
Also note that the exception relating to costs covers the same ground as Rule 49(10) and
Rule 57.01 of the Ontario Rules of Civil Procedure: failed settlement negotiations may be relevant
to the court’s exercise of its discretion regarding costs.
IV – SETTLEMENT PRIVILEGE VS. CONFIDENTIALITY CLAUSES
UNION CARBIDE CANADA V. BOMBARDIER
IN
MEDIATION CONTRACTS:
In Union Carbide Canada Inc. v. Bombardier, 2014 SCC 35, the Supreme Court
considered whether an absolute confidentiality clause in a mediation contract trumps the exception
to settlement privilege allowing disclosure of confidential communications to prove the existence
or scope of an agreement. The Court held that it is indeed open to parties to contract for greater
confidentiality than that provided by settlement privilege, but that doing so requires a clear and
unequivocal statement of the parties’ intention to oust the common law.27
Background
In Union Carbide, the plaintiff (Bombardier) and the defendant (Dow Chemical) went to
mediation to solve a decades-long, multi-million dollar lawsuit in Quebec about defective gas
tanks. The parties entered into a standard mediation agreement, which contained the following
confidentiality clause:
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. 28
26
Union Carbide, at para. 35.
Union Carbide, at para. 51.
28
Union Carbide, at para. 9.
27
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At the mediation, Dow Chemical submitted a settlement offer. The offer remained open
for 30 days, as counsel for Bombardier had to seek instructions from his client. A few weeks after
the mediation, Bombardier accepted the offer. However, in the ensuing correspondence it became
clear that the parties no longer agreed on the scope of the settlement agreement. Dow Chemical
took the position that the agreement was intended to cover all future litigation, anywhere in the
world, with respect to any gas tank models. Bombardier took the position that the agreement only
covered the Quebec litigation and the two gas tank models involved in that litigation.
Bombardier filed a motion for homologation (enforcement) of the settlement agreement.
In order to prove the agreement, it sought to introduce communications that had been exchanged
at the mediation session, relying on the common law exception to settlement privilege that allows
information to be adduced for the purposes of establishing the scope of an agreement. Dow
Chemical argued that the exception could not apply in light of the confidentiality clause in the
mediation agreement.
Decision
The Supreme Court held that while it is indeed possible for parties to contract out of the
application of common law settlement privilege, a standard mediation confidentiality clause does
not have this effect. A contract purporting to oust the law of settlement privilege must be clear and
unequivocal:
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.29
[…]
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.30
Thus the standard mediation confidentiality clause that the parties signed in Union Carbide
did not preclude Bombardier from producing communications made during the mediation process
to prove the scope of the settlement. As Wagner J. wrote, “[a]bsent an express provision to the
29
30
Union Carbide, at para. 51
Union Carbide, at para. 54.
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contrary, I find it unreasonable to assume that parties who have agreed to mediation for the purpose
of reaching a settlement would renounce the right to prove the terms of the settlement. Such a
result would be illogical.”31
In the course of reaching its decision in Union Carbide, the Court noted that although
settlement privilege and mediation confidentiality share a common purpose – facilitating out-ofcourt settlements by encouraging candid, forthright settlement negotiations – they are distinct
concepts. Settlement privilege is a rule of evidence that relates to the admissibility of
communications. It does not prevent a party from disclosing information; it just renders that
information inadmissible in litigation. Settlement privilege applies regardless of whether the
parties expressly invoke it. A mediation confidentiality clause, on the other hand, is a binding
agreement that can be tailored to provide the depth and breadth of confidentiality that the parties
desire.32
The Court was careful to emphasize the limits of its decision in Union Carbide. The case
concerns only the exception to settlement privilege allowing a party to adduce information to prove
the existence or scope of an agreement; it does not consider other exceptions. Moreover, Union
Carbide decides only the question of whether communications between the parties may be
admissible; it does not decide whether a mediator is permitted or can be compelled to testify.
Previous Ontario jurisprudence on this point suggests that a mediator cannot testify when a dispute
arises as to the terms of a settlement agreement,33 though it is unclear whether the outcome would
the same in a case decided after Union Carbide.
V – SUMMARY AND PRACTICAL TIPS

What does settlement privilege cover?
o Settlement privilege is a class privilege that covers all communications made with
the intent of settling a dispute, unless an exception applies;
31
Union Carbide, at para. 65.
Union Carbide, at paras. 1, 36, 45-47.
33
Rudd v Trossacs Investments Inc., 79 O.R. (3d) 687.
32
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
Must/should you use the words “without prejudice” on communications relating to
settlement?
o The words “without prejudice” are unnecessary, but they may assist in
demonstrating an intention of non-disclosure if a dispute arises as to whether the
communication falls under the scope of the privilege. It is therefore probably
prudent to mark settlement communications “without prejudice”.
o That said, counsel should take care not to use/abuse the words “without prejudice”
by attempting to cloak documents unrelated to settlement with settlement privilege.
Marking non-privileged communications “without prejudice” renders the phrase
meaningless; weakens its force as a reliable indicator of intent; risks compromising
the substantive effect the communication was intended to have; and may irritate the
court. As a judge of the Alberta Court of Queen’s Bench wrote, “This undisciplined
use of the ‘without prejudice’ notation on every piece of correspondence is
unfortunate. […] If the parties fly the ‘flag of truce’ when they mean war as well
as when they want to talk about a truce, neither knows where they really stand. The
opportunities for mischief are obvious.”34
There are instances when it simply makes no sense to mark correspondence “without
prejudice, and indeed it is contrary to the purpose of the correspondence. […] It does
not make any sense to suggest that an Affidavit of Records is served “without
prejudice.” Either it is served or it is not. Attaching the expression “without prejudice”
to this correspondence is meaningless.
Correspondence intended to give notice (e.g. default or liability), reserve rights, serve
documents, demand payment, discharge some obligation, or otherwise fix the rights
of the parties should never be sent “without prejudice”, as it is not privileged, and is
in fact intended to affect the rights between the parties. Use of the phrase in these
circumstances may deny the correspondence the substantive effect it was supposed to
have, even if one can get over the evidentiary bar.35

34
35
Can settlement privilege be waived?
Hansraj, at para. 16.
Hansraj, at paras. 25-26.
10
o Yes, with the consent of both parties. Partial waiver of privilege is permitted, for
example to facilitate settlement with some but not all defendants in multi-party
litigation.

What are the exceptions to settlement privilege?
o Generally recognized exceptions to settlement privilege include:


a dispute as to the existence/scope of a settlement agreement;

a risk of overcompensation;

unlawful communications;

costs.
Does the exception to settlement privilege allowing disclosure to prove the agreement
take precedence over a confidentiality clauses in a mediation contract?
o
In the absence of a clear expression of intent to oust the common law, yes, the
exception to settlement privilege will apply and the information can be adduced.
o
In light of Union Carbide, counsel should be conscious of the fact that mediation
confidentiality is not absolute: absent an express intention to override the
common law, the common law exception to settlement privilege allowing
disclosure of information to prove the existence/scope of an agreement will apply
to mediation communications. Thus if a dispute arises as to whether an
agreement was concluded and/or what it said, evidence of what happened in the
mediation room may well be admissible.
o
If the parties desire absolute confidentiality of the mediation process, they can
contract to override the common law in an express provision to this effect.
Whether or not to do so will be a strategic decision, different in every case. An
absolute confidentiality clause has advantages, but also entails risks. For instance,
if Bombardier’s position in Union Carbide has merit, Dow reneged on the deal –
but if the exception to settlement privilege didn’t apply, Bombardier would be
hamstrung in its ability to have the agreement enforced.
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o
A compromise position, imposing absolute confidentiality on the negotiations but
excepting the concluded agreement, may be a viable option. If so, the parties
should make sure to put the deal in writing before the mediation is over. Note that
this particular practice tip comes directly from Wagner J: “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.”36
36
Union Carbide, at para. 54
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