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Litigation/Contract: Supreme Court Sets Narrow Exception Involving Settlement Privilege & Mediation Confidentiality

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Do you think that everything that happens during a mediation will remain confidential????  Think again.

Contrary to what lawyers and their clients have believed about mediation being a “Vegas-styled” environment, i.e., “what happens in Vegas, stays in Vegas,” the Supreme Court of Canada recently threw the proverbial sanctity of mediation confidentiality into some doubt — and probably for good reason in this narrow case.

In Union Carbide Canada Inc. v. Bombardier Inc., 2014 SCC 35, the Court distinguished and explained the common law doctrine of settlement privilege.  In doing so, it compared it with contractual confidentiality agreements.  And, in doing so, the unanimous Court established exceptions to the bar on disclosure of mediation activities.

Let’s look at the facts.  Bombardier sued Dow, alleging the manufacturing and sale by Dow of faulty gas tanks in Sea-Doos. Bombadier claimed that these defects caused injury and property damage to Bombardier customers.  So, like in many cases, the companies agreed to mediation, signing a standard mediation agreement — one containing the standard confidentiality clause.

So, each side proceeded to mediation, and believed that everything was settled during mediation.  Unfortunately, they ended up arguing about the scope of the agreement.  Dow believed that there was a universal agreement to all litigation for all gas tanks all over the world.  Meanwhile, Bombardier believed that it only applied to the litigation filed in Montreal.

Bombardier filed a motion for “homologation” (a long legal term, of Greek origin, meaning that it attempted to seek official court approval) of the settlement on its terms.  So, just like in any corporate-styled dispute,  Dow countered — bringing its own motion to delete six paragraphs of Bombardier’s motion.  Dow argued that those paragraphs referred to events that had taken place in the mediation, and were confidential under the terms of the mediation agreement.  The Superior Court in Quebec granted — in great part — Dow’s motion, ordering four of the six paragraphs struck.  On appeal, before the Quebec Court of Appeal, Bombardier succeeded in overturning the trial court ruling — thus, allowing all six paragraphs to remain.

Onward to the Supreme Court of Canada:  there, Dow argued that both parties freely and voluntarily consented to enter into the mediation agreement containing the standard confidentiality clause.  Essentially, people, Dow argued something that normally carries the day — the sanctity of the contract and the voluntariness of each side to accept such terms.  Further, Dow argued that there was no public policy reason to ignore that confidentiality clause.  In response, Bombardier argued that the standard form confidentiality clause could not displace the exception to common law settlement privilege.

The Court ultimately concluded that both sides were correct, asserting that “a court must give effect to a confidentiality clause to which both parties have agreed,” but the parties must be explicit if their intention is to create “greater confidentiality than settlement privilege.”  (Emphasis added).

“Settlement privilege” exists to promote settlement agreements.  Parties to a legal dispute will be more willing to settle actions and grant concessions if those same points and concessions cannot be used against them in the future, in the event no mediation settlement is reached.  However — and this is the important point — settlement-privileged communications lose their privileged status if disclosure is necessary to prove the existence or the scope of an agreement.

The court concluded that such a narrow exception falls outside of the standard, contracted mediation confidentiality.  This is different than “settlement privilege” because “[o]ne is a rule of evidence, while the other is binding agreement; they do not afford the same protection, nor are the consequences for breaching them necessarily the same.”  In other words, the scope of contracted-for confidentiality is at the will and discretion of the parties.

The Court upheld the ability of parties to contract for greater confidentiality than that provided by settlement privilege. However, “[w]here an agreement could have the effect of preventing the application of a recognized exception to settlement privilege, its terms must be clear and intended.”

So, this will all boil down to a  question of contractual interpretation.  In the Dow/Bombardier dispute, the Court looked at the mediation contract as nothing more than a “standard form contract provided by the mediator.”  No party changed it, and there was zero evidence that either side thought it was departing from the settlement privilege that normally attaches to mediations.  In other words, in this case, no special confidentiality was created.

Interesting decision.  And, actually, an extraordinarily fair decision designed to prevent one side from suppressing evidence on the scope of mediation settlement agreements.

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