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.

 

Plaintiff, one of four corporate shareholders (and a party to the USA in dispute), pursued the challenge. The disputed USA provisions involved the actions following departure of a corporate shareholder.  Specifically, the USA provided that a departing shareholder’s shares would be repurchased at the full market value — as determined by the corporation’s accountant. The Plaintiff took issue with the price determined by the corporation — in particular the combination of book values and values provided by the corporation.  The Plaintiff contended the value was superficially low, and believed that this use of the USA by the corporation constituted an instance of shareholder oppression.  The Plaintiff’s application was brought pursuant to the CBCA, which contains relevant provisions akin to both the Saskatchewan Business Corporations Act (where the corporation was situated), and the Nova Scotia Corporations Act (NSCA).

The Court first held — over a standing challenge by the Defendant — that the Plaintiff was entitled to bring the present action, in his capacity as a corporate shareholder.   Unfortunately, this proved to be the singular victory arising for the Plaintiff out of the Court’s decision.

On the primary issue of whether or not Plaintiff was entitled to a remedy, the Court analyzed the matter by articulating a two-step process:

(1)  Determining whether the complainant’s expectations of the corporation’s actions were reasonable and whether this expectation was breached. If “yes,” then —

(2) Determining whether the activity of the corporation amounts to “oppression”, “unfair prejudice” or “unfair disregard” of the Plaintiff’s interests. This conduct requires coercive, abusive or acts of bad faith on behalf of the corporation.

The Court held that the plaintiff had established the first criteria, i.e., that  he possessed a reasonable expectation to receive full market value for his shares, as evidenced by the USA.  However, the second element was deemed not met as — in this case –the behaviour of the corporation did not rise to “oppression, unfair prejudice or unfair disregard.” The Court classified the discrepancy between share pricing methods as constituting a straightforward dispute, and not as oppressive or bad faith behaviour from the corporation.  Further, the Court found no no evidence of misconduct of the other directors or the corporation’s accountant.  Accordingly, the Plaintiff failed to produce sufficient evidence to overcome the threshold of oppressive or bad faith behaviour required of the corporation in order a CBCA remedy to be granted by the Court.  Consequently, Plaintiff’s application was dismissed.

 

Well, it is time to indulge discussion of another area of practice interest:  commercial business transactions.  Let us start with the oil and gas industry, industries which are certainly continuing to hold the public’s attention in an era punctuated by both a drive toward renewable sources of energy, as well as development of new sources of preexisting fossil fuels.

In June 2013, the Supreme Court of Canada refused leave to appeal the Alberta Court of Appeal’s decision upholding, under certain, controlled circumstances, legitimate oil and gas ventures.  The case in question is captioned, 321665 Alberta Ltd. v. Husky Oil Operations Ltd. (2013 ABCA 221), where the Alberta Court of Appeal found no anti-competitive action breaching the federal Competition Act.

The origins of the case date all the way back to the mid-1990s, when Husky and Exxon-Mobil convened to jointly discuss methods to reduce costs — and to operate more efficiently.  In particular, the two operations discussed the use of a “single source fuel hauler” to service each company’s close-proximity Northern Alberta facilities.  The companies jointly considered two different fuel haulers, choosing one recipient for the contract award.

The unsuccessful company, a small trucking operation, and the Plaintiff/Appellant in this case, alleged the suffering of significant financial hardship, rising to the level of a violation of Section 45 of the Competition Act, i.e., the “undue lessening of competition.”  The Plaintiff was successful before the trial court, with the latter finding a Competition Act Violation, and awarding damages to the Plaintiff.

On appeal, this decision was overturned.  See http://www.canlii.org/en/ab/abca/doc/2013/2013abca221/2013abca221.html.  The Alberta Court of Appeal specifically ruled that both trucking companies — the one receiving the contract and the Plaintiff, were provided a “fair opportunity” to compete for the contract.  Further, the Defendants, Exxon-Mobil and Husky were merely attempting to discover improved methods for operational management, reduce costs, and increase business efficiency.

In other words, the Court of Appeal found that the Exxon-Mobil/Husky  joint venture was never intended to deter competition among fuel suppliers. Rather, it was intended for a “legitimate business purpose.”  Accordingly, the Court of Appeal ruled that oil and gas companies should not be prevented from entering into joint ventures intended for the streamlining of operations.

Onward ….