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Settlement privilege

This article was written by Michael Dew, a Vancouver lawyer who practices civil litigation. Click here for contact information and further details about Michael’s practice. This article provides only information, not legal advice. If you require legal advice you should consult a lawyer.

 

Table of contents  
 
Settlement privilege protects documents created and concessions made in the course of settlement negotiations from disclosure to persons not party to the negotiations. Primarily, settlement privilege is a rule of evidence that prevents parties leading evidence at trial of concessions made during settlement discussions, but settlement communications are also generally protected from disclosure during discovery in subsequent litigation.
 
Although courts frequently describe the goal of settlement privilege (i.e. to encourage candid discussions to facilitate settlement) as being of paramount importance, there are in fact a number of exceptions to settlement privilege and it is certainly not the case that all communications made in the course of settlement are protected from disclosure in all cases. This article sets out the test for settlement privilege, discusses the elements of the test, and then considers exceptions to settlement privilege and waiver of it.
 
The doctrine of settlement privilege was developed on the premise that settlement of disputes is more likely if parties are able to speak freely about the issues and without fear that concessions made in settlement discussions will later be used against them.
 
The uniting theme in the authorities and academic literature to which we were referred, is that the purpose of the settlement privilege is, as it has been since the 18th century, to protect parties from disclosing express or implied admissions made during the course of settlement negotiations. 
(B.C. Children's Hospital v. Air Products Canada Ltd., 2003 BCCA 177 at para. 66 per Huddart J.A., dissenting).
 
[Settlement privilege] is founded on the public policy of encouraging litigants to settle their differences rather than litigate them to a finish.
(B.C. Children's Hospital v. Air Products Canada Ltd., 2003 BCCA 177 at para. 11 citing Rush & Tompkins Ltd. v. Greater London Council, [1988] 3 All E.R. 737 (H.L.)).
 
[Settlement privilege] as so often stated, is intended to encourage amicable settlements and to protect parties to negotiations for that purpose. It is in the public interest that it not be given a restrictive application.
(I. Waxman & Sons Ltd. v. Texaco Canada Ltd., [1968] 1 O.R. 642, 67 D.L.R. (2d) 295 at 309 (H.C.J.)).
 
The law also acknowledges that for the purpose of achieving settlement a party make concessions despite strong evidence to the contrary and that such concessions, made as they are only for the purpose of achieving settlement, have little probative value:
 
The theory at the root of the policy justifying the privilege is that the value of encouraging settlement outweighs the probative value of these admissions.
(B.C. Children's Hospital v. Air Products Canada Ltd., 2003 BCCA 177 at para. 66 per Huddart J.A., dissenting).
 
 
 
Statement of the test
In Sharbern Holding Inc. v. Vancouver Airport Centre Ltd., 2008 BCSC 442 the court adopted the following test for settlement privilege from Canada’s leading evidence textbook:
 
In The Law of Evidence in Canada, the test for the application of settlement privilege is described as follows:
a) A litigious dispute must be in existence or within contemplation;
b) The communication must be made with the express or implied intention that it would not be disclosed to the court in the event negotiations failed; and
c) The purpose of the communication must be to attempt to effect a settlement.
(J. Sopinka, S.N. Lederman & A.W. Bryant, The Law of Evidence in Canada, 2d. ed. (Toronto: Butterworths, 1999) at para. 14.207)
(Sharbern Holding Inc. v. Vancouver Airport Centre Ltd., 2008 BCSC 442 at para 70).
 
However, it is not clear that the second element stated above is actually part of the test and courts sometimes omit that element when stating the test:
 
In order to successfully invoke settlement privilege, the party seeking the privilege must establish that a litigious dispute is in existence or within contemplation, and that the communications in question were for the purpose of attempting to effect a settlement of the litigious dispute: Sinclair v. Roy (1985), 65 B.C.L.R. 219 at 222 (S.C.).
(Blue Line Hockey Acquisition Co., Inc. v. Orca Bay Hockey Limited Partnership, 2007 BCSC 143 at para. 103).
 
Privilege arises if the communication is made for the sake of buying peace or to effect a compromise. Nothing more is needed to raise the privilege. To hold otherwise would cause great mischief by discouraging settlement discussions and by putting in great legal peril any layman who wanted to settle a dispute or buy peace. What sensible man would attempt a settlement if it could be used against him at trial.
(William Allan Real Estate Co. v. Robichaud (1987), 17 CPC (2d) 138 at para. 11 (Ont. CA)).
 
The requirement to prove an intention of confidentiality is discussed below.
 
Element 1: litigious dispute 
In Blue Line Hockey Acquisition Co., Inc. v. Orca Bay Hockey Limited Partnership, 2007 BCSC 143 Wedge J. described the requirement for a litigious dispute as follows:
 
The mere existence of a dispute or potential dispute does not give rise to the privilege. Only where the dispute has become “litigious” does the privilege arise. A dispute is “litigious” where litigation is commenced or contemplated. The person who claims the privilege bears the onus of establishing it: Cytrynbaum v. Gineaut Holdings Ltd., 2006 BCSC 468 at para. 26  
(Blue Line Hockey Acquisition Co., Inc. v. Orca Bay Hockey Limited Partnership, 2007 BCSC 143 at para. 104).
 
 
Element 2: intention of confidentiality
As noted above, it is not clear that the need to prove an intention of confidentiality is actually part of the test for settlement privilege. The following passages confirm that an intention of confidentiality will be implied and that there is no need to present evidence of such intention:
 
The strong public interest in encouraging settlement required that all bona fide settlement discussions or attempts to buy peace remained inadmissible. There need not be any express or implied agreement or some clear unilateral statement that the settlement offer was without prejudice. To hold otherwise would cause great mischief by discouraging settlement discussions and by putting in great legal peril any layman who wanted to settle a dispute or buy peace.
(William Allan Real Estate Co. Ltd. v. Robichaud et al. (1987), 17 C.P.C. (2d) 138 (Ont. C.A.))
 
A review of these authorities clearly indicates that where litigants attempt to negotiate settlement of their differences without the intervention of lawyers, the courts will imply an intention that any communication not be disclosed to the court in the event that negotiations fail. Thus, the suggestion by the authors of The Law of Evidence in Canada that there is a condition that the communications must be made with the implied intention that [they] not be disclosed to the court in the event that negotiations fail is not supported by the authorities. None of the cases appear to require some factual underpinning to imply an intention. Conditions (a) and (c) need only be established to attach the privilege. 
(Welch v. Welch, [1994] O.J. No 956 at para. 21 (Ont. Ct. Gen. Div.)).
 
For an issue related to the intention of confidentiality, see the discussion below regarding use of the words “without prejudice”.
 
Element 3: for the purpose of effecting settlement
To be covered by settlement privilege, the communication must merely be made for the purpose of negotiating a settlement, it is not required that a settlement actually be achieved:
 
[A]s a general matter, the without prejudice rule should preclude the admission into evidence of admissions made for the purpose of or during the course of an attempt to reach a settlement whether or not a settlement is reached and whether or not such admissions are contained in the negotiations leading up to settlement or in any settlement agreement, itself.
(Sun Life Trust Co. v. Dewshi (1993), 99 D.L.R. (4th) 232 at 237(Ont. Ct. (Gen.Div.)).
 
Relevance of the words “without privilege”
In Belanger v. Gilbert (1984), 58 B.C.L.R. 191 (C.A.) the British Columbia Court of Appeal confirmed that merely using the words “without prejudice” will not automatically establish settlement privilege:
 
Even if the letter had been marked as without prejudice it would not, in my judgment, assist the [plaintiff] in this case. Not all letters so marked are to be held inadmissible.
(Belanger v. Gilbert (1984), 58 B.C.L.R. 191 at para. 6 (C.A.)).
 
Regardless of whether the words “without prejudice” are used, settlement privilege will only apply if the test for settlement privilege is satisfied:
 
[T]he rule which excludes documents marked ‘without prejudice’ has no application unless some person is in dispute or negotiation with another, and terms are offered for the settlement of the dispute or negotiation...
(Belanger v. Gilbert (1984), 58 B.C.L.R. 191 at para. 6 (C.A.) citing Re Daintrey, Ex p. Holt, [1893] 2 Q.B. 116).
 
The foregoing confirms that the words “without prejudice” are neither essential nor conclusive of whether a document is protected by settlement privilege.
 
Settlement offers are often made under cover of the words “without prejudice”, but that does not prevent the settlement offer being accepted to form a binding settlement agreement:
 
What is the meaning of the words ‘without prejudice’? I think they mean without prejudice to the position of the writer of the letter if the terms he proposes are not accepted. If the terms proposed in the letter are accepted a complete contract is established and the letter, although written without prejudice, operates to alter the old state of things and to establish a new one.
(B.C. Children's Hospital v. Air Products Canada Ltd., 2003 BCCA 177 at para. 18 citing Walker v. Wilsher (1889), 23 Q.B.D. 335).
 
For a detailed (85 pages) study of the term “without prejudice”, see David Vaver “‘Without Prejudice’ Communications – Their Admissibility and Effect”, 9 U.B.C. Law Rev. 85.
 
 
Settlement privilege is not limited by the pleadings
Settlement privilege protects all discussions related to settlement of the issues in dispute in the litigation, and is not limited to the issues raised by the pleadings. In Cowichan Tribes v. A.G. of Canada, 2007 BCSC 1855 the parties discussed a business deal for an extended lease at a settlement conference dealing with rents to be paid for the current lease. Myers J. held that the discussions regarding the future lease were protected by settlement privilege:
 
Litigation is often settled by coming to an agreement on issues that are broader than that comprised in the litigation itself. It would make no sense to limit settlement privilege only to discussions that are strictly confined to the issues comprised in the litigation.
 
It would also make little sense to attempt to parse out the parts of the discussions that relate to the litigation issues from those that do not. The former would be privileged, the latter would not.
 
(Cowichan Tribes v. A.G. of Canada, 2007 BCSC 1855 at paras. 24-25).
 
Settlement privilege protects communications from discovery under the Rules of Court
Settlement privilege covers all communications exchanged in the course of settlement discussions and prevents them for disclosure under document discovery or examination for discovery:
 
[T]he public interest in the settlement of disputes generally requires "without prejudice" documents or communications created for, or communicated in the course of, settlement negotiations to be privileged. I would classify this as a "blanket, prima facie, common law, or "class" privilege because it arises from settlement negotiations and protects the class of communications exchanged in the course of that worthwhile endeavour.
 
In my judgment this privilege protects documents and communications created for such purposes both from production to other parties to the negotiations and to strangers, and extends as well to admissibility, and whether or not a settlement is reached. This is because, as I have said, a party communicating a proposal related to settlement, or responding to one, usually has no control over what the other side may do with such documents. Without such protection, the public interest in encouraging settlements will not be served.
 
(Middelkamp v. Fraser Valley Real Estate (1992), 71 B.C.L.R. (2d) 276 at paras. 19-20 (C.A.)).
 
In Middelkamp v. Fraser Valley Real Estate Board (1993), 96 D.L.R. (4th) 227 (B.C.C.A.) it was held that communications protected from settlement privilege were not subject to disclosure (under the Rules of Court regarding document discovery and examination for discovery) in ongoing litigation. That rule has been followed in subsequent cases:
 
All the cases emphasize that no bars should be placed in the way of one who wishes to compromise, and to allow the production [under the Rules of Court] is by definition to inhibit. Such barriers to settlement should only be permitted if the other competing interest absolutely demands it.
(B.C. Children's Hospital v. Air Products Canada Ltd., 2003 BCCA 177 at para 29 citing Middelkamp v. Fraser Valley Real Estate (1992), 71 B.C.L.R. (2d) 276 at 299 (C.A.)).
 
The rationale for protecting settlement communications from production on discovery has been explained as follows:
 
If the party who obtains discovery of the without prejudice correspondence can make no use of it at trial it can be of only very limited value to him. It may give some insight into his opponent's general approach to the issues in the case but in most cases this is likely to be of marginal significance and will probably be revealed to him in direct negotiations in any event. In my view, this advantage does not outweigh the damage that would be done to the conduct of settlement negotiations if solicitors thought that what was said and written between them would become common currency available to all other parties to the litigation. In my view, the general public policy that applies to protect genuine negotiations from being admissible in evidence should also be extended to protect those negotiations from being discoverable to third parties.
(B.C. Children's Hospital v. Air Products Canada Ltd., 2003 BCCA 177 at para. 23 citing Rush & Tompkins Ltd. v. Greater London Council, [1988] 3 All E.R. 737 (H.L.)).
 
Settlement privilege operates as a rule of evidence to prevent information protected by settlement privilege from admission into evidence in subsequent litigation between the parties to the privilege. Therefore, even if one of the parties discloses the privileged information to the world, the information will still be inadmissible in litigation between the parties.
 
Settlement privilege protects completed agreements, not just the communications leading to them
In Hudson Bay Mining & Smelting v. Fluor Daniel Wright, [1997] 10 W.W.R. 622 (Man. Q.B.) aff’d (1998), 131 Man. R. 133 (C.A.) the Manitoba Court of Queen’s Bench held that although communications leading to creation of a settlement agreement are privileged, final settlement agreements are not protected by settlement privilege. That rule was followed in a number of cases including Belitchev v. Grigorov, 1998 CanLII 6680 at para. 10 (B.C.S.C.).
 
However, in B.C. Children's Hospital v. Air Products Canada Ltd., 2003 BCCA 177 Hall J.A., writing for the majority of the British Columbia Court of Appeal, held that the contents of settlement agreements (as opposed to the only communications that led to formation of the settlement agreement) are protected by a “blanket” privilege:
 
I consider that [Middelkamp v. Fraser Valley Real Estate (1992), 71 B.C.L.R. (2d) 276 (C.A.)] accordingly is a binding authority that mandates the non-disclosure of the settlement agreement in this case because of privilege.
(B.C. Children's Hospital v. Air Products Canada Ltd., 2003 BCCA 177 at para. 32).
 
In B.C. Children's Hospital the plaintiffs sued a large number of defendants for conspiring to fix the price of gas sold to various hospitals in British Columbia. The plaintiffs settled their claim against certain of the defendants, and it was agreed that the terms of that settlement would remain confidential. The plaintiffs continued their action against the remaining defendants. The non-settling defendants sought to obtain, as part of the discovery process, disclosure of the settlement agreement between the plaintiffs and the settling defendants. The plaintiffs resisted production of the agreement on the basis of settlement privilege.
 
Hall J.A. (Ryan J.A. concurring) held that both the quantum and the evidentiary arrangements agreed to should be protected from disclosure, but that the terms of the release provided by the plaintiff to the settling defendants should be disclosed; see discussion below regarding exception to settlement privilege to prevent double recovery. Although a limited exception to settlement privilege was made in B.C. Children's Hospital, that case confirms that both the negotiations leading up to settlement as well as finalized settlement agreements are prima facie protected by a blanket settlement privilege. Hall J.A. held that the courts in Hudson Bay Mining & Smelting v. Fluor Daniel Wright, [1997] 10 W.W.R. 622 (Man. Q.B.) and Belitchev v. Grigorov, 1998 CanLII 6680 (B.C.S.C.) had incorrectly relied on Derco Industries Ltd. v. A.R. Grimwood, (1984), 57 B.C.L.R. 395 (C.A.) which was overruled in Middelkamp v. Fraser Valley Real Estate (1992), 71 B.C.L.R. (2d) 276 (C.A.).
 
Settlement privilege may be reduced where third party interests are at stake
As discussed below, there are various exceptions to settlement privilege. In Dos Santos v. Sun Life Assurance Co. of Canada, 2005 BCCA Finch J.A. noted that courts may be less reluctant to apply exceptions to settlement privilege where the parties to the settlement discussions would have known that their settlement would affect the interests of third parties:
 
I have also considered whether recognizing an exception in this case would place a chill on settlement negotiations. I do not believe it would. As in other cases where settlement agreements may have a direct effect on the rights and responsibilities of third parties, the parties to that agreement must be mindful that the confidential nature of their agreement will not be upheld so far as it affects those other parties. 
(Dos Santos v. Sun Life Assurance Co. of Canada, 2005 BCCA at para. 38).
 
 
 
Exception where dispute as to whether settlement reached
In B.C. Children's Hospital v. Air Products Canada Ltd., 2003 BCCA 177 Hall J.A. explained that if the parties to an alleged settlement agreement disagree as to whether settlement was reached, the court will have no option but to review the settlement communications to decide the dispute:
 
[W]here what is at issue is the question of whether the parties have reached a concluded agreement, it is necessary that the without prejudice writings and discussions be examined to determine whether or not an enforceable agreement exists. There the lis is between the actual parties to the agreement and in order to decide the question of contract or no contract, what previously passed between the parties has to be considered. Thus, the veil of privilege is removed since in no other way could this issue be properly determined. 
(B.C. Children's Hospital v. Air Products Canada Ltd., 2003 BCCA 177 at para. 20).
 
By disputing whether an agreement was formed the parties impliedly waive privilege over the settlement communications:
 
In [Rogers v. Bank of Montreal (1985), 62 B.C.L.R. 387 (C.A.)], it was held that where a party had raised the defence of reliance upon a legal opinion, that party's right to invoke solicitor client privilege concerning certain legal advice it had received should not avail to shield this opinion from disclosure. It is, of course, the same when parties to a settlement agreement differ as to the terms or enforceability of such agreement. In that situation, by the parties putting these matters in issue between them, privilege is waived.
(B.C. Children's Hospital v. Air Products Canada Ltd., 2003 BCCA 177 at para. 20).
 
Exception to prevent double recovery
The settlement paid to the plaintiff by the settling defendant may be revealed to other non-settling defendants where such is necessary to prevent double recovery by the plaintiff. However, such disclosure will be ordered only when there is a risk of double recovery. In B.C. Children's Hospital v. Air Products Canada Ltd., 2003 BCCA 177 the plaintiffs settled with some defendants and proceeded against others, but the majority of the British Columbia Court of Appeal held that the settlement paid by the settling defendants need not be disclosed because the plaintiffs had expressly waived any right to recover from the non-settling defendants any portion of the losses and damages that the court may attribute to the fault of the settling defendants.
 
The non-settling defendants in B.C. Children's Hospital v. Air Products Canada Ltd., 2003 BCCA 177 relied on Gnitrow Ltd. v. Cape Plc, [2000] 1 W.L.R. 2327 (Eng. C.A.) where disclosure of the quantum of settlement was ordered, but Hall J.A. distinguished that decision:
 
I do not consider the Gnitrow case applicable here where the plaintiffs are suing the remaining defendants, (the appellants and others), only for damages arising from their dealings with those defendants. I perceive no relationship between the sums they are suing the appellants for and the sums they have agreed to settle for with the A.L.C. defendants. That to my mind distinguishes Gnitrow. Because I see the respective claims of the respondents as separate and unrelated as against the various defendants, I doubt the proposition being argued by the appellants that there will be or could occur in this litigation any species of excessive or double recovery on the part of the respondents.
(B.C. Children's Hospital v. Air Products Canada Ltd., 2003 BCCA 177 at para. 31).
 
Thus, in B.C. Children's Hospital v. Air Products Canada Ltd., 2003 BCCA 177 it was not necessary for the amount of the settlement to be disclosed to prevent double recovery, it was only necessary for the nature of the release provided by the plaintiff to the settling defendants to be disclosed.
 
In Dos Santos v. Sun Life Assurance Co. of Canada, 2005 BCCA 4, a personal injury case, the plaintiff’s long-term disability insurer was entitled, under the insurance policy, to receive a set percentage what the plaintiff recovered from the tortfeasor in relation to injuries for which benefits had been paid. The plaintiff settled with the tortfeasor, but then refused to disclose the details of the settlement so that the amount payable to the insurer could be calculated. The British Columbia Court of Appeal held that although the settlement documents were privileged, an exception to that privilege must be made to prevent the plaintiff’s double recovery and that the public interest in encouraging settlement was outweighed by importance of preventing over compensation:
 
[T]he only way to establish objectively what the plaintiff has actually received in compensation for lost earnings is to recognize an exception for these documents that would otherwise have been protected by settlement privilege. Both the relevance and necessity of the documents therefore militate in favour of recognizing an exception.
(Dos Santos v. Sun Life Assurance Co. of Canada, 2005 BCCA 4 at para 37).
 
In Ashcroft v. Dhaliwal, 2008 BCCA 352 the plaintiff was involved in two motor vehicle accidents. The plaintiff settled the claim arising out of the second accident and the claim arising out of the first accident proceeded to trial. The trial judge found that the plaintiff’s injuries were indivisible, that the first accident was 70% responsible for the plaintiff’s loss, and that the second accident was 30% responsible for the plaintiff’s loss. The total damages for the injuries arising out of both accidents were found by the trial judge to be $400,000. The trial judge then directed that the net proceeds from the settlement of the second action be deducted from the $400,000 amount to ensure the appellant was not over-compensated for her loss. That approach was endorsed by the British Columbia Court of Appeal:
 
I would apply this Court’s reasoning in Dixon and hold that the trial judge did not err when he required the deduction of the settlement proceeds from the appellant’s claim against the second-accident defendants from the global award he made against the respondents.
(Ashcroft v. Dhaliwal, 2008 BCCA 352 at para. 43).
 
Although the British Columbia Court of Appeal in Ashcroft v. Dhaliwal, 2008 BCCA 352 said that it was not considering whether an exception to settlement privilege should be made, the effect of the ruling that the settlement funds received from the settling tortfeasor must be deducted from the global damages assessed by the trial judge is that the settlement amount is not protected from disclosure to the non-settling tortfeasor by settlement privilege:
 
Although the concern in the case at bar is whether to deduct settlement proceeds from global damage awards rather than whether to make an exception to settlement privilege, the principle is the same: the concern to prevent double recovery outweighs the public interest in encouraging settlements.
(Ashcroft v. Dhaliwal, 2008 BCCA 352)
 
 
Exception in relation to evidentiary arrangements
In some cases a settling defendant may agree to provide evidence to assist the plaintiff in its ongoing claims against the other defendants. Because such agreements should influence the weight the court should give to such evidence, the interests of justice require disclosure of the details of such agreements if the case against the non-settling defendants goes to trial:
 
An obvious exception [to settlement privilege] would be where the parties to a settlement agree that evidence will be furnished in connection with the litigation in which the application is made. In such cases, the public interest in the proper disposition of litigation assumes paramountcy and opposite parties are entitled to know about any arrangements which are made about evidence.
(Middelkamp v. Fraser Valley Real Estate Board (1992), 71 B.C.L.R. (2d) 273 at para. 21 (C.A.)).
 
In B.C. Children's Hospital v. Air Products Canada Ltd., 2003 BCCA 177 at para. 36 Hall J.A., writing for the majority of the British Columbia Court of Appeal held that disclosure of such evidentiary arrangements should wait until trial or shortly before trial when the evidence is in immediate prospect.
 
The exception to settlement privilege made in the case of Mary Carter agreements is one application of the exception made in relation to evidentiary agreements. The case of
Pettey v. Avis Car Inc. (1993), 103 D.L.R. (4th) 298 (Ont. Ct., (Gen. Div.) involved a Mary Carter agreement and Ferrier J. described the main characteristics of such agreements as follows:
  1. The contracting defendant guarantees the plaintiff a certain monetary recovery and the exposure of that defendant is “capped” at that amount.
  2. The contracting defendant remains in the lawsuit.
  3. The contracting defendant’s liability is decreased in direct proportion to the increase in the non-contracting defendant’s liability.
  4. The agreement is kept secret.
 
See Laudon v. Roberts, 2009 ONCA 383 for a precedent of a Mary Carter agreement.
 
The problem with such agreements is that they allow plaintiffs to obtain the support of certain defendants (perhaps the more blameworthy ones) for the purpose of leading the trier of fact to conclude that other defendants are more liable than they otherwise would have been:
 
The chief problem associated with a Mary Carter agreement is that a hidden alteration of the relationship of some of the parties will give the jury a misleading and incomplete basis for evaluating the evidence.
(Elbaor v. Smith, 845 S.W. 2d 240 (1992)).
 
Disclosure of such evidentiary agreements is required as a procedural safeguard to ensure transparency and to allow the trier of fact to properly assess the weight to be given to the various evidence.
 
Exception in relation to limitation period issues 
It may be that settlement communications are inadmissible in relation to the substantive dispute, but admissible for the purposes of the limitation period issues:
 
It is possible for a letter to be considered as a "without prejudice" letter and inadmissible in evidence in relation to its contents about the flow of settlement negotiations either on liability or quantum, but at the same time for the same letter to be admissible in evidence for the exclusive purpose of s. 5 of the Limitation Act.  
(Belanger v. Gilbert (1984), 58 B.C.L.R. 191 at para. 11 per Lambert J.A. concurring (C.A.).
 
However, in Farrell v. Tisdale, 1987 CanLII 2640 (B.C.C.A.) Taggart J.A. considered the above passage and then said the following: 
 
I can think of no legal basis, other than waiver of privilege, for admitting as evidence letters which are privileged even if they are admitted for the limited purpose of ascertaining whether there was confirmation of a cause of action. The documents are either privileged or not, and if privileged, cannot be used for or against either party.
(Farrell v. Tisdale, 1987 CanLII 2640 at para. 42 (B.C.C.A.)).
 
In Middelkamp v. Fraser Valley Real Estate Board (1992), 71 B.C.L.R. (2d) 273 (C.A.) Chief Justice McEachern acknowledged that exceptions to settlement privilege may apply when settlement agreements contain information relevant to limitation period defences:
 
Other exceptions could arise out of such matters as fraud, or where production may be required to meet a defence of laches, want of notice, passage of a limitation period or other similar matters which might displace the privilege. As we did not have argument on these matters I prefer to say nothing further about them.
(Middelkamp v. Fraser Valley Real Estate Board (1992), 71 B.C.L.R. (2d) 273 at para. 21 (C.A.)).
 
However, Farrell v. Tisdale, 1987 CanLII 2640 (B.C.C.A.) was followed in Canada (Attorney General of) v. Forsberg, 1996 CanLII 562 (B.C.S.C.):
 
The contents of a communication made "without prejudice" … cannot be used as admissions, or as acknowledgments to preserve a debt from becoming statute-barred, or, normally, for the purpose of deciding the question of costs, or to show malice, although it has been held that they may be admitted to prove matters not connected with the merits of the dispute.
(Canada (Attorney General of) v. Forsberg, 1996 CanLII 562 at para. 3 (B.C.S.C.) citing Halsbury's Laws of England (4th ed.) vol. 17 at para. 213).
 
Given the clear statement contained in Halsbury as adopted by this court in Manhas, and, more particularly, what was said by the Court of Appeal in Farrell, I do not consider Ms. Forsberg's letters can be admitted even for the limited purpose of establishing her acknowledgment and confirmation of the cause of action.
(Canada (Attorney General of) v. Forsberg, 1996 CanLII 562 at para. 9 (B.C.S.C.)).
 
Exception for threats
Settlement privilege does not protect communications which are threats from disclosure. In Greenwood v. Fitts (1961), 29 D.L.R. (2d) 260 (B.C.C.A.) the defendant claimed that if the plaintiffs brought the action to trial, he would perjure himself, bribe witnesses to perjure themselves, and would leave Canada if the plaintiffs obtained judgment against him. At trial, the plaintiff sought to introduce those threats to undermine the credibility of the defendant. The British Columbia Court of Appeal held that although the statements were made in the context of settlement discussions, they were not protected by settlement privilege, but were admissible as relevant to credibility:
 
There is no doubt in my mind the fact that the discussions were "without prejudice" discussions, does not rule out evidence of threats of the nature alleged. The rule of privilege for "without prejudice" settlement discussions was never intended to give protection to this sort of thing. Counsel for the respondent conceded this is so.
(Greenwood v. Fitts (1961), 29 D.L.R. (2d) 260 (B.C.C.A.)).
 
In Franklin v. B.C. Buildings Corp., 2000 BCSC 389 an employee was dismissed and, during settlement negotiations, the employer urged the employee to accept a settlement offer and threatened to argue that there was cause for dismissal if the offer was not accepted. The plaintiff plead that threat in the statement of claim and the defendant applied to have that pleading struck out on the grounds that it improperly referred to communications protected from disclosure by settlement privilege. In dismissing the defendant’s application, Master Patterson said the following:
 
Counsel’s argument that full and frank discussions of settlement are in the interests of the public and of litigants is so, but, in my view, any privilege attaching to terms offered may well not extend to threats to allege cause for dismissal when none exists. 
 
In my view, the defendant’s application should be dismissed. The pleading attacked is neither unnecessary, scandalous, frivolous or vexatious, nor is it prejudicial or an abuse of process. The threat to allege cause when none exists is, in my view, highly improper and quite properly a matter that should be before the court when the question of damages is to be considered.
 
(Franklin v. B.C. Buildings Corp., 2000 BCSC 389 at paras. 16-17).
 
The exception to settlement privilege should be limited to the extent necessary to reveal the threat:
 
I have read the decisions and I understand their application to be limited. They do not stand for the proposition that a threat destroys all privilege. Rather, it is only the threat itself which loses the protection of privilege and can become admissible evidence.  
(Donric Enterprises Ltd. v. Northco Foods Ltd., [1994] S.J. No. 482 at para. 28 (Q.B.) (Q.L.)).
 
Exception where fraudulent attempts to obtain settlement
If a party commits fraud in an attempt to procure settlement, an exception to settlement privilege will be made to allow proof of that fraud.
 
In Bertram v. Canada, [1996] 1 F.C. 756(C.A.) a taxpayer met with Canada Revenue Agency (CRA) and provided a brochure relevant to a dispute between them. However, there were a number of versions of the brochure and the taxpayer only provided one version to CRA. Subsequently, on examination for discovery, CRA wanted to question the taxpayer about the different versions of the brochures. The taxpayer objected on the basis of settlement privilege. The Federal Court of Appeal held that the meeting at which the brochure had been provided was not covered by settlement privilege, but even if it had been, the communications in relation to the brochure would not have been protected by settlement privilege because that the rule does not operate to shield evidence of misrepresentation or of dishonest dealing:
 
[T]he concern of the Courts is to protect parties from being embarrassed by attempts at concession or compromise or even by confessions of weakness. In short, what parties say against their interest during negotiation is without prejudice in the sense that it cannot subsequently be used against them. The purpose of the rule, however, is not to protect dishonest dealing and there is no policy reason for excluding what one party puts forward in its own interest and to the prejudice of the other. That is the present case.
 
Counsel for the appellant urged upon us that the exception for fraud mentioned in the above quotations should only apply where such fraud could itself be a cause of action, i.e., where the opposite party had believed the misrepresentation and given effect to it, presumably by concluding a settlement. Since the officials of the department of National Revenue were manifestly not misled by the production of the allegedly altered sales brochure, its introduction into evidence should therefore not be allowed.
 
I do not agree. As is made clear by the above quotations, the purpose of the privilege is to encourage honest attempts at settlement and to protect parties from having admissions and concessions.
 
(Bertram v. Canada, [1996] 1 F.C. 756 (C.A.)).
 
A party cannot merely assert wrongdoing in the course of settlement negotiations to obtain disclosure of the settlement communications. Rather, a prima facie case of wrongdoing must be established:
 
Where, as appears to be the case here, a party perverts the purpose of a settlement negotiation and attempts to use it to mislead the other party into changing its position, the privilege is lost. Once there is a prima facie indication of such an attempt to mislead, as there clearly is in the present record, questions designed to elicit information and admissions about such attempt and the circumstances surrounding it are admissible.
(Bertram v. Canada, [1996] 1 F.C. 756 (C.A.), emphasis added).
 
In Berry v. Cypost (No. 1), 2003 BCSC 1827 a party indicated during settlement negotiations that it had sworn a false affidavit. Burnyeat J. held found that such conduct came within the fraud exception to settlement privilege and that the part of the settlement negotiations that disclosed the fraud were not protected:
 
I am satisfied that the public policy behind the inadmissibility of without prejudice discussions is to encourage the worthwhile endeavour of honest attempts at settlement and not for some other purpose. It can not be the case that an admission that a false affidavit had been sworn would be protected by the privilege associated with any honest attempt at settlement.
(Berry v. Cypost (No. 1), 2003 BCSC 1827 at para. 25).
 
Confirming that the exception to settlement privilege will only be made to the extent necessary to reveal the fraud, Burnyeat J. held that only the information related to the swearing of the false affidavit, and not the remaining settlement negotiations, were exempted from privilege.
 
Exception for criminal offences
Settlement privilege does not apply to communications which are themselves criminal, or which disclose an intention to commit a criminal offence.
 
In Berry v. Cypost (No. 1), 2003 BCSC 1827 a party indicated during settlement negotiations that it had sworn a false affidavit. Burnyeat J. held that the fraud exception to settlement privilege applied and so that portion of the settlement negotiations were not protected by settlement privilege. However, Burnyeat J. also indicated that those communications would be disclosable to the extent they constituted evidence of a crime:
 
While its generally the case that the public interest in encouraging settlements will not be served by making without prejudice statements or documents admissible, I am satisfied that the overriding public interest to discourage perjury will not be served by protecting potential evidence of perjury behind without prejudice settlement discussions. 
(Berry v. Cypost (No. 1), 2003 BCSC 1827 at para. 25).
 
Ad hoc exceptions to settlement privilege
 
In Dos Santos v. Sun Life Assurance Co. of Canada, 2005 BCCA 4 Finch J.A. indicated the categories of exceptions to settlement privilege are not closed and that a party may obtain disclosure of settlement communications if they can show that the public interest in disclosure exceeds the public interest in confidentiality. But, because of the public interest in encouraging settlement and the importance of confidentiality to the settlement process, settlement privilege will not easily be set aside:
 
[T]he test for discharging the burden to establish an exception should not be set too low. The public policy behind settlement privilege is a compelling one. 
(Dos Santos v. Sun Life Assurance Co. of Canada, 2005 BCCA 4 at para. 19).
 
Therefore, Finch J.A. held that settlement privilege will only be set aside when the dual requirements of relevance and necessity are satisfied:
 
To establish an exception in this case, the defendant must show that a competing public interest outweighs the public interest in encouraging settlement. An exception should only be found where the documents sought are both relevant, and necessary in the circumstances of the case to achieve either the agreement of the parties to the settlement, or another compelling or overriding interest of justice.
(Dos Santos v. Sun Life Assurance Co. of Canada, 2005 BCCA 4 at para. 20, emphasis in original).
 
Finch J.A. noted that some courts have apparently found exceptions to settlement privilege on the basis of relevance alone, but held that mere relevance should not be sufficient to set aside settlement privilege:
 
Mere relevance does not provide a sufficiently high threshold to displace the compelling public policy underlying settlement privilege
(Dos Santos v. Sun Life Assurance Co. of Canada, 2005 BCCA 4 at para. 21).
 
In that case the plaintiff’s long-term disability insurer was entitled, under the insurance policy, to receive a set percentage of what the plaintiff recovered from the tortfeasor in relation to injuries for which benefits had been paid. The plaintiff settled with the tortfeasor, but then refused to disclose the details of the settlement so that the amount payable to the insurer could be calculated. The insurer sought not just the stated breakdown of damages paid by the defendant driver in the motor vehicle accident litigation, but also the expert reports and actuarial evidence leading to the settlement.
 
Regarding the requirement for relevance, Finch J.A. held that all documents that quantified or estimated the plaintiff’s future income loss were relevant to resolution of the insurance dispute and met the relevance requirement.
 
In considering the requirement that the documents sought be necessary in the circumstances of the case, Finch J.A. said the following: 
 
[T]he only way to establish objectively what the plaintiff has actually received in compensation for lost earnings is to recognize an exception for these documents that would otherwise have been protected by settlement privilege.
(Dos Santos at para. 37).
 
In Heritage Duty Free Shop Inc. v. Attorney General for Canada, 2005 BCCA 188 the British Columbia Court of Appeal held that there was no public interest that favoured an exception to settlement privilege in that case. Starting in 1983, Heritage leased lands near the Canada/United States border from the Crown for operation of a duty free shop. Those lands had previously been surrendered to the Crown by the Semiahmoo Indian Band. The termination date for the Heritage lease was December 31, 2000. Before the expiration of the lease, the Semiahmoo Indian Band (the Band) sued for return of those lands, and Crown and the Band entered into settlement negotiations. Those negotiations failed and the Federal Court eventually restored the lands to the Band. The Band was not willing to extend Heritage’s lease beyond December 31, 2000. Heritage sued the Crown for not taking adequate steps to protect its interests in having the lease extended. Heritage sought disclosure of the settlement communications, but the Crown claimed they were protected by settlement privilege. 
 
Heritage had plead that the Crown owed it a fiduciary duty and had breached that duty by not sufficiently protecting Heritage’s interests when negotiating with the Band. The Court of Appeal agreed with the Chambers Judge that simply pleading breach of fiduciary duty is not sufficient to negate settlement privilege, and noted (at para. 25) that Heritage had provided no evidentiary basis for that claim.
 
 
Settlement is a jointly held privilege and therefore cannot be expressly waived without the consent of both parties:
 
The consent of both parties to the dispute is required for the privilege to be waived, even if there has been only one communication.
(Canada (Attorney General of) v. Forsberg, 1996 CanLII 562 at para. 3 (B.C.S.C.)).
 
[N]othing which is written or said without prejudice should be looked at without the consent of both parties, otherwise the whole object of the limitation would be destroyed. 
(B.C. Children's Hospital v. Air Products Canada Ltd., 2003 BCCA 177 at para. 16 citing Walker v. Wilsher (1889), 23 Q.B.D. 335).
 
Settlement privilege may also be waived by implication. As discussed above, a waiver of settlement privilege will be implied when there is a dispute as to whether a settlement agreement was reached. Waiver may also be implied in other situations. For example, in Mackenzie v. Brooks, 1999 BCCA 623 the British Columbia Court of Appeal held that a party who had referred to without prejudice communications in an affidavit could not later claim that those communications were not admissible on the issue of costs. By swearing the affidavit that party had, for its part, waived privilege over the communications and the contents of the communications were admissible against it should the other party wish to lead that evidence.
 
The foregoing confirms that the purpose of settlement privilege is to facilitate settlement by encouraging candid discussions without fear that good faith admissions made in the course of negotiating settlement will be used against the admitting party in subsequent proceedings. However, where a competing public interest (such as a fair trial, disclosure of fraud or a criminal offence, etc.) outweighs the public interest in encouraging settlement, the privilege may be waived, but only to the extent necessary to satisfy that greater competing interest.
 

 

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