Union Carbide Canada Inc v Bombardier Inc: A Clarification of Privilege and Confidentiality

In Union Carbide Canada Inc v Bombardier Inc, [2014] 1 SCR 800 [Union Carbide], the Supreme Court of Canada (“SCC”) clarified the interaction between settlement privilege and confidentiality clauses in mediation contracts. In particular, the SCC determined that a properly drafted confidentiality clause could exclude one of the exceptions to settlement privilege.

The Context

On April 26, 2011, the parties entered into a mediation agreement to settle a decades-long dispute. They signed a standard mediation agreement that contained a confidentiality clause and began the dispute resolution process. At the mediation, a settlement offer was made and, weeks after, accepted. Shortly after the acceptance, a dispute regarding the scope of the settlement arose. Dow Chemical (Union Carbide Canada, Inc.) (“Dow”) was of the opinion that the settlement was global and covered all instances of litigation that related to the dispute; Bombardier viewed the settlement as specific to a particular aspect of the larger dispute. Bombardier then launched a motion for homologation, relying in part on communications that occurred during the mediation to prove its version of the agreement. Dow argued that such information was “inadmissible by virtue of the confidentiality agreement” (para 19). Bombardier relied on an exception to the doctrine of settlement privilege to adduce those communications as evidence.

The doctrine of settlement privilege is central to this case. It is a rule of law that makes “communications exchanged by parties as they try to settle a dispute” inadmissible in court (para 31). This doctrine ensures that such communications can be made “without fear that information they disclose will be used against them” (ibid). However, this protection is not absolute. Information otherwise protected may be admitted, as Bombardier does here, “to prove the existence or scope of a settlement” (para 35). This rule is considered to be an exception to the doctrine of settlement privilege.

In this case, the SCC assessed two issues:

1. Whether an absolute confidentiality clause in a private mediation contract can override the exception to the common law doctrine of settlement privilege, and;
2. If the answer to Issue 1 is “yes,” whether the agreement between the parties displaced that exception.

Issue 1

The SCC found that “parties [can] contract out of … the exception to settlement privilege” (para 29). This determination aligned with the general policy that underpins settlement privilege by promoting “honest and frank discussions between the parties” (paras 31-32). These policies were promoted because “[p]arties may desire that the protection of the confidential information disclosed in the mediation process be broader than that afforded by the common law privilege …” (para 29).

However, the SCC recognized that, while similar in purpose, settlement privilege and confidentiality agreements are distinct concepts. For example, “[o]ne is a rule of evidence, while the other is [part of] a binding agreement; [further,] they do not afford the same protection, nor are the consequences of breaching them necessarily the same” (para 45). Take this case. The confidentiality clause only applied to communications made during the mediation session. Thus, it was a relevant consideration in analyzing the settlement offer since the offer occurred in that time frame. The clause did not impact communications after the mediation. That said, since those subsequent communications “formed part of negotiations aimed at reaching a settlement, [they were] protected by settlement privilege” (para 46).

The SCC reached its conclusion with these differences in mind. While parties may want to displace the exception in some instances, the common law had to be maintained since it provides distinct protection. As a result, the Supreme Court determined that “the mere fact of signing a mediation agreement that contains a confidentiality clause does not automatically displace the privilege and the exceptions to it” (para 51). Instead, some intention to override the exception has to exist. Otherwise, a party who agrees to confidentiality in these instances would “thereby deprive themselves of the application of settlement privilege after the conclusion of the mediation session” (ibid).

In short, the answer to the first issue was “yes,” but with a caveat. While a contract could displace this particular aspect of the law of settlement privilege, it had to be designed to do so. As a result, the SCC turned its attention to the content of the mediation agreement in question.

Issue 2

The SCC determined, under Quebec law, that the whole of the contract, its nature, and the circumstances in which it was formed did not establish an intent to displace the exception. In other words, a standard form agreement, provided by the mediator, signed prior to mediation, and designed to reach a settlement did not automatically establish an intent to deviate from the status quo.

Importantly, the SCC warns that the analysis depends on the law of contract of the jurisdiction: “Had the law of another jurisdiction applied, the question whether the parties intended to renounce the common law exception to settlement privilege … would have been decided in accordance with the principles applicable in that jurisdiction” (para 67).

Conclusion

Despite the narrower application of the second determination, Union Carbide provides clarity in the law. Unless specifically excluded, it is reasonable to assume that a mediation agreement will not displace the particular component of the law of privilege engaged by Bombardier. It is important to note that the SCC went to great pains to stipulate that this decision is a relatively narrow one. The Supreme Court specifically stated that Union Carbide only considers a particular “exception to the common law settlement privilege – the one that applies where a party seeks to prove the terms of the settlement” (para 55).

Thus, an individual bound by a mediation agreement will likely be able to use those negotiations to prove the scope of a settlement. By reaching this conclusion, the SCC balanced the often competing needs of predictability and flexibility in the law. This decision ensures that special circumstances can be accommodated, while maintaining the protections offered by the common law.