The settlement of personal injury cases in Canada just got more complex. The Supreme Court of Canada has eked out a new place for mediation contracts, in our legal arsenal of settlement tools, that contain absolute confidentiality clauses preventing parties from proving the terms of a settlement (Union Carbide Canada Inc. v. Bombardier Inc., 2014 SCC 35). This change displaces the old common law settlement privilege exception allowing claimants and their personal injury lawyers to rely on offers made at a mediation after the court has made judgment.
As long as the intended effect of the mediation agreement is to prevent parties from proving the terms of a settlement the law now is that it is open to the parties to contract out of the exception to settlement privilege.
Before the mediation commenced, a standard mediation agreement was signed in this case and it contained the following regarding the confidentiality of the process:
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…
4. The Mediator will have no decision-making power, but will merely assist the parties in attempting to arrive at a settlement of their dispute.
This clause was not upheld as the court found that, although it was open to the parties to contract out of the exception to settlement privilege, they did not do so.
As the Court was quick to point out at paragraph 31, Settlement privilege is a common law rule of evidence that protects communications exchanged by parties as they try to settle a dispute. Sometimes called the “without prejudice” rule, it enables parties to participate in ICBC settlement and other negotiations without fear that information they disclose will be used against them in litigation. This promotes honest and frank discussions between the parties, which can make it easier to reach a settlement.
Mediation contracts, on the other hand, often contain strongly worded confidentiality clauses that place limits on the disclosure of communications exchanged in the course of the mediation process.
Judge Wagner best sets out the confusion between these two settlement tools:
 The common law settlement privilege and confidentiality in the mediation context are often conflated. They do have a common purpose: facilitating out-of-court settlements. But as we saw above, confidentiality clauses in mediation agreements can also have different purposes. In most cases involving such clauses, the status of the common law settlement privilege will not arise, because the two protections generally serve the same purpose, namely to foster negotiations by encouraging parties to be honest and forthright in reaching a settlement without fear that the information they disclose will be used against them at a later date. However, as I mentioned above, settlement privilege and a confidentiality clause are not the same, and they may in some circumstances conflict. One is a rule of evidence, while the other is a binding agreement; they do not afford the same protection, nor are the consequences for breaching them necessarily the same.
Parties are allowed to contract out of the settlement privilege exception where parties want greater confidentiality protection than is available at common law, absent such concerns as fraud or illegality.
In British Columbia we should also be aware that the Civil Rules of Court allow disclosure of settlement offers in certain circumstances so this case may have limited application in our Province. ICBC settlements that require mediation will usually be in litigation and hence the Rules of Court would apply.