Protecting Your Settlement Privilege

January 23, 2022

By Brian Babcock

“Privilege” is a word that the law uses differently than ordinary English, but to a lawyer, it is one of the most important ways that you can protect your privacy and confidentiality.

“Solicitor-client privilege” protects communications with your lawyer. Although not absolute, it is highly protected by the courts, because our system depends upon you being able to tell sensitive information to your lawyer and know that it will almost always remain secret.

“Litigation privilege” is less well known to non-lawyers, and less well defined. It creates a “zone of privacy” for your lawyer’s work product, but also documents that you or others prepare for your lawyer, and communications by your lawyer to others. It is sometimes called “work product privilege”. There are often arguments over the purpose a document was created, whether it was intended to be privileged, or whether that privilege was waived.

“Settlement privilege” is a less well known term, though it is a branch of privilege that should make intuitive sense to most clients. The basic concept is simple: the justice system favours and promotes settlements – the courts would collapse if every case went to trial, and the cost would be enormous. To encourage settlement, the law recognizes that you should be able to try to resolve a dispute, perhaps even before you start a claim, without worrying that what you say to promote settlement will later be used against you.

Settlement privilege may include things that you way directly to the other side, even before you hire a lawyer, and that is part of what makes it such a grey area.

In 2013, the Supreme Court of Canada confirmed five elements of settlement privilege:

  1. Substance over form. As long as the communication was made intended to be confidential, to resolve a dispute, the privilege applies. It cannot be referred to in court (and should not be referred to elsewhere).
  2. Settlement privilege applies to all forms of disputes – civil lawsuits, criminal cases, or administrative regulatory proceedings.
  3. Settlement agreements and settlement negotiations both may be protected.
  4. Disclosure of some aspect of the settlement does not necessarily lead to disclosure of the entire agreement – in the particular SCC case, the settlement amounts were never disclosed.
  5. In determining the appropriate disclosure, the courts must balance the public interest in promoting settlement by providing confidentiality against the need to prevent abuses such as fraud or misrepresentation.

So far, all good news for you, if it is your communication in issue. We as your lawyers might prefer that you use words in settlement communications to show that you intend them to be confidential, but you don’t need to be like some insurers and pre-load “without prejudice” in your templates.

Sometimes, though, the nature of the communications – whether the dominant purpose is a search for settlement – is murky. This was recently illustrated in Algoma Steel Inc. v. Capitol Steel Corporation et al.  Algoma supplied steel to Capitol for bridge construction. There was a dispute over whether certain steel plates met specifications. Algoma apparently offered a solution that Capitol rejected. Capitol refused to pay for the steel plates. Algoma sued.

At issue on a preliminary motion was what use if any Capitol could make of Algoma’s offer in the lawsuit. Where the discussions settlement negotiations, or an attempt to just finish the job without further losses (and potential claims from the bridge owner)?

Capitol’s position was that at the time, it would have been premature to discuss settlement, because the losses had not crystallized. Only after Algoma offered to repair the plates did Algoma send Capitol a draft “settlement agreement”. Capitol argued that this was the point at which settlement privilege started, so that in the lawsuit, they could rely on Algoma repairing the plates as proof they were defective- a major cost and time saving in the lawsuit.

Because the dispute over privilege requires factual findings, the judge would not determine this on a preliminary motion, but left it for the trial judge. The result leaves an unfortunate uncertainty for both parties, but this would impact Capitol the most – as they now do not know if they can use the communications as evidence, so will need to hire costly experts.

This situation could have been avoided if at the outset, the parties had been more clear about their intent in conducting the discussions. Though the term “without prejudice” need not always be used, those words or similar indications of confidentiality are often helpful.

On construction projects, where parties often know each other, and therefore deal casually, you might not take the time to think about legal niceties. But that can cost you at the end of the day. At Weilers, we have ongoing relationships with many of our construction clients, based in Thunder Bay or elsewhere, which allow us to provide tips on negotiations and strategy on an ongoing basis, and try to prevent problems from going to court. If they do go to court, our litigation team keeps current on issues such as privilege, which may not always be as simple as they seem.