By: Chaein Lee, University of Alberta Law Student
The overarching goals of civil litigation include resolving disputes and compensating wronged parties. However, this does not always necessitate a courtroom. In an overburdened justice system fraught with delays, we encourage parties to resolve disputes privately when possible. Settlement privilege – a common law principle that protects settlement negotiations from disclosure[1] – is one tool used to facilitate this goal.
While settlement privilege is a necessary feature of civil procedure in promoting systemic efficiency, it can sometimes come at a cost to individual fairness. Its rigid application risks penalizing litigants, particularly when a limitation period applies. A nuanced approach is therefore required to promote broader access to the justice system without compromising an individual litigant’s pursuit of justice.
What is settlement privilege?
Settlement privilege is a rule of evidence that shields communications made for the purpose of settling a dispute from being used against parties at trial.[2] The purpose of settlement privilege is to encourage parties to participate in frank settlement negotiations without fear of any concessions being admitted into evidence if a settlement is not reached.[3]This promotes the early resolution of disputes and thus, maintaining the confidentiality of settlement negotiations has been said to be a “public policy goal of the utmost importance.”[4]
As outlined in Meyers v Dunphy,[5] settlement privilege applies where three conditions are met:
- A legal dispute is ongoing or contemplated;
- The communication is intended to be confidential and off the record; and
- The purpose of the communication is to attempt a settlement.[6]
Settlement privilege is also known as the “without prejudice” rule. However, using “without prejudice” in communications is neither sufficient nor necessary to invoke this protection. What matters is the substance of the communication, not its form. If the purpose of the communication is to settle an action, it is protected by settlement privilege and inadmissible at trial. Labelling communication as “without prejudice” will not protect it from disclosure and conversely, communications can be protected by settlement privilege even without explicit acknowledgement that it is made “without prejudice.”[7]
Systemic Benefits
By encouraging parties to settle disputes out of court, settlement privilege promotes access to justice by reducing the cost, time, and uncertainty of litigation. This also eases court delays and conserves judicial resources for parties unable to resolve their disputes outside of a courtroom. Given the significant backlogs our courts continue to face, encouraging settlement indisputably serves vital systemic interests.
Settlement privilege also offers the benefit of acting as a shield for litigants who reasonably wish to keep certain facts confidential. This allows parties to engage in honest and productive negotiations without the fear of any admissions being used to their detriment in the future.
Costs to the Individual Litigant
Despite all the benefits settlement privilege offers, this principle has the potential to impede individual aspects of justice. One significant limitation in a rigid application of settlement privilege arises in the context of limitation periods, an unforgiving area of law. As illustrated in Balsom v Rideout, a claimant could have a potentially meritorious claim struck under a technicality by relying on confidential settlement negotiations.[8]
In Balsom v Rideout, the Newfoundland Court of Appeal held that the emails exchanged between Mr. Rideout’s counsel and Ms. Balsom’s insurer were protected by settlement privilege and could not be used to extend the limitation period. Mr. Rideout argued that the insurer’s correspondence amounted to a confirmation of the cause of action under section 16 of the Limitations Act, extending the deadline to file a statement of claim. While the applications judge initially agreed, the Court of Appeal did not.[9] Without any admissible evidence to reset the clock, the Court of Appeal consequently found that Mr. Rideout’s claim was statute-barred.
Placeholder Actions
One could argue that prudent litigants should file a placeholder claim to preserve their rights when engaging in settlement negotiations. Although this argument is technically sound, it pragmatically threatens the frank and open discussions that settlement privilege seeks to achieve.
Filing a statement of claim is adversarial in nature, at odds with the ultimate goals of settlement: namely, collaboration and compromise. While no one signs a prenup with the expectation that their marriage will fail, filing a placeholder action will nonetheless be viewed just as suspect. The very act of filing a statement of claim to preserve one’s rights may erode trust and harm settlement negotiations.
Furthermore, placeholder actions have been held to be contrary to the rationale of limitation periods.[10] The Alberta Court of Appeal found in Aseniwuche Winewak Nation of Canada v Ackroyd LLP that “[w]hat must be ‘warranted’ to start the limitation period running is an action for a remedial order, not an action in anticipation that at some future point in time an action for a remedial order may be warranted.”[11]
This raises the question: is it fair to punish an individual for failing to commence a placeholder action when they genuinely believed that settlement negotiations would be successful?
Exceptions to Settlement Privilege
There are some established exceptions where settlement privilege may be waived, such as threats, fraud, and prejudice.[12] Interestingly, the Supreme Court of Canada also listed overcompensation in conjunction with those arguably more egregious circumstances.[13] For instance, courts may require disclosure of settlement amounts in multi-party litigation to avoid double recovery. By contrast, a limitations period will not fall within an exception – leaving a party who neglects to commence a claim in reliance on settlement negotiations with little recourse.[14]
The asymmetry of these outcomes seems to suggest that our justice system finds a claimant profiting from a settlement to be a more flagrant outcome than a claimant being denied access to a remedy altogether. While this is an obvious oversimplification of the courts’ analysis, the justice system’s approach to settlement privilege warrants further scrutiny nonetheless.
Promoting access to justice
There is no contention that settlement privilege is a critical tool that has greatly furthered the efficiency of our justice system. Nevertheless, a nuanced approach is essential to ensure that this tool continues to promote access to justice rather than deter it.
Among legal professionals, access to justice is commonly equated with access to process: the ability to access courts, be heard, and afford counsel.[15] However, the average litigant is more likely to understand access to justice in its plain and ordinary sense: access to just outcomes – the ability to obtain a fair and meaningful remedy. It is imperative that we do not deprive individual litigants of this in the name of systemic efficiency. As noted by Trevor C W Farrow, we must appreciate the needs of those who use the system, not just those who provide it.[16]
Strictly enforcing settlement privilege without exception may provide the benefit of deterring meritless claims, but it also carries the risk of penalizing good faith efforts to resolve disputes privately. In pursuing a careful balance between public and private goals, our justice system must ensure settlement privilege is used as a shield, not a sword that strikes meritorious claims.
[1] Janet Walker et al, Civil Litigation Process: Cases and Materials, 9th ed (Toronto: Emond Publishing, 2021) at 770–71 [Walker].
[2] Ibid.
[3] Ibid.
[4] Globe and Mail v Canada (Attorney General), 2010 SCC 41 at para 81.
[5] Meyers v Dunphy, 2007 NLCA 1.
[6] Ibid at para 6, citing John Sopinka, Sidney N Lederman & Alan W Bryant, The Law of Evidence in Canada, 2nd ed (Toronto: Butterworths, 1999) at 810.
[7] Sable Offshore Energy Inc v American International Corp, 2013 SCC 37 at para 14 [Sable].
[8] Balsom v Rideout, 2022 NLCA 20, rev’g 2021 NLSC 30 [Balsom].
[9] Ibid.
[10] Aseniwuche Winewak Nation of Canada v Ackroyd LLP, 2023 ABCA 60 at paras 37-38 (see also M(K) v M(H), 1992 CanLII 31 (SCC), [1992] 3 SCR 6 where the Supreme Court of Canada held that the three rationales for limitations periods are: 1) for certainty, 2) evidentiary concerns, and 3) to encourage diligence in pursuing a claim).
[11] Ibid at para 37.
[12] Sable, supra note 7 at para 19.
[13] Ibid.
[14] Balsom, supra note 8.
[15] Walker, supra note 1 at 71-132 (see also Trial Lawyers Association of British Columbia v British Columbia (Attorney General), 2014 SCC 59 at paras 38-39, where the Supreme Court of Canada held that access to justice is fundamental to the rule of law and access to courts is one of the foundational pillars under the rule of law).
[16] Trevor C W Farrow, “What is Access to Justice?” (2014) 51:3 Osgoode Hall L J 957 at 961 [emphasis added].