By: Amaan Suleman, University of Alberta Law Student
The Facts
In January of 2022, WestJet refused to let Andrew Douglas, a 72 year old retired chemist from Ontario, board his flight to Cuba. They claimed he did not have required travel documents; specifically, that he did not have proof of a negative COVID test. Unbeknownst to the WestJet employees confronting Mr. Douglas (despite his repeated attempts to inform them), Cuba had recently changed its entry requirements, and no longer required visitors to take a COVID test. Mr. Douglas was sent home, at which point he requested a refund for his $410.15 ticket. He did not receive a reply, so he commenced a claim for breach of contract.[1]
Exactly one week before the trial at the Ontario Small Claims Court began, WestJet presented Mr. Douglas a settlement offer for $1,298, of which the Court found $400 was apportioned for damages.[2] However, if Mr. Douglas wanted the money, he had to sign a confidentiality agreement.[3] The inclusion of confidentiality agreements in settlement offers is not an uncommon practice in civil litigation; they can prohibit parties from disclosing admissions of fault, settlement amounts, and who was involved in the litigation.[4]
Mr. Douglas refused to sign the confidentiality agreement. At trial, he was awarded damages of $794.14.[5]
The Applicable Rules
Rule 14.07(2) of the Ontario Rules of the Small Claims Court states that if a plaintiff rejects a defendant’s settlement offer, then from the date the offer was served, the defendant may be entitled to up to twice the costs awardable to the successful party. However, to take advantage of this, it must be shown that the plaintiff would have achieved the same or a better outcome under the terms of the settlement, compared to the result it achieved at trial.[6]
Rule 14.07(2) and analogous ones found across Canada are designed to encourage settlement.[7] When parties settle, it promotes access to justice by reducing costs of litigation, reducing the time it takes to resolve issues, and creating outcomes both parties are satisfied with. It also promotes access to justice for the broader public by freeing up judicial resources.[8]
The Court’s Decision: Elevated Costs
As previously mentioned, it is not every offer that will result in cost consequences for the party rejecting it. In this case, WestJet’s request for $1,000 in costs pursuant to Rule 14.07(2) was denied.[9] The Court found that because Mr. Douglas received nearly $800 in damages at trial, he was in a better position than he would have been in had he accepted the settlement offer for $400 in damages.[10]
Interestingly, the Court noted that even if Mr. Douglas would have received a higher sum in the settlement offer than what was awarded at trial, WestJet still would not be entitled to elevated costs. The Court found that confidentiality agreements must have some economic value, and that by retaining his right to speak freely about the case, Mr. Douglas arguably did better at trial than he would have under the settlement offer, regardless of how much money he got.[11]
The Court’s ruling suggests that litigants should be wary of including confidentiality agreements in settlement offers. It is difficult to show the precise economic value of confidentiality, and therefore hard to prove that a settlement offer containing a confidentiality requirement is a better outcome for the plaintiff than the award they received at trial.
The Court’s Decision: Punitive Costs
Not only did the Court reject WestJet’s request for costs against Mr. Douglas pursuant to Rule 14.07(2), it also awarded punitive costs of $410.15 against WestJet (the same price as Mr. Douglas’ original ticket).[12] The Court found that WestJet’s failure to refund the $410.15 Mr. Douglas was owed for over 2 years and 7 months was an unreasonable action deserving of punishment under Rule 19.06. Importantly, WestJet had acknowledged Mr. Douglas was owed a full refund for his ticket, but refused to pay him for the entire trial period, despite having multiple opportunities to do so.[13]
Rule 19.06 specifically targets actions which unduly prolong, complicate, or are otherwise unreasonable.[14] One may rightly query how if a party has made a genuine settlement offer, they can be accused of prolonging an action or acting unreasonably. On their face, settlement offers appear to be the antithesis of unduly prolonging an action; they seek an immediate end to the action upon terms both parties agree to. However, the Court noted that the settlement offered by WestJet had a major flaw: it did not allow Mr. Douglas to receive an amount owing to him without “other strings attached”; namely, it required Mr. Douglas to sign a confidentiality agreement.[15] Again, these were not funds in dispute; WestJet had acknowledged it owed the $410.15 to Mr. Douglas. The Court also noted the significant power imbalance between “the second largest airline in Canada” and an individual, and that it would not condone “hardball tactics” where these power imbalances exist.[16]
The Pros and Cons of Confidentiality Agreements
Confidentiality agreements can be an important tool in encouraging settlement negotiations; they allow the parties to monetize the value of silence, thus promoting effective bargaining. Defendants generally value confidentiality because it allows them to avoid negative publicity and helps lessen the risk of future lawsuits.[17] The availability of confidentiality agreements also puts the plaintiff in a better position because it gives them an extra bargaining chip.[18]The plaintiff has an opportunity to receive more money, and in return the defendant has the opportunity to avoid negative outcomes of litigation. Insofar as confidentiality agreements promote effective settlement between the parties, they help increase access to justice.
However, confidentiality agreements have also been criticized for their impact on access to justice. Under a “public view” of the civil litigation system, transparency is required to advance the system’s purpose of delineating the boundaries of conduct society will tolerate, and deterring anything that crosses that line.[19] This is especially important where there is some element of systemic wrongdoing. Transparency, either through open courts, or through publicly available settlement information, empowers other aggrieved members of the public to seek and obtain justice.
Despite this, for the vast majority of civil disputes, many would argue that a “private view” of the civil litigation system is more realistic. That view suggests the system is merely designed to resolve disputes between the parties as efficiently as possible, and if confidentiality agreements promote that, they should be encouraged.[20]
The case at hand presents an interesting tension between these two ideologies. Although this matter is a private breach of contract dispute between WestJet and an individual plaintiff, the Court noted that its outcome is important to the public.[21] The Court took judicial notice of the fact that there was a nearly 71,000 case backlog and a record number of complaints to the Canadian Transportation Agency;[22] perhaps alluding to the fact that there appears to be some element of systemic wrongdoing on the part of Canadian airlines. Whether or not the Court considered the negative impact confidentiality could have on access to justice in this case is debatable, but it does appear that the Court considered the inclusion of a confidentiality requirement to be deserving of punishment.
Conclusion
Settlement offers are a key tool for promoting effective access to justice in the Canadian legal system. They reduce the time and expense it takes to achieve a just result, and free up judicial resources to decide more contentious matters; thereby advancing the development of the common law. Confidentiality can promote settlement by allowing the parties to assign monetary value to their interests and negotiate accordingly. Despite these advantages, confidentiality agreements can also have detrimental effects on access to justice, and depending on one’s view of the system’s purpose, may be more of a problem than a solution.
This decision suggests that defendants, especially those that are significantly more powerful than plaintiffs, should be wary of including confidentiality requirements in settlement offers. They can prevent defendants from claiming elevated cost awards, and if they are used to withhold amounts clearly owing to plaintiffs, can lead to punitive cost consequences.
[1] Douglas v WestJet Airlines LTD. (November 26, 2024), SC-22-00161182-0000 (ONSCC) at para 10, online (pdf): Link to Decision [Douglas v WestJet]. Thank you to Erica Johnson for assistance in obtaining a copy of the Decision and authoring the article which inspired this blog post. A link to the article is available Here.
[2] Douglas v WestJet Airlines LTD. (March 3, 2025), SC-22-00161182-0000 (ONSCC) at paras 7 & 11, online (pdf): Link to Decision [Decision on Costs].
[3] Ibid at para 10.
[4] Janet Walker et al, eds, The Civil Litigation Process: Cases and Materials, 9th ed (Toronto: Emond Montgomery Publications, 2022) at 783 [Civil Litigation Process].
[5] Douglas v WestJet, supra note 2, at para 50.
[6] Rules of the Small Claims Court, O Reg 258/98, s 14.07(2) [The Rules].
[7] Civil Litigation Process, supra note 5, at 761.
[8] Sable Offshore Energy Inc v Ameron International Corp, 2013 SCC 37 at para 11.
[9] Decision on Costs, supra note 3 at para 15.
[10] Ibid at para 12.
[11] Ibid at paras 13 & 14.
[12] Ibid at para 30.
[13] Douglas v WestJet, supra note 2 at para 13. See also Decision on Costs, supra note 3 at para 24.
[14] The Rules, supra note 7 at s 19.06.
[15] Decision on Costs, supra note 3 at para 27.
[16] Decision on Costs, supra note 3 at para 26.
[17] Erik S Knutsen, “Keeping Settlements Secret” in Janet Walker et al, eds, The Civil Litigation Process: Cases and Materials, 9th ed (Toronto: Emond Montgomery Publications, 2022) 783 at 784.
[18] Ibid at 785.
[19] Ibid at 786.
[20] Ibid.
[21] Douglas v WestJet, supra note 2 at para 6.
[22] Decision on Costs, supra note 3 at para 29.