Confidentiality clauses must be explicit, SCC rules

The Supreme Court of Canada today issued a ruling that put clear limits on boilerplate confidentiality clauses in mediated settlements.

The decision in Union Carbide Canada v. Bombardier resolves a 14-year-old dispute between the two companies related to defective gas tanks for Bombardier’s Sea-Doo recreational watercraft.

In 2000, Bombardier (which has since spun off its Sea-Doo division) commenced an action against Union Carbide. The two companies entered into mediation and eventually reached a settlement worth $7 million.

Shortly after coming to terms, Bombardier and Dow Chemical (which purchased Union Carbide Canada in 2001) issued contrasting statements: Dow suggested that the settlement was global; Bombardier said it covered only the Quebec case.

Bombardier then filed a motion to confirm the settlement, but Dow — realizing ] it might be interpreted adversely — attempted to block it, arguing that confidentiality provisions stated “nothing which transpires in the mediation will be alleged, referred to or sought to be put into evidence in any proceeding.”

In other words, Dow was trying to prevent Bombardier from disclosing to the courts terms of a settlement, which Dow argued had not yet been reached.

The Superior Court struck out a number of the allegations, but the Quebec Court of Appeal reversed that decision, ruling a settlement had in fact been reached and a confidentiality clause could not be used to prevent Bombardier from proving the existence of the settlement.

The SCC, in a unanimous ruling written by Justice Richard Wagner, upheld the appeal court decision, reiterating that a basic confidentiality clause could not be used to override Quebec’s Code of Civil Procedure, which specifies parties may disclose terms of a settlement to the courts.

The ruling states:  “. . . a communication that has led to a settlement will cease to be privileged if disclosing it is necessary in order to prove the existence or the scope of the settlement.  Both the common law privilege and this exception to it form part of the civil law of Quebec, which applies in this case.”

Martin Sheehan at Fasken Martineau DuMoulin LLP represented Bombardier before the Supreme Court. He says any argument by Dow Chemical that a settlement had not been reached is easily refuted by the company’s own conduct.

“They made a verbal offer and left it open for 30 days,” says Sheehan. “If they made an offer and agreed to leave it open, there’s a presumption that they understood the offer could be accepted.”

Sheehan says the Supreme Court’s ruling fully allows for confidentiality clauses that can be drafted to achieve whatever purposes the parties intend — but that was not what happened in this instance.

“[The court] said, look, this is a cookie-cutter confidentiality agreement. There's nothing here in the record that shows that people wanted to exclude the common-law privilege [that would allow disclosure to the courts]. It doesn't seem to have been discussed.”

Indeed, the decision reinforces the rights of parties to determine whatever level of confidentiality is desired, says Sheehan. “They could say, for example, we insist there is no settlement unless the settlement is in writing. I think that would be allowed.” But blanket provisions that attempt to cover all forms of communication simply won’t fly.

For the most part, Sheehan says parties entering mediation are clear on the rules of privilege and confidentiality. What this ruling means then, in a broader sense, is that companies wanting confidentiality outside the norm will have to make that crystal clear.

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