The Alberta Court of Appeal in Bellatrix Exploration Ltd. v. Penn West Petroleum Ltd., 2013 ABCA 10 confirmed the importance of settlement privilege as one of the three classes of privilege (the others being solicitor-client privilege and litigation privilege). The public policy rationale for the rule is that “parties should be permitted to freely ‘put all their cards on the table’ without having to worry that they may be prejudiced should negotiations fail to resolve their dispute.”
At least a “hint of potential compromise or negotiation” must be in the communication for privilege to attach.
Adding the words “without prejudice” does not create privilege, and their absence does not mean it is not there. (Paragraph 25.)
The court noted that the privilege belongs to both parties and cannot be unilaterally waived.
Dealing with the claim that the limitations period was suspended during settlement negotiations, the court said “privilege should not normally give way to answer a limitations defence.” (Parties should enter a tolling agreement.)
In the result, parties continue to be free to put all their cards on the table during settlement discussions, including in mediation.
[Update 2014/05/20:
See: Union Carbide Canada Inc. v. Bombardier Inc. 2014 SCC 35 where the Supreme Court said:
“A communication that led to a settlement would cease to be privileged if disclosing it was necessary in order to prove the existence or the scope of the settlement.”
The court said: “it is generally open to parties, in the mediation context, to contract for confidentiality that exceeds that of the common law settlement privilege; in particular, parties may contract out of the exception to that privilege that enables a party to disclose confidential information in order to prove the terms of a settlement.” The court found the parties here had not contracted out of the exception.]
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