The Ontario Superior Court’s recent decision in Canadian Flight Academy Ltd. v. The Corporation of the City of Oshawa, 2024 ONSC 2756,  provides a useful reminder of the law on settlement privilege, including helpful clarification that labelling communications “with prejudice” is not necessarily fatal to a claim of privilege.

Background

The plaintiff, Canadian Flight Academy Ltd. (“CFA“) commenced an action seeking relief in respect its of leasehold interest at the Oshawa Airport, including the possibility of compensation for leasehold improvements if the Court were to find that the lease was terminated. In the course of the litigation, CFA delivered to the  defendant, the Corporation of the City of Oshawa (the “City“), a settlement offer letter (the “Letter”) marked “With Prejudice”. The Letter indicated that the offer was to remain open for acceptance until such time as CFA were to withdraw it.

Notwithstanding that the Letter was marked as “With Prejudice”, the City objected to CFA introducing the Letter at trial, on the basis that that the communication was subject to settlement privilege (and was in any event irrelevant to the issues at trial). The Court concurred with the City and found that the Letter was in fact subject to settlement privilege, and therefore could not be adduced as evidence at trial. To that end, it is not clear from the decision what evidence, or for what purpose, CFA was intending to adduce by introducing the Letter into evidence.

The Superior Court’s Decision

In determining that that the Letter was subject to settlement privilege and could not be admitted as evidence, the Court undertook a brief but helpful review of the relevant case law and underlying principles in relation to settlement privilege.

Broadly speaking, settlement proceedings are enhanced through open and honest communication between parties, which is enabled through the assurance that what is said in negotiations is inadmissible in court. Settlement privilege is endorsed by public interest in promoting candid communications between parties in order to increase the likelihood of a settlement, ultimately reducing time spent litigating disputes.[1]

Furthermore, settlement privilege has two purposes: it reduces the ability for parties to unfairly admit any admissions made during settlement negotiations, and it allows parties to speak freely during negotiations without the need to carefully monitor the content of their discussion. Thus, for the rule to truly encourage candid negotiations, the application of the settlement privilege must be broad, and the exceptions to the exclusionary rule must be narrow.[2]

Finally, the Court made two further observations: first, that settlement privilege belongs to both parties, such that it cannot be unilaterally waived by just one of them; and second, that if the contents of the communication is in furtherance of settlement and therefore privileged, it makes no difference whether the communication is marked ‘with prejudice’ or ‘without prejudice’. Rather, the assessment of privilege turns on the substance of the communication.[3]

Turning to the applicable test, the Court observed that a three-part test applies for determining whether settlement privilege applies to a given communication:

1) there is a litigious dispute;

2) the communications were made with the express or implied intention that they would not be disclosed in a legal proceeding in the event negotiations failed; and

3) the purpose of the communications is to attempt to effect a settlement.[4]

In this instance, there was obviously a litigious dispute, and the Letter was unambiguously an offer, such that the first and third criteria were not points of controversy.

On the second criterion, however, the Court observed that failing any specific stipulation within the Letter that it would be disclosed in the legal proceeding, it was “understood and implied” that such correspondence would not be disclosed in the proceeding, except in accordance with the Rules. Furthermore, the Court rejected CFA’s position that an offer to settle which does not receive a response is excepted from settlement privilege; to the contrary, The fact that an offer has been made but not responded to by the opposing party does not transform the document – if the letter sets out a proposal for settlement – it is privileged.

On the foregoing basis, the Court concluded that the Letter would not be admitted as evidence at trial.

Commentary

While the Court’s decision does not canvas new ground, it is nevertheless a helpful reminder for parties that labels applied to settlement-related correspondence are not necessarily determinative of their evidentiary status. To the contrary, Canadian Flight Academy Ltd confirms that courts will be reticent to allow settlement-related communications into the record (other than for the purposes of determining costs, after liability is determined), even in the face of language suggesting that the communication is intended to be on the record.

In that regard, the Court’s discussion of the second criterion identified above is an interesting one, in that it seems arguable that the application of a “with prejudice” label could, at least in theory, plausibly support an inference that the party sending the communication intended to rely on that correspondence as part of the record at a later date. As the Court’s decision suggests, however, this may not be sufficient. Accordingly, to the extent that a party wishes to rely on a settlement offer at a later date if that offer is not accepted, they would be well advised to make that intention clear in the offer itself (or associated correspondence).

Finally, it bears noting that, had CFA wished to ensure that the offer was “on the record” and able to be referenced at trial, there are other avenues (including submitted a formal offer to settle under Rule 49 of the Rules of Civil Procedure).

This case provides parties with a good reminder to carefully consider for what purpose, and when, they intend to reference an offer to settle on the record. Evidently, best practice is to be explicit as to one’s intentions to reference with prejudice correspondence and/or settlement offers.

Samantha Spagnol, summer student, assisted with the preparation of this article.

[1] Sable Offshore Energy Inc. v. Ameron International Corp., 2013 SCC 37 and Union Carbide Canada Inc. v. Bombardier Inc., 2014 SCC 35, at para 31.

[2] Bellatrix Exploration Ltd. v. Penn West Petroleum Ltd., 2013 ABCA 10, at paras 27 and 28.

[3] Leonardis v. Leonardis, 2003 ABQB 577 at paras 5 and 6.

[4] Re Hollinger Inc., 2011 ONCA 579, at para 16.

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