07 Dec

Without Prejudice: an Invisibility Cloak for a Mature World

By Steve Eichler and Chloe Mathioudakis

Without prejudice communications are common to court-based litigation and, its faster, cheaper sibling, arbitration.  Arguably, the entirety of mediation is without prejudice since its existence in any dispute is based on joint efforts toward resolution.  Yet despite the ubiquitous nature of the phrase itself, confusion still reigns.  What exactly does the phrase “without prejudice” mean?  Is it necessary to write these magic words on every communication made in the course of the settlement process?  And if so, does the failure to explicitly state them render them powerless?

There is unfortunately widespread confusion about without prejudice correspondence despite the concept behind the designation being based on sound policy and the realities of dispute resolution in a mature world.  This confusion has resulted in both gross overuse of the term (one co-writer of this article recently received an email which read, “Without Prejudice: please call me”) but also a failure of its inclusion in genuine efforts to make a settlement offer, the basis for the without prejudice designation.

The law in Alberta, recently reiterated in a 2016 decision, McGovern-Burke v Martineau, 2016 ABQB 514 is that the content of “without prejudice” negotiations cannot be adduced as evidence during trial or examinations for discovery, as “parties should be encouraged to settle their disputes without litigation [but that] to expose admissions made during negotiations for settlement would undermine this policy.”  Earlier Alberta case law, still valid, provides the 3 conditions that must exist for a party to be able to take advantage of the “without privilege” nature of communications:

  1. A litigious dispute must be in existence or within contemplation;
  2. The communication must be made with the express or implied intention that it would not be disclosed to the Court in the event negotiations failed; and
  3. The purpose of the communication must be to attempt to effect a settlement.

This summer, the Ontario Supreme Court clarified the law on without prejudice offers in Ramos v. Hewlett-Packard (Canada) Co, 2017 ONSC 4413(Without prejudice communications are almost always a component of employment litigation, as termination letters usually contain a without prejudice component, an offer of termination or severance pay beyond the statutory minimum in return for a general release.)  The Court considered whether a severance offer was privileged, noting the absence of the phrase “without prejudice” did not necessarily exclude the document from privilege.

The Court thoroughly considered the context and content of the letter, including:

  1. There was an element of compromise in the offer: The offer was for an “enhanced severance package” which was contingent on the execution of a Final Release & Indemnity Agreement; otherwise, Ms. Ramos would receive the minimum amount of severance provided for by law;
  2. The offer was written and made in an effort to avoid litigation, to “buy peace”: The employer reserved a right to rely on the strict terms of Ms. Ramos’ employment agreement;
  3. The release was integral to the offer: It provided for the release and discharge of the employer from all causes of action, complaints, etc., which Ms. Ramos had or “may hereinafter have;” it contained covenants by Ms. Ramos not to file a complaint for termination or severance pay, overtime or vacation pay; and it contained a no admission of liability clause; and
  4. Both the letter and the release provided that they were to be kept confidential.

The Court decided based on the above findings that the letter was indeed a form of without prejudice communication and all references to its contents should be struck from the employer’s Statement of Defence.

While the circumstances in Ramos are unique, they provide an excellent checklist of considerations on maintaining privilege by exploring considerations behind a “without prejudice” stamp.  It is important to note, particularly for mediators or mediation parties who consider their settlement privilege impenetrable, that the Supreme Court of Canada has confirmed a list of situations in which it is possible to circumvent the protection of settlement privilege.  Aside from issues of public interest (Dos Santos Estate v. Sun Life Assurance Co. of Canada, 2005 BCCA 4 (CanLII)), allegations of misrepresentation, fraud or undue influence and preventing a plaintiff from overcompensation (Sable Offshore Energy Inc. V. Ameron International Corp., 2013 SCC 37), our highest court has confirmed that where there is a later disagreement regarding the terms of settlement, communications which would otherwise be covered by settlement privilege may be put before the Court as evidence of a contrary understanding of the terms of the settlement (Union Carbide Canada Inc. v. Bombardier Inc., 2014 SCC 35).

Although Ramos is another in a line of cases upholding the principle that communications need not be explicitly marked “without prejudice” to be covered by settlement privilege, if the terms of the settlement are called into question, a court will consider the privileged communications leading up to it.  Thus, it is, and should continue to be, commonplace to include confidentiality provisions within mediation agreements, as they may be used as evidence of the intent of both parties and may preempt the court from admitting otherwise privileged documents.

Steve Eichler is a Partner at Field LLP, practicing in employment and administrative law with a particular focus on occupational health and safety defence and compliance issues.

Chloe Mathioudakis is a Student-at-Law at Field LLP and summered with the Firm in 2016.  She is focused on building her litigation practice.

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