Québec – use of confidential mediation exchanges permitted to prove fraud vitiating settlement consent – #330

In Viconte inc. v. Transcontinental inc., 2020 QCCQ 1475, Madam Justice Céline Gervais recognized that that the exception to settlement privilege applies to permit a party to adduce confidential exchanges made in a mediation to prove the existence or scope of a transaction but she saw no principle under which that exception did not also apply if a party challenged the validity of a transaction and not its existence or scope.  The party resisting homologation of a settlement sought to prove that the other party had given false information or allowed it to be retained, thereby vitiating consent and justifying annulment of the settlement.  Gervais J. cautioned that her decision was only a preliminary one and did not consider the difficulty a party may have at trial to prove its allegations.

Viconte Inc. (“Viconte”) objected to the contents of an article published June 6, 2017 on a website, claiming that it defamed Viconte’s operations.  Further to a demand sent by Viconte, the article was withdrawn from the website.  Viconte initiated litigation in Superior Court on August 18, 2017 seeking compensatory damages of $150,000.00.

Viconte and Transcontinental Inc. and Transcontinental s.e.n.c. (“Transcontinental”) and the journalist (“Defendants”) attended a September 19, 2018 court managed settlement conference (“conference de règlement à l’amiable”) (“CRA”) presided over by a retired judge of the Superior Court.  See article 161 of the Code of Civil Procedure, CQLR c C-25.01 (“C.C.P.”). Further to that CRA, the parties entered into a settlement which involved payment by Transcontinental of a sum to Viconte within thirty (30) days of the signature of the transaction. Though Viconte’s litigation was in the Superior Court, Gervais J. specified that the amount fell within the jurisdiction of the Court of Québec.

Prior to the expiry of the thirty (30) day period, on October 18, 2018 Transcontinental’s attorneys advised Viconte’s attorneys of Transcontinental’s intention to demand the annulation of the transaction.  Transcontinental’s grounds to do so alleged that a false information would have been given during the CRA or would have been retained and that the CRA had been conducted on the basis of facts alleged by Viconte in its Superior Court pleadings which turned out to be erroneous.

On October 25, 2018, Viconte filed an application in Court of Québec to homologate the transaction and release signed September 19, 2018 and to order Transcontinental to pay the amount agreed upon.  Transcontinental contested Viconte’s application and in the case protocol provided for by article 20 C.C.P. and article 148 C.C.P. set out the outline of its defence.  See also article 170 C.C.P. I

In the outline of its defense set out in the case protocol, Transcontinental stated that “[informal translation] the transaction is null to fraud because plaintiff’s representatives voluntarily omitted determinative facts which vitiated defendants’ consent to conclude the transaction.  If these facts had been brought to the attention of defendants, the latter would never have signed this transaction”.

Transcontinental also constituted itself as cross-plaintiff, seeking an order to annul the transaction.  Viconte applied to dismiss Transcontinental’s cross-demand.

Viconte argued that it was not possible to adduce evidence of exchanges which took place during a CRA, for reasons of professional secret but also due to the immunity of the judge who presided it.  As well, it argued that the undisclosed information had been public.  Viconte argued that doing so would risk harming the integrity of the CRA process and the principle of confidentiality set out in article 163 C.C.P. which states, in part, that “[a]nything said, written or done during the settlement conference is confidential”.

Gervais J. at paras 18-19 reproduced, respectively, key terms from the parties’ agreement to mediate and the parties’ attorneys’ own undertaking of confidentiality.  The parties’ agreement included, among other provisions, text confirming that neither the judge nor the parties could be compelled as witnesses to disclose to anyone the information exchanged during the CRA. The attorneys’ undertaking contained, among other provisions, (i) acknowledgement that anything said or written during the mediation was done without prejudice and was inadmissible in evidence but (ii) recognition that information useful and necessary to demonstrating the existence of an agreement entered into during the mediation or its scope could be admitted in evidence, subject to the choice made by the parties in their mediation agreement.

At paras 22-28, Gervais J. set out the applicable principles, referring to the guidance given in Union Carbide Canada Inc. v. Bombardier Inc., 2014 SCC 35, [2014] 1 SCR 800 para. 35 and Sable Offshore Energy Inc. v. Ameron International Corp., 2013 SCC 37, [2013] 2 SCR 623 para. 19 in particular.

For a recent statement on the same principles and an application by the Québec Court of Appeal just prior to Gervais J.’s decision, see Bisaillon v. Bouvier, 2020 QCCA 115 and the related Arbitration Matters note on that decision “Post-mediation dispute over existence/terms of agreement permits disclosure of confidential exchanges”. Gervais J. referred to Bisaillon v. Bouvier in her reasons at para. 51.

Gervais J. observed that the privilege applicable to settlement exchanges originated from the Common Law but applied in Québec as well, as confirmed by Union Carbide Canada Inc. v. Bombardier Inc. and that it applied whether or not the parties arrived at a settlement.  Settlement privilege did have its exceptions, with the burden resting on the party asserting that an exception applied. The exception considered by Gervais J. was the rule that protected communications may be disclosed in order to prove the existence or scope of a settlement.  She cited from Union Carbide Canada Inc. v. Bombardier Inc.:

[35] The exception to settlement privilege at issue in the case at bar is the rule that protected communications may be disclosed in order to prove the existence or scope of a settlement.  This exception is explained by Bryant, Lederman and Fuerst:

If the negotiations are successful and result in a consensual agreement, then the communications may be tendered in proof of the settlement where the existence or interpretation of the agreement is itself in issue. Such communications form the offer and acceptance of a binding contract, and thus may be given in evidence to establish the existence of a settlement agreement. [para. 14.340]

The rule is simple, and it is consistent with the goal of promoting settlements. 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. Once the parties have agreed on a settlement, the general interest of promoting settlements requires that they be able to prove the terms of their agreement. Far from outweighing the policy in favour of promoting settlements ([Sable Offshore Energy Inc. v. Ameron International Corp., 2013 SCC 37, [2013] 2 SCR 623], at para. 30), the reason for the disclosure — to prove the terms of a settlement — tends to further it. The rule makes sense because it serves the same purpose as the privilege itself:  to promote settlements”.

In light of the grounds on which Transcontinental based its cross-demand, Gervais J. nuanced the exception which allows a party to use confidential exchanges to prove either the existence of an agreement or its scope. Gervais J. cited from Sable Offshore Energy Inc. v. Ameron International Corp. which mentioned allegations of misrepresentation, fraud or undue influence as further reasons to apply the exception:

[19] There are, inevitably, exceptions to the privilege.  To come within those exceptions, a defendant must show that, on balance, “a competing public interest outweighs the public interest in encouraging settlement” (Dos Santos Estate v. Sun Life Assurance Co. of Canada, 2005 BCCA 4, 207 B.C.A.C. 54, at para. 20).  These countervailing interests have been found to include allegations of misrepresentation, fraud or undue influence (Unilever plc v. Procter & Gamble Co., [2001] 1 All E.R. 783 (C.A. Civ. Div.), Underwood v. Cox (1912), 1912 CanLII 582 (ON SCDC), 26 O.L.R. 303 (Div. Ct.)), and preventing a plaintiff from being overcompensated (Dos Santos)”.

At para. 53, Gervais J. determined that Transcontinental’s allegations of fraud fell within the exception as nuanced by the Supreme Court in Sable Offshore Energy Inc. v. Ameron International Corp.  Gervais J. did caution at paras 53-55 that her involvement was limited to deciding a preliminary application and that it was not her role to judge the difficulty a party might have in making its evidence in light of the obligations of good faith recognized in articles 19 and 20 C.C.P.

Gervais J. at paras 29-38 noted several cases in which the courts had upheld objections to filing proof of confidential exchanges: K.I. v. J.H., 2019 QCCA 759; Thibault v. Ouellette, 2014 QCCA 1258; Milunovic v. Bélanger, 2015 QCCA 282; Kosko v. Bijimine, 2006 QCCA 671; Caux et Fils inc. v. 9215-4012 Québec inc., 2016 QCCS 4553; and, Dr Élise Shoghikian inc. v. Syndicat des copropriétaires du Clos St-Bernard, 2015 QCCA 1445.  She also noted that other cases involved challenges to the consent allegedly given to enter into a settlement but acknowledged that none of the three (3) decisions recorded an objection to the testimony a party sought to adduce.

Gervais J. did flag 9156-3817 Québec inc. v. Presse-Café inc., 2012 QCCS 3549 as precedent for permitting proof of facts necessary to define the object of the transaction entered into during a CRA given that the parties disputed the object of the transaction. In that case, the parties had agreed to terms during a CRA but never signed a written agreement due to disputes over what had been agreed to.  Evidence of communications post-mediation was permitted to demonstrate confirmation of a transaction but not re-open discussions which purportedly lead to an agreement.

Because a transaction is a contract, article 2634 C.C.Q. anticipates that it can be annulled for the same causes as contracts in general.  Gervais J. acknowledged that Transcontinental could resist homologation of the transactions due to nullity of the transaction on grounds of fraud.

Gervais J. recognized that the Supreme Court had mentioned that the exception to settlement privilege applies to prove the existence of a transaction but she saw no principle under which it did not also apply if the validity of a transaction was put in issue and not its existence.

Referring again to Bisaillon v. Bouvier, Gervais J. emphasized the distinction between settlement privilege and a confidentiality agreement, the latter permitting for different terms. In the agreements signed by the parties and by their respective counsel, the terms anticipated post-settlement evidence being made to establish the existence or scope of a transaction.  By doing so, those agreements did not augment the protection provided by settlement privilege.

urbitral note – First, at paras 7, 9 and 11, Gervais J. refers to the settlement as a “transaction”.  Under Québec law, at article 2631 et seq., the Civil Code of Québec, CQLR c CCQ-1991 (“C.C.Q.”) accords a special status for contracts qualifying as a transaction.

Article 2631 C.C.Q. Transaction is a contract by which the parties prevent a future contestation, put an end to a lawsuit or settle difficulties arising in the execution of a judgment, by way of mutual concessions or reservations”.

Article 2633 C.C.Q. further provides that a “transaction” has the authority of res judicata between the parties but is not subject to forced execution until homologated.

Second, Chapter XVII entitled “Transaction” with articles 2631-2637 C.C.Q. is placed immediately before Chapter XVIII entitled “Arbitration Agreements” with articles 2638-2643 C.C.Q.

Third, an earlier, unreported April 3, 2019 decision of the Court of Québec in the same court file questioned whether the Court of Québec had jurisdiction to homologate a transaction entered into during a CRA conducted before a judge of the Superior Court.  Other than referring to that decision at para. 13 of her reasons, Gervais J. only notes that Viconte’s motion to dismiss being heard by her had already been the subject of that earlier decision.  By implication, it appears that the earlier decision had in some manner determined that Viconte’s application to homologate did fall within the Court of Québec’s jurisdiction.