In Balsom v. Rideout, 2022 NLCA 20, Cox & Palmer was successful in the appeal of a lower court decision which denied an application to dismiss the action for being commenced outside the limitation period.
There were two broad issues: (1) whether an insurance adjuster's communications were protected by settlement privilege, and (2) if not, whether they confirmed the cause of action under Newfoundland and Labrador's Limitations Act, thereby re-starting the clock on the limitation period.
The applications judge, holding that settlement privilege did not apply "in the circumstances of this case", found that the cause of action had been confirmed, and that the action was not statute barred. On appeal, the adjuster's emails were held to be privileged and inadmissible and, consequently, there was no evidence to establish the alleged confirmation, and the action was dismissed.
The appeal decision confirms the importance of settlement privilege in the constant quest to promote settlement over litigation.
Background
Corey Rideout, the Plaintiff, and Gail Balsom, the Defendant, were involved in a motor vehicle accident on September 1, 2017. In late February 2018, communications began between the Defendant's automobile insurer and the Plaintiff's lawyer. On June 26, 2019, the Plaintiff's lawyer presented a claim demand. The new adjuster on the file responded by seeking additional information. Unlike the communications from the first adjuster, their emails did not include a "without prejudice" label. The two-year limitation period passed on September 1, 2019. On September 5, 2019, the adjuster sent a "without prejudice" settlement offer, which was received on September 11, 2019. The next day, more than two years after the accident, the Plaintiff commenced their court action. On November 8, 2019, the adjuster requested a copy of the Statement of Claim "so we can continue negotiations". However, upon learning that the action had been commenced outside the limitation period, the adjuster ceased negotiations, and the Defendant applied to strike the action.
The Law of Settlement Privilege
The appeal court cited its own decision in Meyers v. Dunphy, 2007 NLCA 1, and the following three-part test:
- A litigious dispute must be in existence or within contemplation,
- The communication must be made with the express or implied intention that it would not be disclosed to the court in the event negotiations fail, and
- The purpose of the communication must be to attempt to effect a settlement.
As for the general principles, the appeal court cited the Supreme Court of Canada's decision in Sable Offshore Energy v. American International Corp., 2013 SCC 37. The case confirms that the purpose of the privilege is to promote settlement by wrapping "a protective veil around the efforts parties make to settle their disputes by ensuring that communications made in the course of these negotiations are inadmissible".
While settlement privilege is often referred to as the rule about "without prejudice" communications, those words are not required to invoke the privilege. According to Sable Offshore Energy, what matters is the intent of the parties to settle the action, and "[a]ny negotiations taken with this purpose are inadmissible".
Additionally, the appeal court cited Wheaton v. Palmer (1999), 183 Nfld. & P.E.I.R. 233 (NLSC, TD) where the judge concluded that if "the communication in question can be said to be a part of a previous 'without prejudice' privileged correspondence, then the expression of intention and the privilege will continue". Also, the intention of non-disclosure can be "implied from the surrounding circumstances, including any settlement-oriented subject matter in the communication itself".
The appeal court summarized the applicable principles as follows:
"In assessing whether correspondence falls within the scope of settlement privilege, the whole of the circumstances must be considered to determine the writer's purpose. The fact that the correspondence is intended to commence or continue settlement negotiations may be inferred. Inclusion of the phrase "without prejudice", an actual settlement offer, or a clear statement that the correspondence is for settlement purposes are relevant factors, but are not essential."
Settlement Privilege Applied
While the second adjuster did not continue their predecessor's practice of marking the communications "without prejudice", the new adjuster's emails continued "in the same vein" with requests for information related to assessing the claim. Consequently, the appeal court found that the second adjuster's communication was "a part, or continuation of the earlier correspondence" with the inference that it would be covered by the previously included "without prejudice" label. This, together with the settlement-oriented subject matter of the communications lead the appeal court to conclude that the second adjuster's emails were "intended for the purpose of settlement negotiations, and as such, were protected by settlement privilege".
Intention of Non-Disclosure
On appeal, the Plaintiff focused on the second part of the test for settlement privilege, the requirement of an express or implied intention that the communication not be disclosed to the court if negotiations fail. The Plaintiff argued that this requirement should not be conflated with the third part of the test, being that the communication must be made in an effort to commence or continue settlement negotiations.
These two requirements have been considered together in other cases. In Meyers v. Dunphy, 2005 NLTD, aff'd 2007 NLCA 1, the judge wrote that because the communication in question had the character of being settlement-oriented, "then it seems to me that the communication was made with the expectation of confidentiality". Similarly, in Tuck v. Supreme Holdings Ltd., 2014 NLTD(G) 131, aff'd 2016 NLCA 40, the judge wrote that because these two requirements are "intertwined, their answers can be provided together".
As for the appeal court, it addressed the interplay between these two parts of the test by quoting with approval from the Law of Evidence in Canada, 5th Edition, where the authors (Lederman, Bryant, and Fuerst) noted that "many of the cases in this area seem to pay little attention to the question of intention", and that "[i]f the parties are involved in negotiating a settlement or buying peace, the intention [of non-disclosure] should be inferred in the absence of evidence to the contrary".
Exceptions to Settlement Privilege
While there is a presumption of inadmissibility, exceptions to settlement privilege do exist, including in cases of fraud, misrepresentation, or undue influence. Whether there should be an exception for the limited purpose of establishing an alleged confirmation was previously considered and rejected by the appeal court in Meyers v. Dunphy.
In this case, the appeal court considered the application judge's finding that even if the test for privilege was met, this was a situation where "the privilege has to yield." In applying its own reasoning from Meyers v. Dunphy, the appeal court held that the applications judge had failed to identify any "special reason" that would outweigh the public policy interest in promoting the settlement of disputes.
Finally, the appeal court held that the application judge's finding that the admission of the communications would not prejudice the defendant was incorrect. Admitting the communications for the purpose of confirming a cause of action "would clearly prejudice [the defendant's] right to rely on the limitation period".
Key Takeaways Regarding Settlement Privilege
- When considering the potential application of settlement privilege, the whole of the circumstances must be considered. Whether the communication is intended to commence or continue settlement discussions may be inferred from those circumstances.
- While relevant factors, neither of the following are essential: an actual settlement offer, or a clear statement that the communication is made for settlement purposes.
- Marking communications "without prejudice" is good practice, but it is neither conclusive nor necessary. However, it may help to establish that the communication was meant to be confidential and protected by the privilege.
- The intention of non-disclosure can be inferred from the surrounding circumstances. Unless there is evidence to the contrary, the intention can be inferred from the fact that the parties are engaged in commencing or continuing settlement discussions.
- A denial of liability is not required to maintain the privilege. Additionally, engaging in settlement discussions and exchanging information about a claim "cannot be construed as an admission of liability, or an acknowledgement of a cause of action".
- There must be some "special reason" for otherwise privileged communications to be admitted into evidence. The desire to prove an alleged confirmation under the Limitations Act, does not constitute a "special reason", and is not an exception to settlement privilege.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
