Wednesday, 21 March 2012

Settlement Privilege Does Not Cover Threats

"Settlement privilege" is a recognized class of privilege that covers "without prejudice" documents or communications created or communicated in the course of, or for the purpose of settlement negotiations.  In Monument Mining Limited v. Balendran Chong & Bodi, 2012 BCSC 389, the court confirmed that this privilege does not attach to "egregious threats".

In this case, the Plaintiff brought an action for defamation on the basis of "without prejudice" letters sent by the Defendants and their law firm.  The Plaintiff was a mining company who owned rights to two mining concessions in Malaysia.  These rights were subject of an action in Malaysia, where the Defendants alleged that they were the true owners of the mine through a company called AMS.  Although the Plaintiff was not a party to the Malaysian action, its CEO was the liquidator of AMS.

In the settlement letter at issue, the Defendants proposed terms to settle the Malaysian action and also "reserved all their rights", including the option to pursue various claims against the Plaintiff, its CEO, and its directors, for fraud and violations of securities laws.  The Defendants acknowledged that, at the time the letter was sent, they were not aware of any information that would support these allegations.  At the defamation trial, the Defendants opposed admission of the letter into evidence on the basis that it was covered by settlement privilege.

The court, after a reasoned analysis, refused to accept this proposition, finding as follows:
  1. generally, settlement privilege is a blanket privilege that covers "documents or communications created for, or communicated in the course of, settlement negotiations", irrespective of whether or not settlement was reached: Middelcamp v. Fraser Valley Real Estate Board (1992), 71 B.C.L.R. (2d) 276 (C.A.);
  2. litigation privilege may be displaced in certain situations, including where parties agreed that communications would be admissible or "arise out of such matters as fraud, or where production may be required to meet a defence of laches, want of notice, passage of a limitation period or other similar matters": Middelcamp;
  3. a party who wants to rely on a privileged document must show that "a competing public interest outweighs the public interest in encouraging settlement" and that "the documents sought are both relevant, and necessary in the circumstances of the case: Dos Santos v. Sun Life Assurance Co. of Canada, 2005 BCCA 4; and
  4. litigation privilege does not attach to "egregious threats" or a document that would act as "a cloak for perjury, blackmail or other ‘unambiguous impropriety’”: Greenwood v. Fitts (1961), 29 D.L.R. (2d) 260 (B.C.C.A.); Unilever Plc v. Proctor & Gamble Co., [2000] 1 W.L.R. 2436 (C.A.); Augier v. O’Reilly, 2011 ONSC 4583; and Evergreen Building Ltd. v. IBI Leaseholds Ltd., 2006 BCSC 1190.
Allowing the letter to be admitted into evidence, the court found that it contained an egregious threat and "served no legitimate settlement purpose" except "to put improper pressure on entities not involved in the [Malaysian] Litigation. The threat is of such character that the public interest in its disclosure outweighs the public interest in protecting settlement communications."

As always, lawyer beware, substance is more important than form: "without prejudice" moniker is not a panacea and does not guarantee that the communication will not be admissible.