In the process of preparing for an arbitration, Leder cross-examined the former Vice President of Fluor on the contents of his affidavit. Counsel for Fluor refused, objected to, or took under advisement several questions and undertakings directed towards Fluor’s witness during the process. In response, Leder brought a court application seeking an order directing the witness to provide answers to these questions and undertakings. Fluor argued that Leder’s application should be dismissed, in part, due to the witness’ potential answers falling within the scope of settlement privilege.

Legal Principles Surrounding Settlement Privilege

Settlement privilege aims to encourage the settlement of disputes before they proceed to litigation or arbitration. Parties are free to communicate offers, terms of settlement, documents, and other details while pursuing settlement agreements. Communications that fall within the scope of settlement privilege cannot then be relied upon as evidence, should the matter proceed to litigation or arbitration.

In order for communications to be covered by settlement privilege, three elements must be met:

1. a litigious dispute must be within contemplation when the communication was made;
2. the communication must have been made with the express or implied intention that it would not be disclosed as court evidence; and
3. the purpose of the communication was to bring about a settlement.

The use of the phrase “without prejudice” does not unanimously protect a communication from being disclosed. While the label may be indicative of an intent for communication to remain privileged or raise a presumption about the intention to keep the communication privileged, the use of “without prejudice” is not determinative of the issue.

The purpose of the communication requires an analysis of the context of the correspondence. Generally, where communication serves as an “opening shot” or initial intention to enter settlement discussions, if no such negotiations follow, then the connection is too remote for the communication to be subject to settlement privilege.

Moreover, where a presumption of privilege is established, the party seeking to admit the communication into evidence may rely on an established exception to settlement privilege. These exceptions are:

1. to prevent double recovery;
2. where the communications are unlawful, containing for example, threats or fraud;
3. to prove that a settlement was reached, or to determine the exact terms of the settlement; or
4. to act as evidence speaking to party costs.

What the Court Said

In this matter, there was a clear litigious dispute that established the first element of the settlement privilege test. With respect to the second and third elements concerning intent and purpose, Fluor argued that the use of “without prejudice” language was sufficient to show the intention that communications would not be disclosed to the Court. The Court held that this alone was not determinative of whether the communications entailed the requisite intent and purpose to be subject to settlement privilege.

While some of the communications at issue did indicate an intention to narrow the issues and enter settlement discussions, this purpose quickly tapered off. Subsequent communications discussed the procedure of the arbitration, detailed the dissolution and wind-up of associated companies, or were otherwise too remote from settlement negotiations to attract settlement privilege.

As a result, the Court concluded that the communications at issue were not subject to settlement privilege, and were thus producible.

Takeaways

This decision confirms that, despite the use of language like “without prejudice”, communications between parties may still fall outside the scope of settlement privilege. As a corollary, communications that do not state that they are “without prejudice” are not automatically producible. A Court will analyze the circumstances of the communications to determine whether settlement privilege applies.

Parties to a litigious dispute must remain vigilant that any communications, documents, offers, and disclosures made prior to litigation may be entered into evidence despite there having been other correspondence speaking to settlement negotiations. Intent and purpose should be clear to avoid confusion, as Courts consider the greater context of the communications to determine whether settlement privilege should apply.

Determining whether certain correspondence is subject to settlement privilege can be complex. It is wise to engage a lawyer for any pending or actual disputes to ensure all potential issues are covered, and settlement privilege is maintained. Contact Anthony Burden in Calgary or Jeremy Taylor in Edmonton, or any member of Field Law’s Litigation Group for assistance.

Link to decision: Fluor Enterprises Inc v Leder Investments Ltd, 2025 ABKB 234