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In a previous Blog post, I commented on mediation, namely, the process whereby parties to a dispute or anticipated dispute agree to engage a third party to act as a “facilitator” to help them settle their differences. The process is not compulsory and it is non-binding, meaning that if the parties decide to walk away and not settle, nothing that transpires in the mediation is to be alleged, referred to or put into evidence in any proceeding.

While the concept seems straightforward, what happens if mediation takes place, an offer is submitted by one of the parties and supposedly accepted by the other, and then two days later, before any documents have been signed, the accepting party claims that there was a misunderstanding and that there was no deal. Can the party who claims that there was a deal take a legal proceeding to enforce it and try to make reference in its legal proceedings to events that had taken place in the course of the mediation?

This is the issue that the Supreme Court of Canada considered in the decision of Union Carbide Canada Inc. v. Bombardier Inc., 2014 SCC 35.

The short answer to the question is: It depends on exactly how the mediation contract is drafted.

According to the Supreme Court, if the mediation contract shows on its face a common intention to be bound by confidentiality but does not deal with “settlement privilege”, then in the context of a court case claiming a deal was made, the parties can produce evidence as to what transpired during the course of the mediation, to prove the terms of an alleged settlement.

In simple terms, the “settlement privilege” involves the notion that communications exchanged between the parties as they try to settle a dispute are privileged. However, a communication that has led to a settlement is no longer privileged if disclosing it is necessary in order to prove the existence or the scope of the settlement.

One can see the possibility for mischief. On the one hand, what is communicated during mediation is supposed to be confidential. On the other hand, parties may believe in good faith they have made a deal when in fact they have not. More insidiously, one party or another may decide for tactical reasons to claim that an agreement was concluded during mediation when in fact, no such agreement was made.

In the Union Carbide case, both parties claimed that the answer of the Supreme Court could negatively affect the development of mediation in Canada, either by undermining its confidential nature or by frustrating its main objectives.

The Supreme Court disagreed, and essentially ruled that at least in Quebec, the parties are at liberty to sign mediation contracts that contain whatever safeguards they want. In short, along with the more “boiler-plate” types of clauses, the parties could presumably add to their mediation contract a clause along the following lines:

 “Notwithstanding the litigation privilege or any exception thereto, the parties expressly agree that no settlement intervening during the mediation process shall be proved, except by a written agreement and no settlement shall intervene or will be deemed to have intervened unless the parties have signed a writing containing all of terms thereof.”

This type of clause is perfectly legal in Quebec, but I must say that I have never personally run across it in a standard mediation contract. We do have court sponsored mediation in Quebec, that is, mediation held under the auspices of a Judge, and the form of agreement that is generally used in this context by the judiciary and the parties does not contain such a clause.

Of course, the result in the Union Carbide case is also an illustration of a more general issue: Parties to a contract attempt to draft it to cover all eventualities. However, in the final analysis, a Court has the authority, where a contract is unclear, to engage in an analysis to determine, ex post facto, the true or “real” intention of the parties, and sometimes (if not always) one of the parties is surprised when it learns what its “true” intention really was.

Barry Landy is a senior litigation lawyer at Spiegel Sohmer who focuses his practice on commercial litigation and is also experienced in the area of media law.