IN THE SUPREME COURT OF NOVA SCOTIA
Citation: Inglis v. Nova Scotia (Attorney General), 2007 NSSC 314
Date: 20071116
Docket: SH 203247
Registry: Halifax
Between:
Robert D. Inglis
Plaintiff
v.
The Attorney General of Nova Scotia, representing Her Majesty the Queen in Right of the Province of Nova Scotia and Robert Jack, representing the Trustees of the Nova Scotia Public Service Long Term Disability Plan Trust Fund
Defendants
Judge: The Honourable Justice M. Heather Robertson
Heard: June 21, 2007, in Halifax, Nova Scotia
Written Decision: November 16, 2007
Counsel: Bruce W. Evans, for the plaintiff/respondent
Colin D. Bryson, for the defendants/applicants
Robertson, J.:
[1] The Trustees of the Nova Scotia Public Service Long Term Disability Plan Trust Fund (the “LTD Fund”) seek disclosure of settlement negotiations correspondence between the plaintiff Robert Inglis and the former defendant, the Province of Nova Scotia, pursuant to Civil Procedure Rule 20 for production of documents.
FACTS
[2] Mr. Inglis filed an Originating Notice (Action) on June 27, 2003 alleging that he had been employed by the Province of Nova Scotia as a plumber from October 9, 1979 and that he had become disabled on August 9, 1996 due to complications arising from his diabetes and that for almost six years he received LTD benefits from the Trustees, until September 11, 2002 when the Province terminated his employment and the Trustees stopped paying his LTD benefits.
[3] Mr. Inglis claimed:
(a) as against the LTD Fund a declaration that Mr. Inglis is disabled and that, accordingly, he should be paid LTD benefits and punitive damages;
(b) as against the defendant Province, a claim that the Province terminated his employment without reasonable notice, in bad faith and in breach of a duty to accommodate and, accordingly, he should be paid lost earnings, special damages and aggravated damages.
[4] Principally Mr. Inglis claimed that the Province of Nova Scotia had refused to give him an eight week return to work trial which he felt he needed to be able to prove whether or not he could still work as a plumber despite his diabetes.
[5] In addition, Mr. Inglis made a complaint against the Province pursuant to the provisions of the Human Rights Act.
[6] On December 16, 2004, Mr. Inglis reached a settlement of his claims against the Province, including his claim before the Human Rights Commission.
[7] The settlement agreement required payment by the Nova Scotia Public Service Superannuation Pension of the present value of Mr. Inglis’ locked-in and not-locked-in retirement pension to Mr. Inglis’s locked-in RRSP and not-locked-in RRSP.
[8] The settlement agreement expressly required the Province of Nova Scotia to pay Mr. Inglis:
...$65,000.00 general damages without deduction for tax or any other reason and expressly stated:
No T4 slip shall be issued for any portion of the general damage settlement amount.
[9] While Mr. Inglis has disclosed the settlement agreement itself, the LTD Fund requested production of the documentation dealing with the negotiations and settlement of Mr. Inglis’ claims against the Province and including his Human Rights’ complaint, starting with his initial demands and correspondence settling the claims. The LTD Fund is of the view that some portion of the $65,000.00 in damages should be characterized as lost earnings so that the Trustee’s obligations to pay LTD benefits would be reduced or offset by the earnings position.
[10] Mr. Inglis takes the position that:
(1) such correspondence is privileged correspondence in furtherance of settlement, which should not be disclosed because of the important public policy of encouraging settlement negotiations by protecting negotiation communications from disclosure;
(2) as the settlement agreement expressly characterizes the $65,000 settlement amount as non-taxable general damages, the present circumstances do not justify an exception to the privilege because it is not “necessary” to determine what the Province and Mr. Inglis agreed was the characterization of the damages included in the settlement amount, as in the cases relied upon by the Trustees where the settlement contained only a global amount with no characterization of what the settlement amount compensated.
(3) Mr. Inglis’ claims against the Province were a combination of claims based on his employment and the Human Rights Act and the Trustees had no contractual subrogation rights regarding these claims giving the Trustees the right to control those claims or to negotiate those claims or to have disclosure of settlement negotiations regarding those claims.
(4) the negotiations correspondence which the Trustees seek to have disclosed, will be inadmissible at trial because the parol evidence rule makes such evidence inadmissible for the intended purpose of the Trustees, namely to contradict, vary, add to or subtract from the clear terms of the settlement agreement with the Province.
[11] Settlement privilege exists by virtue of public policy. Settlement negotiations are encouraged by the courts. Not all settlement negotiations are successful, however worthwhile and serious the attempts to settle may be. Of necessity the documents and communications shared in the course of settlement negotiation enjoy a prima facie common-law privilege. It is generally agreed that disclosure of settlement negotiations would cast a chill over the required settlement process.
[12] There have been a few exceptions to this blanket privilege.
[13] The justification of settlement privilege is addressed by Sopinka, Leberman and Bryant in The Law of Evidence in Canada, 2nd ed. (Toronto: Butterworths, 1999) at para. 14 204
Many other authorities have expressed this public policy to be the justification for the recognition of the privilege. However, there are a number of competing theories which are discussed in Wigmore on Evidence:
1. That admissions in settlement negotiations are likely to be hypothetical or conditional only, as a supposition on which a settlement might rest, whether that supposition is true or false, and that such an admission has no relevance and is inadmissible on that ground, though if an admission is clearly an unqualified admission of fact, it would be admissible;
2. That all admissions in the course of negotiations towards settlement are without prejudice, whether those words are used or not, and are protected by a privilege based on public policy, and are not admissible in evidence;
3. That settlement negotiations are conducted on the normal contractual basis of offer and acceptance and with an express reservation of secrecy, and that, if a contract is reached, the negotiations are superseded by the contract itself, and become irrelevant and inadmissible, and if no contract is reached, then the negotiations are, for that reason, irrelevant;
4. That admissions made in the course of settlement negotiations may not be concessions of wrongs done, but merely an expression of a desire to purchase peace, and as such irrelevant and inadmissible.
Sopinka goes on to comment that:
The second theory is clearly the one that is accepted in Ontario. It is unclear, however, whether the law in British Columbia is to the same effect. It was suggested by Spencer J. In Derco Industries Ltd. v. A. R. Grimwood Ltd. that the British Columbia Court of Appeal in Scherky v. Cochrane [1917] B.C.J. No. 89, preferred Wigmore’s first “conditional admissibility” theory. Lambert J.A., on the appeal of Derco, left the question of the basis of the “privilege” open, but commented that no ratio decidendi could be determined from Schetky that was binding on the British Columbia courts. Other courts have applied the express or implied agreement theory. The undesirability of different theories applying in different provinces is patent.
[14] Sopinka J. is referencing the Ontario case of Waxman & Sons v. Texaco Canada Ltd., [1968] 1 O.R. 642, [1968] 2 O.R. 452 (C.A.) which adopted the second approach.
[15] In Ontario all settlement negotiations, whether a settlement agreement is reached or not, are privileged and need not be disclosed unless an exception is justified.
[16] In British Columbia the courts clearly overturned their own decision Derco Industries Ltd. v. A.R. Grimwood Ltd., in MiddleKamp v. Fraser Valley Real Estate Board (B.C.C.A.) (1992), 71 BCLR (2d) 276 (C.A.) by adopting the Ontario “second theory” approach.
[17] In Dos Santos (Committee of ) v. Sun Life Assurance Co. of Canada, [2005] B.C.J. No. 5, an order requiring the plaintiff to produce documents detailing a mediated settlement in a motor vehicle litigation was upheld by the BCCA, in circumstances where the insurance policy contained a subrogation clause which provided that if disability was caused by the negligence of a third party, 75% of the employee’s net recovery from loss of income in any action was to be repaid to Sun Life to the extent of the benefits paid or payable in the future under the insurance policy. The settlement memorandum stated a global amount of $900,000 that was agreed to.
[18] The court placed the onus on the defendant to place itself within an exception to the blanket privilege. They stated at paragraph 16:
16 In any event, the nature of the settlement agreement at bar is such that it cannot be disentangled from the other settlement communications. The “Memorandum of Settlement” states the global amount agreed to and little more. The “real” agreement between the settling parties may have been oral, or may have resulted from the culmination of previous written communications. Privilege attaches to those communications. The main issue then is whether an exception to or a waiver of privilege can be established in this case.
[19] and at paragraphs 19 and 20:
19 However, the test for discharging the burden to establish an exception should not be set too low. The public policy behind settlement privilege is a compelling one. It is so compelling that even threats arising in the context of settlement negotiations may not justify an exception: Unilever, supra at p.2449-2450.
20 To establish an exception in this case, the defendant must show that a competing public interest outweighs the public interest in encouraging settlement. An exception should only be found where the documents sought are both relevant, and necessary in the circumstances of the case to achieve either the agreement of the parties to the settlement, or another compelling or overriding interest of justice.
[20] At paragraph 21 Finch C.J.B.C. goes on to say that “mere relevance does not provide a sufficiently high threshold to displace the compelling public policy underlying settlement privilege.” The admission of the otherwise privileged communications he suggests must be necessary either to achieve the agreement of the parties to the settlement or to address a compelling or overriding interest of justice.
[21] In Meyers v. Dunphy, [2007] N.S. No. 5 2007 NLCA 1, Wells C.J.N.L. did not find an exception to settlement privilege where the appellant sought to use the privileged communication as evidence that the course of action barred by the operation of the limitation period was acknowledged by the defendant Dunphy. The court warned against using too mechanistic approach, favouring the principled basis for analysis of a claimed exception. The court set forth the following principles with respect to settlement privilege.
1. Protection of admissions against interest, for the purpose of encouraging settlement discussions, is a compelling public policy basis for settlement privilege;
2. Express or implied agreement of the parties can also be a basis for the rule, and where the admissions fall within what can clearly be identified as a term of an express or implied agreement between the parties that factor is also to be considered;
3. Except where a special reason exists, or on the basis of express or implied agreement, protection should not be withheld from identifiable admissions while extending it to others expressed in the privileged communication;
4. Without prejudice communications are admissible to prove those communications have resulted in a compromise agreement; and
5. Where exclusion of the communication would facilitate an abuse of the privilege, or another compelling or overriding interest of justice requires it, without prejudice communications are admissible.
[22] The plaintiff argues that in Dos Santos the terms of the subrogation clause in the policy required disclosure of the settlement communications and the settlement agreement could not be understood without the settlement communications, rendering the facts of that case critically different from Mr. Inglis’ situation where the settlement agreement is very clear in its characterization of general damages free of “deduction for tax or any other reason.”
[23] With respect to subrogation rights it is clear that there were no contractual subrogation rights in this case. The defendant acknowledges this. However, the statutory right pursuant to s. 9(8) and s.16 of the Nova Scotia Public Service Long Term Disability Plan come into play.
[24] Relevant sections of the Plan are as follows:
9. The benefit to which an employee is entitled under this section shall be reduced by:
(3) the amount of income received from rehabilitative employment in accordance with subsection 5 of Section 8;
(8) the amount of earnings recovered through a legally enforceable cause of action against some other person or corporation.
SUBROGATION
16. (1) Where a long-term disability benefit is payable for an injury or illness for which any third party is, or may be, legally liable, the Trustees will be subrogated to all rights and remedies of the employee against the third party, to recover damages in respect of the injury or death, and may maintain an action in the name of such employee against any person whom such action lies, and any amount recovered by the Trustees shall be applied to
(a) payment of the costs actually incurred in respect of the action, and reimbursement to the Trustees of any disability benefits paid, and the balance, if any shall be paid to the employee whose rights were subrogated.
(b) any settlement or release does not bar the rights of the Trustees under subsection (1) unless the Trustees have concurred therein.
(c) an employee will fully cooperate with the Trustees in order to allow the Trustees to do what is reasonably necessary to assert the Trustees’ rights to subrogation.
[25] The authorities relied upon by the LTD Fund all involve global settlement amounts that must be unwound or understood in the context of all the documentation that led to the agreement. Dos Santos, supra, NSPS Ltd. Plan Trust Fund v. McNally (1999), 179 N.S.R. (2d) 314 (C.A.), Sun Life Assurance Co. of Canada v. Solypa (2001), 96 B.C.L.R. (3d) 178.
[26] In McNally the Court of Appeal stated at paras. 54-56:
54 In reaching this conclusion, Stewart J., accepted the reasoning of Baynton, J., of the Saskatchewan Court of Queen’s Bench in Young v. Saskatchewan et al. (1992), 103 Sask. R. 50; [1992] 5 W.W.R. 49 Q.B.) which decision was affirmed by the Saskatchewan Court of Appeal substantially for the reasons given by Justice Baynton: (1994), 128 Sask. R. 106; 85 W.A.C. 106 (C.A.).
55 In Young, supra, the insured was covered by a disability income plan. Monthly payments were to be reduced by the amount of other benefits received, including, regular payments awarded as compensation for loss of earnings because of third party liability, lump sums to be actuarially prorated to a regular monthly benefit. The disability insurer relied on the reduction of benefits clause in the Plan at issue which was a provision corresponding to s.9(8) of the Plan. The insured took the position that, having received a lump sum settlement which did not contain an allocation for wage losses, there should be no deduction. Baynton, J., took the following approach, [1992] 5 W.W.R. 49 at p.53:
This issue should be approached bearing the following principles in mind:
1. The plan is designed to guarantee monthly compensation to the employee during his period of disability in an amount equivalent to 75 per cent of the wages he would have received if not disabled. It is not as such a pure or full disability plan in that the benefits it provides depend in part on what other disability or wage replacement benefits the employee receives.
...
3. The onus is on the defendant to establish that the plaintiff has received third party liability loss of earnings compensation from a source or in a manner that falls within the definitions of the policy. Once this has been done, especially where the particulars of the compensation are not available to the defendants, the burden shifts to the plaintiff to establish that the compensation does not fall within the deduction provisions of the policy. [This is analogous to the shifting of the burden of proof of disability for any reasonable occupation from the plaintiff to the defendant. Once the plaintiff has made out a prima facie case of disability, the burden shifts to the defendant to show that the plaintiff is capable of performing some other occupation.] In a settlement type of scenario, as opposed to a court award, the plan sponsor need only prove that the plaintiff received a settlement from a third party and the onus shifts to the plaintiff to establish the breakdown. But what about a settlement in which the plaintiff either deliberately or inadvertently did not break down the proceeds by category? Can he satisfy the onus of proving the nature and allocation of the settlement proceeds by simply relying on the fact that they were not specified? I think not. The plaintiff has sued the plan for benefits. Those benefits depend on what the plaintiff received for wage compensation. To get the benefits the plaintiff must establish what he received for wage compensation whether or not the allocation of the compensation was specified in the settlement itself. This requirement may be of no concern to the third party but it is of vital concern to the plan sponsor. It is untenable for a plaintiff to take the position that he can satisfy this onus of proof (and thereby obtain additional disability benefits under the plan to which he is not entitled), by simply relying on the fact that the settlement itself did not expressly allocate the proceeds among the various heads of damages for which the plaintiff received compensation.
4. The fact that it may now be difficult to determine in retrospect the breakdown of the plaintiff’s settlement does not relieve the plaintiff form doing so. Nor is there any term of the plan, express or implied, that waives the required deduction and increases the plaintiff’s benefits payable under the plan because of such difficulty ...
56 I agree with this reasoning. I consider it applies equally to the somewhat different circumstances of this case.
[27] The plaintiff has argued that McNally can be distinguished in that an order for disclosure of privileged communication was not being sought nor were any determinations made on the exceptions to privilege.
[28] But clearly, the court in McNally adopted the approach taken in Young v. Saskatchewan, supra, which included the settlement type scenario as opposed to the court award thus shifting the burden to the plaintiff to provide a breakdown.
[29] After McNally the British Columbia Supreme Court adopted this approach in Sun Life Assurance Company of Canada v. Alice Solypa (2001), 96 B.C.L.R. (3d) 178.
[30] At para. 11 the court stated:
¶ 11 No authority is cited to support the proposition that it is Sun Life that must prove an allocation. I have, with respect, little hesitation in following the Nova Scotia and Saskatchewan authority cited above from which I consider the following can be said: Where a settlement in respect of a claim for damages under various heads, which include income loss, has been concluded, the onus rests with the employee to prove an allocation of a lump sum amount in order to establish that no proportion of the settlement constitutes the recovery of an income loss in respect of which benefits have been paid under a disability policy: see in particular McNally at 17 C.C.L.I. (3d) 215 at para. 54 where the principle stated in Young is approved and at 12 C.C.L.I. (3d) 261 para. 44 where it is applied. Thus it would not seem to profit Ms. Solypa to contend, as she does, that Sun Life cannot prove its case because the settlement was unallocated. If anything, it is she who must bear the consequences of there having been no allocation if none can now be properly made.
[31] Counsel also argues that the right of subrogation in equity only arises after the insured has been fully indemnified by the insurer. McNally paras. 22 and 24.
[32] However, in McNally, supra, the court agreed with Freeman J.A.’s comments in Mutual Life Assurance Co. v. Tucker (1993), 119 N.S.R. (2d) 417; 330 A.P.R. 417 (C.A.) at para. 28:
...If the parties to an insurance policy intend for the insurer to be compensated for partially indemnifying the insured, that can be provided for by contract ...
The court thus noted at para 33:
Thus the requirement that an insured by fully indemnified before the insurer obtains subrogration can be avoided in cases of partial insurance (such as the 70% of earnings provided by the Trustees) by so providing the insurance contract. In my opinion, this is exactly was s. 9(8) of the Plan do.
[33] Section 18 of the Plan is identical to s. 16 of the plaintiff’s plan herein. (Mr. Bryson’s affidavit Exhibit “D”).
[34] The plaintiff has continued its suit against the insurer, the LTD Fund. Sections 9(8) and 16 of the Plan contemplate the recovery of any portion of earnings from a settlement proceeding.
[35] Although there is no precise authority to govern the circumstances of this case, in my view the McNally case never the less applies because of the relevance of the negotiations correspondence to the suit against the LTD Fund.
[36] There may not have been a contractual right to control the settlement process, but the plaintiff does have good faith obligation in dealing with the LTD Fund, in circumstances where lost earnings may have been a significant factor in arriving at settlement.
[37] The trial judge may address the issue of parole evidence as it applies to the settlement agreement at trial, including the merit of the agreement in relation to the plaintiff’s claim against the LTD Fund. In this proceeding, disclosure is the issue and the application of s. 9(3) and (8) to these circumstances.
[38] The LTD Fund is entitled to view the settlement documentation including all settlement demands and settlement negotiations correspondence leading up to and including the settlement arrived at between the plaintiff and the defendant Attorney General of Nova Scotia, in the trial preparation process and within the intent of Civil Procedure Rule 20.
[39] The costs of this application will follow the cause.
Justice M. Heather Robertson