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My lips are sealed: The importance of honouring confidentiality obligations following a settlement

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One of the main advantages of settling a dispute before a trial is that the parties can agree to keep the terms of the settlement confidential.  In contrast, judges’ decisions form part of the public record and can be easily accessed online. Those decisions include details of the allegations, findings of credibility and findings of fact, some of which may be embarrassing or even damaging for the parties.  When parties settle litigation before trial, they can craft their own settlement conditions, including a requirement that the details of the settlement or the allegations must be kept confidential.

While these confidentiality provisions may seem like boilerplate language with little significance, there is increasing arbitral and judicial recognition of the sanctity of confidentiality. For example, on July 2013, Arbitrator Davie ordered former Globe & Mail journalist, Jan Wong, to repay a portion of a settlement award after she disclosed details of the settlement in a book, which breached the terms of the minutes of settlement. (My colleague, Janice Rubin, previously blogged about the impact of this and another decision on the enforcement of confidentiality provisions.)

Following the arbitrator’s decision and Janice’s blog, Ms. Wong made an application for judicial review to the <a href=”http://www.ontariocourts.ca/scj/divisional-court/” target=”_blank” >Divisional Court</a> seeking to overturn the order to repay.  Although the Divisional Court found that Ms. Wong did not have standing to seek review of the decision and thus dismissed the application on the basis of procedural grounds, the panel considered the issue of whether Arbitrator Davie erred in her finding regarding the breach of the confidentiality provision. The court upheld the arbitrator’s decision and the order that Ms. Wong repay the applicable portion of the settlement award.

There are a number of key findings in the Divisional Court’s decision, which highlight the importance of confidentiality in settlement negotiations and the consequences of breaching confidentiality obligations:

  • Wong argued that the repayment obligation was, effectively, a “penalty” and that it would be unconscionable to enforce it. The court disagreed, and found that the obligation to repay a portion of the settlement amount was not a “penalty”, but, rather, a forfeiture that was clearly negotiated by the parties as part of the settlement. Arguably, most confidentiality clauses would be interpreted in a similar fashion.
  • The court held that the Globe & Mail was not required to show proof of actual damages as a result of Ms. Wong’s disclosure. The parties agreed to an “enforcement mechanism” (i.e. repayment of a set amount) if Ms. Wong breached her confidentiality obligation – there is nothing “unfair” about enforcing the requirement to repay given that it was specifically contemplated in the settlement agreement.
  • <a href=”http://www.theglobeandmail.com/” target=”_blank” >The Globe & Mail</a> “paid for” confidentiality. Since it did not get what it paid for, it is entitled to repayment.
  • The Divisional Court rejected Ms. Wong’s argument that since she subjectively believed that the confidentiality provision only barred her from speaking about the amount of the settlement, she did not breach her confidentiality obligation. A party’s subjective belief as to the meaning of a contractual term is not admissible evidence. In any event, the court held that the confidentiality obligation “was clear and unambiguous.”  It was not just that the amount of the settlement was confidential – the obligation specifically stated that” the ‘terms of the settlement’ could not be disclosed” (emphasis added).

The best practice following a settlement is to keep your lips sealed. The consequences of failing to do so can be costly. Confidentiality obligations should not be taken lightly, particularly on the heels of the Divisional Court’s findings in the Wong case.

About the Author: Toronto Employment Lawyer Jennifer Heath is an enthusiastic lawyer who is dedicated to improving the health and productivity of her clients’ workplaces. Jennifer advises clients on a wide range of common law, contractual and statutory obligations, including those obligations under the Employment Standards Act, 2000Labour Relations Act and the Human Rights Code.  Her work also involves representing clients before the Superior Court of Justice, the Small Claims Court, the Human Rights Tribunal and the Ontario Labour Board.