Today, Canadians are mediating their disputes in record numbers. One partial explanation for this phenomenon is that mediation purports to keep discussions between parties confidential, traditionally backstopped by settlement privilege. But the extent to which parties can pierce this bubble of confidentiality and use information disclosed in the course of mediation in subsequent court proceedings is an evolving issue.

The Supreme Court of Canada recognized the importance of confidentiality to the mediation process in its recent decision in Bombardier Inc v Union Carbide Canada Inc. Quoting from an article by Owen V. Gray, Justice Wagner noted that confidentiality encourages parties to engage in free and frank discussions without the worry that current or potential adversaries, including public authorities, will use their communications against them later. Equally, parties might be worried about prejudicing commercial or personal relationships.

Mediation works best when parties are assured that their discussions will remain confidential. In Union Carbide, the Court confirmed that settlement privilege”a class privilege”protects all communications exchanged by mediating parties for the purpose of settling a dispute. But other cases confirm that settlement privilege does not necessarily protect everything that might be said or done at mediation. For example, parties have tried to compel mediators to testify to prove the existence or terms of an alleged settlement.

This raises a concern: if all it takes to pierce mediation's confidentiality bubble is a manufactured issue about the terms of settlement, parties will feel much less secure in engaging in free and frank discussions. Canadian courts have addressed this concern by recognizing a case-by-case privilege, distinct from settlement privilege, attaching to communications made in the context of mediation. This privilege applies where the four criteria of the Wigmore test are satisfied:

1. The communications must originate in a confidence that they will not be disclosed;
2. The element of confidentiality must be essential to the full and satisfactory maintenance of the relation between the parties;
3. The relation must be one which, in the opinion of the community, ought to be sedulously fostered; and
4. The injury that would inure to the relation by the disclosure of the communications must be greater than the benefit thereby gained for the correct disposal of litigation.

In theory, this "mediation privilege" exists in parallel with other privileges and can be used to fill in any gaps left by settlement privilege. But the case law on mediation privilege is nascent, and the boundaries of this case-by-case privilege have not yet been clearly defined.

In the leading case of Rudd v Trossacs Investments Inc, parties to litigation in Ontario reached a settlement after mediation. Subsequently, there was disagreement about whether one party had agreed to settle, and so other parties sought to compel the mediator to testify about events that took place during the mediation.

Writing for a three-judge panel, Justice Swinton of the Ontario Divisional Court concluded that the mediator could not be compelled to testify. She expressly recognized mediation privilege as distinct from settlement privilege. Applying the Wigmore test, she found that the first two Wigmore criteria were satisfied because the parties had signed a confidentiality agreement and, more generally, confidentiality is vital to mediation. She also found that there is a significant public interest in protecting confidentiality, and she could not identify any countervailing public interest that outweighed the importance of that protection. The Wigmore test was thus satisfied in the circumstances of that case.

Rudd confirms that mediation privilege exists, but it leaves important questions unanswered. Are there circumstances in which confidentiality in mediation need not be "sedulously fostered"? What types of extraordinary considerations could outweigh the public interest in protecting confidentiality? Rudd does not address these issues head on. Union Carbide strongly endorses the need to keep mediation confidential. In fact, Justice Wagner found that the first three Wigmore criteria are "redundant" if the parties opted for a confidential dispute resolution process and signed a confidentiality agreement. If courts read Rudd and Union Carbide together for the proposition that mediation privilege presumptively applies where parties elect mediation and sign a confidentiality agreement absent an exceptional countervailing public policy interest, mediation privilege could be on the road to becoming as sanctified as settlement privilege. But, for now, disputants must await further clarification from the courts about mediation privilege's boundaries”or at least about its application in different circumstances as this newly minted privilege continues to evolve.