Can Details of Settlement Negotiations Be Included Within Lawsuit Documents?
References to An Offer-to-Settle or Settlement Negotiations and Discussions Are Improper When Included Within Pleadings to a Lawsuit and Any Such References Should Be Struck.
Understanding Court Rules Restricting Pleading of Details About An Offer-to-Settle Due to Settlement Privilege
As a legal dispute develops, it is common that a party to the dispute will attempt to resolve the matter without the need to begin court proceedings. During the efforts to resolve the issues prior to launching a court action, settlement offers may be exchanged. Ultimately, where the settlement offers are unaccepted, and thus early resolution efforts fail and the dispute proceeds to a court matter, details of the early resolution efforts, meaning settlement offers and related discussions, must be excluded from any subsequent court documents, especially the pleadings.
Court rules require the omission of settlement discussion details from litigation documents, such as the claims documents or defence documents. These rules are provided by the common law which deem the inclusion of settlement discussion details within certain court documents, such as pleadings, as scandalous and potentially prejudicial; and accordingly, scandalous pleadings should be struck from the record as per Rule 12.02(1)(b),(c) of the Rules of the Small Claims Court, O. Reg. 298/98, or Rule 25.11(b) of the Rules of Civil Procedure, R.R.O. 1990, Regulation 194. The cases of Renzone v. Onyx Homes Inc., 2020 ONSC 7722, and 2030945 Ontario Ltd. v. Markham Village Shoppes Limited, 2013 ONSC 1020, among other cases, confirm the scandal of pleading settlement details as well as providing the legal test for what should be deemed as settlement details. Specifically, these cases state:
 I begin with Rule 25.11. This Rule allows the Court to “strike out or expunge all or part of a pleading…with or without leave to amend on the ground that the pleading…is scandalous, frivolous or vexatious…”.
 It is settled law that referring to settlement offers or discussions, which are thus subject to “settlement privilege”, may well be considered scandalous, frivolous or vexatious, leading to that part of the pleading being struck given that such communications are inadmissible. See, in that regard, 2030945 Ontario Ltd v. Markham Village Shoppes Ltd 2013 ONSC 1020 at para. 8.
 I agree with the defendant that references to settlement offers, discussions and negotiations should not be included in a pleading. The law in this regard is summarized by Master Beaudoin (as he then was) in Canadian Gateway Development Corp. v Canada (National Capital Commission),  O.J. No. 3167 (S.C.J. – Master) at paragraphs 8 and 9 where he states as follows:
8 A Master had jurisdiction pursuant to Rule 25.11(b) to strike out a pleading on the ground that the pleading is scandalous, frivolous or vexatious. Although the defendant correctly submits that a Master cannot generally strike out a defence as being untenable, that it not the nature of the motion here. The law is clear that evidence of privileged communications, such a settlement discussions, should not be before the Court. (See I. Waxman & Sons v. Texaco Canada Ltd., 1968 CanLII 178 (ON SC),  1 O.R. 642 (H.C.J.), aff'd 1968 CanLII 327 (ON CA),  2 O.R. 452 and Sopinka, Lederman and Bryant, The Law of Evidence in Canada, 2nd Edition, Vancouver, Butterworths, 1999). If such discussions are inadmissible in a civil proceeding, any reference to them in a party's pleadings can be considered scandalous, frivolous or vexatious and should be struck from their pleading.
9 Per Sopinka and Lederman at p. 810, there are three conditions under which settlement discussions will be considered privileged and inadmissible:
(a) a litigious dispute must be in existence or within contemplation;
(b) the communication must be made with the express or implied intention that it would not be disclosed to the court in the event negotiations failed; and,
(c) the purpose of the communication must be to attempt to affect a settlement.
As per the above cases, generally, pleading offer-to-settle details is improper; however, there are circumstances where pleadings may contain details regarding the resolution efforts that occurred prior to commencing litigation as well as during the course of the litigation including where a mala fide offer is made during settlement discussions even if expressed during mediation or a court mandated Settlement Conference hearing. Such exceptions were well explained within the cases of, among others, Welling v. Doug & Partners Inc., 2021 ONSC 5064, as well as the case of Prior v. Sunnybrook and Women's College Health Sciences Centre, 2006 CanLII 17329, wherein each it was respectively said:
6. As a general rule, a party may not plead without prejudice discussions including offers or communications which take place for the purpose of trying to avoid litigation (Clayton v. SPS Commerce Canada Ltd. 2018 ONSC 5017). The parties agree that the limited exception to this rule is set out in the decision of Master Sugunasiri, as she then was, in Irwin v. Canadian Professional Sales Association 2019 ONSC 7332 at paragraphs 14-16). Where a party moves to strike references to settlement offers from a pleading, the court should consider: (a) whether the impugned paragraphs contain a reasonable claim to settlement privilege; (b) whether the settlement offer is relevant to the issues at trial other than to prove the weakness of the other party’s case; and (c) if the offer is pleaded in support of allegations of bad faith, mental distress or punitive damages, whether those claims have an air of reality.
7. The onus is on the party seeking to strike the pleading to establish a reasonable claim to settlement privilege but it is a low threshold. If the threshold is met, the onus shifts to the responding party to establish the purpose of the pleading and to demonstrate that its bad faith claim has an air of reality to it.
 There can be no doubt that in this jurisdiction settlement discussions and offers are regarded as privileged. A pleading should not refer to a bona fide offer of compromise whether the offer was made before or after the litigation was commenced. The defendant relies on a number of cases. In Marshall v. Ensill Canada Ltd., for example, the plaintiff’s claim included abuse of process but the court struck out a pleading that referred to an offer to settle the allegedly abusive action for an apology. In Canadian Gateway Development Corp. v. National Capital Commission the court held that a meeting between the litigants without counsel and prior to litigation commencing was with the express intention of fostering settlement and with the implied intention that the contents of the discussion would not be revealed to the court. In Bonneville v. Hyundai Auto Canada Inc. which was a wrongful dismissal action, the court held that where an offer to settle is made without prejudice but simply to buy peace, the fact of such offer should generally not be pleaded. In Hartley v. J.B. Food Industries Inc. the employer had purported to terminate for cause but had offered two months salary in exchange for a release. The court struck out a plea that referred to the offer. I agree with what was said in these cases and with the results. Bona fide offers to settle should not find their way into pleadings and should not be treated as admissions of liability.
 In the case at bar, however, the matter is on a different footing entirely. In the first place the offer cannot be regarded as a bona fide offer to settle the issues between the parties. This is for two reasons. Firstly, it was not within the power of the employer to discontinue the proceeding before the governing body. It would be for the CBCPO to determine how the complaint would be resolved. Secondly, it is an improper offer. Either the employer had grounds to allege “a course of dishonest and fraudulent behaviour” or it did not. Either the complaint to the CBCPO was a legitimate complaint or it was not. Of course the employer could be mistaken in its original conclusion or the governing body might take a different view of the facts but it cannot be proper to offer to withdraw an allegation of fraud made to an outside body contingent on a release in a civil proceeding. The court would not countenance a threat to pursue a criminal or quasi-criminal proceeding to obtain an advantage in a civil proceeding. A discipline process that could affect the livelihood of the other party is in the same category. I see no difference in quality between a threat to prosecute or an agreement to withdraw a complaint. Either of these may be indicia of bad faith and neither should attract the protection afforded to bona fide settlement discussions.
 A second consideration is the fact that the offer is not part of a settlement discussion. Rather, as pleaded, it is a unilateral proposal made by one of the parties. Of course there are frequent examples of unilateral offers being regarded as without prejudice and privileged. Hartley v. J.B. Food Industries Inc., supra. is an example. Strictly speaking Hartley and similar cases are not so much cases of blanket privilege as a matter of intention. The letter sent in the Hartley case read in context could not possibly have been read as an admission of liability. Rather it clearly asserted cause for dismissal but “without prejudice to our position” offered the plaintiff the chance to resign with two months pay. The policy grounds for protecting that kind of offer are clearly articulated in the decision. My point here is that making a threat to invoke professional discipline – or its counterpart offering to withdraw a disciplinary complaint – if it is improper to do so should not be afforded similar protection. Unilaterally labeling a proposal as “without prejudice” and calling it an offer should not allow a bubble of privilege to cloak an improper threat or proposal.
 As an aside, even at a settlement meeting or a mediation in which the parties have agreed to meet for a full and frank discussion and an exchange of proposals, there are limits to what is or ought to be protected. In such cases the parties will have explicitly or implicitly agreed to a zone of privilege. Hypothetical outcomes, evidentiary weaknesses and creative settlement options ought to be encouraged and protected. But no one would seriously argue that if an assault or other criminal behaviour took place at such a meeting, it would be protected from disclosure. Threats of physical violence or other illegal or improper actions ought not be protected either. If the letter sent by the defendant bears the construction advanced by the plaintiff – that is a threat to continue with a spurious complaint to the governing body if the plaintiff did not settle or (equally reprehensible in my view) to withdraw a complaint that it thought ought to attract discipline in exchange for settlement – I think there is a very real question whether or not it would fall within the protection afforded to a settlement meeting. I do not have to decide this in the context of the case before me. Certainly in the case of unilateral communication, the risk of allowing a party to make improper threats or inducements in a letter cloaked as an offer is obvious.
 It is important to point out that a pleaded fact and the inference to be drawn from it remain mere allegations until admitted or proven. Whether the letter should be construed as improper and proof of bad faith is not a matter to be resolved at the pleading stage. Admissibility of evidence and the weight to be given to particular facts remain matters for trial whatever may be contained in the pleading. This gives rise to a second ground of attack on the pleading. It is possible to argue that the letter ought to be struck from the pleadings because it is merely evidence and not a material fact. Our rules require parties to plead the material facts on which they rely but not the evidence by which they will be proven. This distinction between facts and evidence is in principle a clear distinction. Material facts in a pleading are the important and relevant facts the party intends to prove at trial. Evidence is the means by which a party actually proves those facts. Some facts however are material because they prove other facts or because they are material to conclusions about motive and intention. In addition, a bald pleading may be attacked for lack of particularity. Rule 25.06 (8) requires “full particulars” of an allegation of malice or intent.
 The interrelationship between material facts, particulars and evidence creates overlap and does not admit of rigid distinctions. Finally, where a party intends to prove facts whose admissibility may be controversial, there is merit in putting the other party on notice and including the facts in the pleading. An example of this principle may be found in the law in relation to pleading of similar facts. I recently reviewed this in City of Toronto v. MFP Financial Services Inc. Similar principles support inclusion of this allegation in this pleading.
 For all of these reasons, in the circumstances of this case, I decline to strike the impugned paragraphs. I am of the view that the facts if accurate would not constitute a bona fide offer to settle. Rather they might constitute an improper threat or inducement and may be material to proving bad faith or malice. It may also be material to the claim for punitive damages.
Court documents such as claims or defence pleadings, among various others, must exclude references to settlement negotiations such as the details of offers and discussions intended to resolve the dispute. Where references or details to settlement negotiations are improperly included within court documents, such should be struck and kept from view of the court.