Are Settlement Negotiation Details Permitted Within Lawsuit Documents?
It is Improper For Pleading Documents, Among Others, As Filed In the Course of Court Litigation to Contain Details of Settlement Negotiations and Any Such References Should Be Struck From Such Documents.
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. These rules were applied within Renzone v. Onyx Homes Inc., 2020 ONSC 7722 as well as 2030945 Ontario Ltd. v. Markham Village Shoppes Limited, 2013 ONSC 1020, among others, whereas such cases confirm the view that the pleading of settlement details is scandalous to the litigative process. These cases also provide the formal legal test as to what constitutes as settlement details. Specifically, the doctrine within these cases states:
 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. These exceptions were well explained within the case of Welling v. Doug & Partners Inc., 2021 ONSC 5064 wherein it was 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.
Pleading documents, among others, that including references to, or contain details of, settlement discussions between the parties to a legal dispute are viewed as improper and scandalous, inflammatory, and unfair, and should be struck from the pleadings and therefore from the view of the court. This includes any communications and information that arise where a litigious dispute is in existence or is in contemplation, where the communication is made with the intent that such would remain undisclosed to the court if negotiations fail, and where the purpose of the communication is an attempt to resolve the legal dispute and achieve a settlement.