Executive Summary: Key Legal and Evidentiary Issues

• JACKS Construction sought to strike two paragraphs and an exhibit from Qalm's safeguard order application on the basis of settlement privilege.
   
• Qalm sought a safeguard order to release $161,301.82 held in trust under a security substitution agreement.
   
• Settlement privilege was found to apply to the disputed email exchanges because the four required conditions were satisfied.
   
• Neither an urgent situation nor a sufficient appearance of right was established to support the safeguard order.
   
• Contractual security freely negotiated by the parties could not be summarily overridden absent a serious apparent right.
   
• The Court struck the challenged allegations and exhibit, and dismissed the safeguard order application with costs to JACKS.

Facts of the case

Qalm, a real estate developer, and JACKS, an excavation contractor, entered into a construction contract in December 2021 for roadwork and excavation on a twenty-seven-lot residential project. Qalm terminated the contract in August 2024, after which JACKS invoiced $257,396.59 for work it claimed to have completed and, when Qalm refused payment, published a legal construction hypothec against seven lots still owned by Qalm. One of those lots was sold to a third party in September 2024 for $158,500. To permit that sale, the parties signed a security substitution agreement in December 2024 under which $162,321.13 of the sale proceeds was placed in the trust account of a notary; after deduction of the notary's professional fees, $161,301.82 remained on deposit, to stay there until a final judgment with appeal periods expired. JACKS in turn granted a partial release of its hypothec over the sold lot. Related proceedings between the parties were stayed in April 2025 pending a settlement, a withdrawal, or a final decision on a separate application to strike hypothec registrations, which a different judge dismissed in April 2026 and which Qalm has appealed. In June 2026, Qalm applied for a safeguard order to release the trust funds, while JACKS applied to strike two paragraphs of that application and an accompanying exhibit, arguing they disclosed privileged settlement communications.

Policy and legislative provisions at issue

Several provisions and doctrines framed the dispute. Article 49 of the Code of Civil Procedure was central to whether a stayed proceeding could still support a safeguard order, as it grants courts broad power to issue such orders "at any time and in all matters." Article 2731 of the Civil Code of Québec, allowing a property owner to seek reduction or substitution of hypothec security, formed the basis of Qalm's claimed appearance of right. Clause 2.2 of the parties' security substitution agreement was also directly at issue, providing that the trust funds would remain on deposit "until a final judgment, appeal periods having expired." Finally, the four-part test for settlement privilege — an existing or contemplated dispute, exchanges aimed at resolution, a presumed intention of confidentiality, and the absence of a concluded settlement — governed whether the disputed email exchanges could be used in evidence.

Reasoning and analysis

The Court first addressed the application to strike, finding that three of the four privilege conditions were undisputed and that the surrounding context supported a presumed intention of confidentiality, since Qalm itself acknowledged the $30,000 offer was made to reach an amicable settlement. The Court rejected Qalm's argument that the bad-faith exception to privilege applied, reasoning that Qalm sought only to infer bad faith from the gap between the settlement offer and the claim amount — precisely the inference the privilege is designed to prevent — rather than pointing to independently reprehensible conduct within the communications themselves. On the procedural objection, the Court held that the stay of the underlying proceeding did not bar the safeguard order application, since Article 49 C.C.P. preserves the power to issue such orders regardless of a stay. Turning to the merits, the Court found Qalm's appearance of right insufficient: the funds at issue were held under a freely negotiated trust agreement rather than under the hypothec itself, since a partial release had already substituted a contractual right for the hypothecary one, and the courts should not summarily rewrite a bargained-for security arrangement absent a serious demonstrated right. The Court also found no urgency, noting that the financial difficulties Qalm cited were either stale, already paid, or unsupported by evidence of its overall financial position, and that a party cannot manufacture urgency and then rely on it. Having found the first two cumulative conditions unmet, the Court declined to fully analyze serious or irreparable harm and balance of convenience, though it observed that both would in any event have favoured JACKS.

Ruling and overall outcome

The Court allowed JACKS's application to strike, ordering that paragraphs 10 and 11 of Qalm's safeguard order application be struck and that Exhibit R-11 be removed from the record. The Court dismissed Qalm's application for a safeguard order in its entirety, having found that neither urgency nor a sufficient appearance of right had been established. JACKS was the successful party on both applications, and the Court ordered legal costs on both applications in JACKS's favour, in accordance with the general costs rule under Article 340 C.C.P. The judgment does not specify a fixed monetary amount awarded to JACKS beyond an order for costs; the $161,301.82 held in trust remains there pending final judgment, as originally agreed by the parties.