Justice D'Auray gives a detailed analysis of the criteria for granting exceptional decisions like this. Complicating the issues, CRA had actually assessed the appellant as he himself filed his return. Rather, the appeal arose because the appellant later challenged his own tax filing (as a taxpayer has a right to do, by filing an objection in the normal time limits).
To help advance his case, the appellant sought to call his employment lawyer to testify about the settlement discussions. So, not only was the confidentiality provision of the settlement agreement in issue but there were also issues about settlement privilege and solicitor-client confidentiality (since CRA planned to call Konica's employment lawyer also.)
On solicitor-client privilege, the TCC noted that not all lawyer actions for a client are privileged. As discussions between lawyers, for purposes of settlement, are not part of a consultation between lawyer and client, the negotiations are not privileged and so the lawyer may be called to testify about them. (Paras. 55-59)
Also, solicitor-client privilege is lost where a lawyer communicates a position to an adverse party, as would necessarily happen in a settlement negotiation.
The TCC did agree that settlement privilege, "which is intended to encourage the resolution of a dispute without litigation by permitting the parties to the dispute to discuss their differences frankly and without fear that admissions made by them for the purpose of arriving at a settlement will be used against them later." (Para. 89.) But she held that the public interest in a fair resolution of a tax dispute over-rides that privilege.
Abenaim c. La Reine 2015 CCI 242 (D'Auray) (Only in French for now.)