A recent decision from the Supreme Court of Canada holds that a confidentiality clause in a mediation agreement can displace default common law rules on without prejudice privilege.
For now, New Zealand law takes the opposite view. There remains, however, a case for change.
Confidentiality clauses and common law without prejudice privilege
In Union Carbide Canada Inc. v Bombardier Inc the Supreme Court of Canada had to determine whether and if so when, a confidentiality clause in a mediation agreement can override common law without prejudice privilege. The issue is important because an exception to the privilege applies where a party seeks to prove the existence (or the scope) of a settlement agreement reached at the mediation.
If a confidentiality clause cannot override the common law, then – notwithstanding the express words of an absolute confidentiality clause, and even if the existence of any settlement agreement is contested – evidence may still be given as to what happened during the mediation.
On the other hand, if a confidentiality clause takes precedence, the parties may contractually agree a more absolute protection of confidentiality than that provided for under the common law.
Supreme Court of Canada
The Court concluded that common law privilege and confidentiality clauses exist on different planes. Common law privilege is a rule of evidence; confidentiality agreements are rules of contract law. Consequently they do not afford the same protection, and nor are the consequences for breaching them necessarily the same.
While recognising that a delicate balance between the two is required, the Court held that it is possible to contract out of the common law rules. This enables the parties to secure the safeguards they deem important, and fosters the free and frank negotiation of settlements. Such an approach serves the same purpose as the common law without prejudice privilege, being the promotion of settlements.
No presumption in favour of confidentiality clause
However, the Court rejected any presumption that a confidentiality clause in a mediation agreement automatically displaces common law privilege or its exceptions.
A confidentiality clause will not deprive the parties of the ability to prove the terms of a settlement by producing evidence of communications made in a mediation unless a court finds, on applying appropriate rules of contractual interpretation, that is the intended effect of the agreement. Therefore, while parties are free to contract out of the common law rules, they must do so clearly.
In drafting terms, this means explicit and absolute words should be used to convey an intention to displace common law privilege.
The New Zealand position
The Canadian Supreme Court has taken a different, and in our respectful view, preferable, approach to that previously taken by the New Zealand Court of Appeal. In 2011, the Court of Appeal appeared to hold that it was not possible for parties to contract out of the common law rules and exceptions as codified in s 57 of the Evidence Act 2006, notwithstanding the terms of the parties’ confidentiality agreement.
An appeal against that decision was due to be heard by the Supreme Court but was withdrawn on the eve of the hearing. In 2013, the Law Commission expressed concern about the willingness of the Court of Appeal to override a negotiated confidentiality clause, leading to uncertainty as to when in future circumstances it will do so again.
The Commission considered that legislating for all such circumstances would prove too challenging, and instead suggested this is an area suitable for development by the courts, “taking into account the importance of mediation in settling disputes”.
Chapman Tripp comments
In our view, the Supreme Court of Canada’s approach is principled and balanced – confirming the importance of the common law exceptions to settlement privilege, but according priority to contractual freedom and the manifest intentions of mediating parties.
We hope that New Zealand courts will give the Canadian decision favourable consideration when the issue next arises for decision.