EBS v CAS
[2013] NZHC 752
•15 April 2013
PURSUANT TO SECTION 169 OF THE FAMILY PROCEEDINGS ACT 1980, ANY REPORT OF THESE PROCEEDINGS MUST COMPLY WITH SECTIONS 11B TO 11D OF THE FAMILY COURTS ACT 1980. FOR FURTHER INFORMATION PLEASE SEE COURT/LEGISLATION/RESTRICTIONS-ON-PUBLICATIONS.
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2011-485-2595 [2013] NZHC 752
IN THE MATTER OF an appeal under section 72 of the District
Courts Act 1947
BETWEEN EBS Appellant
ANDCAS Respondent
UNDER the Property (Relationships) Act 1976
BETWEEN EBS Applicant
ANDCAS Respondent
UNDER the Family Proceedings Act 1980
BETWEEN EBS Applicant
AND CAS
First Respondent
MICAL SHANE JERVIS TREADWELL, JAMES PETER WOODS, CAS AND EBS AS TRUSTEES OF THE CA & EBS FAMILY TRUST
Second Respondents
BRYAN GEORGE POCOCK, TREADWELLS TRUSTEES NO 2
LIMITED AND CAS AS TRUSTEES OF THE CAS FAMILY TRUST
Third Respondents
EBS v CAS HC WN CIV-2011-485-2595 [15 April 2013]
MICAL SHANE JERVIS TREADWELL, BRYAN GEORGE POCOCK AND CAS AS TRUSTEES OF THE CAS COMMERCIAL TRUST
Fourth Respondents
Hearing: 11 April 2013
Counsel: J J Delany for EBS
H B Rennie QC and A R Davie for CAS Judgment: 15 April 2013
REASONS FOR DECISION OF DOBSON J (Interlocutory application as to admissibility of documents prepared for mediation)
[1] The issue in these proceedings is now the interpretation of a heads of agreement (the HoA) completed at the end of a mediation that related broadly to relationship property issues. In preparation for the argument, the respondent (CAS) sought a ruling as to the admissibility of a memorandum prepared by counsel then acting for the applicant (EBS), for the purposes of the mediation when that was pending. EBS opposed the document and its annexures being admitted.
[2] I respected Mr Delany’s request not to consider the documents that CAS seeks to have admitted, which have been annexed to an affidavit sworn by Mr Bryan Pocock on 27 March 2013. During the argument, it was treated as safe for me to assume that the memorandum constituted a form of “wish list” as to what EBS hoped to achieve from the mediation. In his reply, Mr Rennie clarified that it could more accurately be described as “an agenda” from her perspective, of what she sought to traverse during the mediation.
[3] On the day of the interlocutory hearing I issued a minute indicating that the documents were admissible at the forthcoming substantive hearing. I now provide my reasons for that ruling.
[4] The issues in these proceedings have evolved over time. Initially, EBS sought orders striking down the HoA, or having it declared unenforceable on grounds that included inadequate disclosure by CAS, and on grounds that it was entered into under duress.
[5] More recently, the stance of EBS has changed to the extent that she accepts the binding effect of the majority of the provisions in the HoA, except for a provision that would commit the parties to referring any disagreement between them as to the terms of the HoA back to the mediator who would rule upon the disagreement as an arbitrator. EBS argues that that provision purports to oust the jurisdiction of the Court, and should therefore be recognised as unenforceable and severed from the remainder of the agreement.
[6] In addition, EBS wishes to argue that the HoA does not preclude her pursuing claims under six statutory provisions against CAS, or certain trusts with which CAS or both of them have been associated. Accordingly, the substantive issue to be argued before me is now whether the HoA is to be interpreted as encompassing a settlement of any claims that EBS might have had under one or more of those provisions or, alternatively, whether it is to be interpreted as leaving open the prospect of claims still to be pursued by her under any of those provisions.
[7] The agreement of the parties with the mediator to conduct the mediation contemplated the preparation of documentation necessary to enable the mediation to take place.1 The agreement to mediate also had a broadly expressed provision about “privilege and confidentiality”, which began in the following terms:
The mediator and the parties and all persons brought into the mediation by their party, agree that the following are privileged and that they will not be disclosed or introduced as evidence in any arbitration, Tribunal or Court proceedings unless required by law:
There followed a list of items broad enough to include the memorandum prepared by counsel for EBS.
[8] A further component of the same part of the agreement to mediate provided:
1 Agreement to mediate, cl 2.3(a).
Every aspect of and communication within the mediation shall be without prejudice and the parties and the mediator agree that all information disclosed by or to them during the mediation … shall be kept absolutely confidential and not be used for any purpose other than the mediation unless required by law …
[9] Mr Delany argued that those provisions continued to apply, and that the parties were therefore precluded by contract from attempting to adduce documents generated in the course of the mediation, in any court proceedings.
[10] Mr Delany also argued that s 57 of the Evidence Act 2006 (the Act) recognises a form of privilege for documents generated in the course of negotiations for mediation, and that such privilege enures after the mediation to prevent such documents becoming admissible in subsequent court proceedings. That section provides as follows:
57 Privilege for settlement negotiations or mediation
(1) A person who is a party to, or a mediator in, a dispute of a kind for which relief may be given in a civil proceeding has a privilege in respect of any communication between that person and any other person who is a party to the dispute if the communication—
(a) was intended to be confidential; and
(b) was made in connection with an attempt to settle or mediate the dispute between the persons.
(2) A person who is a party to a dispute of a kind for which relief may be given in a civil proceeding has a privilege in respect of a confidential document that the person has prepared, or caused to be prepared, in connection with an attempt to mediate the dispute or to negotiate a settlement of the dispute.
(3) This section does not apply to—
(a) the terms of an agreement settling the dispute; or
(b) evidence necessary to prove the existence of such an agreement in a proceeding in which the conclusion of such an agreement is in issue; or
(c) the use in a proceeding, solely for the purposes of an award of costs, of a written offer that—
(i) is expressly stated to be without prejudice except as to costs; and
(ii) relates to an issue in the proceeding.
[11] During argument, attention also focused on s 65(5) of the Act, which deals with wavier of privilege. It provides:
A privilege conferred by section 57 (which relates to settlement negotiations or mediation) may be waived only by all the persons who have that privilege.
[12] In arguing for the admissibility of the memorandum and its annexures, Mr Rennie QC invoked the interests of justice, raising the prospect that the Court might be misled as to the context and content of the mediation if the parties were not permitted to adduce documents that were generated for the mediation and are claimed to throw light on the interpretation of the HoA that reflected the outcome of the mediation. Mr Rennie drew an analogy with the usual scope of documents going to the factual matrix which would be put to the Court in the course of arguments on the interpretation of a contract.
[13] As to the contractual constraints on subsequent use of documents as provided in the agreement to mediate, Mr Rennie argued that those constraints could not be read literally. He submitted that their effect was qualified by the provision in the HoA which purported to commit the parties to referring any subsequent disagreement as to the terms of the HoA to the mediator, who would then rule on the disagreement as an arbitrator. In the event of that occurring, that provision provided that the mediator/arbitrator:
… shall be entitled to rely on the events of the mediation in the formulation of his ruling together with any other submissions or evidence he deems necessary.
[14] Mr Delany objected to any reliance being placed on that provision because if his argument for severing the purported commitment to refer any disagreements to the mediator was successful, then, on his analysis, this provision would no longer comprise part of the HoA in any event. Alternatively, Mr Delany argued that the provision contemplating reference to what had occurred during the course of the mediation as an aid could not be taken as limiting the commitment to respect privilege and confidentiality that otherwise applied by virtue of the provisions in the agreement to mediate.
[15] It is convenient to consider first the constraints on admissibility imposed by the provisions in the Act. If the memorandum comes within s 57(1) or (2) and is not excluded from the application of that section by subs (3), then s 53(3) of the Act would entitle EBS to require that the document not be disclosed in the proceeding.
[16] The policy rationale for extending a privilege to communications arising in the course of attempts to negotiate or mediate settlement of disputes is the same as that traditionally recognised for “without prejudice” communications. Namely, to encourage parties to undertake entirely frank and unguarded exchanges in order to optimise the prospects of resolving the dispute within a context where nothing conveyed could subsequently be used against the party making the statement, in the event that a settlement is not concluded. Section 57 includes mediators within the circle of those obliged to respect the privilege created by the section, thereby resolving any doubts that may have existed prior to the Act about the efficacy of contractual provisions that may not have survived completion of the mediation, creating a risk that a mediator might otherwise become a compellable witness.
[17] Given that rationale for this form of privilege, a relevant distinction is to be drawn when considering the justification for the continued recognition of the privilege, depending on the circumstances in which the mediation was concluded. If the attempts at settlement were unsuccessful, then the rationale for the privilege continues as before, in that none of the statements made by a party can be used against it in the on-going dispute.
[18] On the other hand, where the dispute has been settled by an agreement at the conclusion of the mediation, but the parties subsequently have a dispute about the terms or application of a settlement agreement, then the continuation of privilege needs to be re-assessed in light of the absence of the original rationale for its recognition. The focus shifts to the appropriate scope of evidence for what will be a discrete contractual dispute over the terms or enforceability of an agreement to settle the original dispute.
[19] In Sheppard Industries Ltd v Specialized Bicycle Components Inc, the Court of Appeal was confronted with an appeal on admissibility of the evidence of an oral
agreement purportedly concluded during a mediation.2 Evidence of that oral agreement was subsequently challenged as inadmissible in light of the provisions of s 57 of the Act and the terms of an agreement to mediate that had substantially the same effect as that concluded in the present case. I respectfully adopt the Court of Appeal’s approach reflected in the observations that follow, and the citation adopted by it:
[41] Moreover, it was part of Mr Brown’s argument [counsel for the party opposing admission of the evidence] that the various exceptions to the rule identified by Lord Clarke continued to apply, save that the first (whether or not there was a settlement agreement) was subject to the intention of the parties. Accordingly, he accepted that, where there was a written settlement agreement, evidence of what occurred at the mediation could be given in support of a claim for rectification or an argument that the agreement resulted from misrepresentation, a breach of the Fair Trading Act, mistake, undue influence or fraud. He also accepted that such evidence could be given to show the factual matrix against which the agreement was made, thus assisting in its interpretation. And this could occur despite cl 5 of the mediation agreement. We consider that Mr Brown was right in this respect as the exceptions noted simply reflect the fact that settlement agreements are contracts and are subject to the same principles as apply to other contracts.
[42] In each of the instances just identified, the policy underlying the without prejudice rule is reinforced rather than undermined by the admission of the evidence. This is because the evidence goes either to whether there was a genuine settlement agreement or to its meaning – it does not go to the parties’ positions in the mediation on the merits of the underlying dispute, which is what that the rule seeks to protect. In Rudd v Trossacs Investments Inc [(2004) 244 DLR (4th) 758 (ONSC)] Lederman J made this point in the following terms:
The notions of privilege and confidentiality which cloak mediation sessions encourage parties to be frank and candid in seeking resolution without concern that, if no settlement is forthcoming, anything that they may have said at the mediation could be used against them. However, once a settlement is achieved but its interpretation is in question, disclosure of mediation negotiations may be necessary to ensure substantive justice. In such circumstances, disclosure of discussions will not undermine the mediation process as it is sought not as an admission against a party’s interest, but solely for the purpose of determining the specific terms of an agreement that the parties have arrived at.
[20] In circumstances such as those considered in Sheppard and Rudd, and in the present case, completion of a settlement agreement brings the previous dispute to an
2 Sheppard Industries Ltd v Specialized Bicycle Components Inc [2011] NZCA 346, [2011]
3 NZLR 620 (CA).
end. When the parties subsequently dispute the existence, scope or application of their settlement agreement, then they do not go back to re-argue the merits of the original claims or counterclaims. Rather, a new contractual dispute ensues that focuses on the meaning or application of the settlement agreement. The consistent approach in contractual disputes is to admit evidence of the factual matrix and context in which it was concluded, as a potential aid in objectively ascertaining the
meaning of the agreement the parties came to.3
[21] In the present case, the existence of a settlement agreement is not in dispute. It is the scope of the potential claims resolved by that agreement which is in dispute. Mr Rennie characterises that issue as whether the single agreement as concluded contains within it agreements to settle the various heads of claim that EBS now wishes to pursue. On Mr Rennie’s analysis, there is therefore an issue as to whether agreements to settle any of those heads of claim “exist”. Notwithstanding that it is a somewhat forced use of the concept of whether an agreement “exists”, I consider that Mr Rennie’s approach does conform with the legislative intent for the scope of the exception in s 57(3). The parties are agreed on the terms that were concluded by them, but they are at odds as to whether those terms incorporate agreements settling potential claims that EBS might bring under six discrete statutory provisions.
[22] If necessary, CAS could argue that EBS has put in issue in the subsequent proceedings the content of the memorandum prepared on her behalf for the purposes of the mediation. It is safe to infer that arguments to be advanced on behalf of EBS as to the confined scope of the HoA are treated by solicitors for CAS as being at odds with the scope of issues that were advanced at the mediation, as reflected in the memorandum prepared for the mediation by EBS’s then counsel. That would arguably be sufficient for waiver in terms of s 65(3) of the Act.
[23] Mr Delany argued that there could be no issue of waiver of privilege because, despite what might be attributed to EBS, s 65(5) recognised that the mediator would also have to waive the privilege that was extended to him by s 57(1), and that has not
occurred.
3 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444.
[24] Any position that the mediator might adopt on this point was not the subject of comment by counsel. It is difficult to see that the mediator would have any separate interest in resisting admission of the memorandum in the circumstances that have ensued since the mediation was concluded. I am not prepared to rule the memorandum inadmissible on this account, nor do I consider that ruling it admissible ought to be subject to a requirement for solicitors for CAS to obtain waiver of privilege by the mediator. The purpose of extending privilege in materials produced during the mediation to include the mediator is to prevent confidentiality being subverted by imposing requirements to produce on mediators, and potentially, in exceptional situations, to enable a mediator to protect his or her own position. There is no suggestion that those contingencies arise here.
[25] Accordingly, in terms of the statutory constraint, I am satisfied that this case is not distinguishable from the analysis applied by the Court of Appeal in Sheppard, and therefore EBS is not able to invoke s 57 to resist admission of the documents.
[26] Given the policy rationale for the statutory form of privilege, it is appropriate to approach the interpretation of the constraint in the agreement to mediate recognising similar purposes.
[27] The constraint is in the agreement which prescribes the process for mediating the dispute. Its essential purpose is to encourage full, frank and unguarded exchanges so as to optimise the prospects for achieving a resolution. Once that objective has been achieved, the scope of the on-going constraint should be confined, where interpreting it broadly or literally might be contrary to the interests of justice. Given the scope and purpose of s 57 of the Act, it would be most unusual if parties to an agreement to mediate could alter the scope of application of that section by insisting on the continued effect of a provision regulating the process for mediation, even after the mediation had been concluded successfully.
[28] Irrespective of whether the clause of the HoA that EBS seeks to have struck out on account of its purportedly ousting the jurisdiction of the Court is severed for that reason, it is appropriate to have regard to other content of that clause, to the
extent that it throws light on the process for any subsequent reconsideration of the terms of the HoA.
[29] The other content of that clause sensibly acknowledges the appropriateness of referring to matters arising in the course of the mediation as an aid to resolving subsequent disagreements. That provision contemplates that materials such as the memorandum in issue here would be available to the parties in any subsequent argument as to the scope or effect of the HoA.
[30] I am therefore satisfied that the original constraints in the agreement to mediate do not apply in the present circumstances and cannot avail EBS in resisting the admissibility of the memorandum. To apply the provisions in the agreement to mediate as Mr Delany argued would subvert the position intended to be preserved by s 57 of the Act.
[31] I reserve costs on this interlocutory application and will deal with them as an aspect of costs on the substantive argument.
Dobson J
Solicitors:
Chapman Tong Law, Wellington for EBS Treadwells, Wellington for CAS
Counsel:
J J Delany, Wellington
H B Rennie QC, Wellington
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