Most Read Contributor in New Zealand, September 2016
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
For now, New Zealand law takes the opposite view. There
remains, however, a case for change.
Confidentiality clauses and common law without prejudice
In Union Carbide Canada Inc. v Bombardier
Inc1 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
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
In drafting terms, this means explicit and absolute words should
be used to convey an intention to displace common law
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.2 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.3
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.4
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
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
We hope that New Zealand courts will give the Canadian decision
favourable consideration when the issue next arises for
1Union Carbide Canada Inc. v Bombardier
Inc., 2014 SCC 35 (8 May 2014) 2Sheppard Industries Ltd v Specialized Bicycle
Components Inc.  3 NZLR 620,  NZCA 346. Chapman
Tripp acted for an
intervener, the Arbitrators' and Mediators' Institute of
New Zealand, on the Supreme Court appeal 3Above, ,
 and (a) 4New Zealand Law Commission The 2013 Review of the
Evidence Act 2006 (NZLC R127, February 2013), at [10.82] 5Above, [10.83]
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
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