2. Is Mediation Confidential?

Mediation Confidentiality

by Michael Pryles 1

1.

7.1

7.2

Introduction

Mediation is becoming increasingly popular as a procedure for the resolution of commercial disputes. Its use in connection with domestic disputes is well entrenched in Australia, the

United States and other countries. It is now being promoted as suitable for the resolution of international commercial disputes. But what happens if mediation does not succeed. The parties are likely to resort to litigation or, if there is an appropriate agreement, arbitration. The question which this paper will address is whether communications made in the context of a mediation are confidential so that they cannot be disclosed in subsequent litigation or arbitration proceedings. It must be said at the outset that the questions of confidentiality which may arise are numerous and complex. They have certainly not been fully explored and legal analysis which has been undertaken to date is still in an embryonic state.

This paper does not aim to answer all the questions; that would be an impossible task. Nor does this paper purport to be a comparative study of all the authority which presently exists.

The aim is simply to note some of the questions which may arise and to examine some relevant

Australian and United States authority in point.

Before embarking on the modest task set in this paper, it is important to note two fundamental considerations which underlie the question at hand. These considerations are largely in conflict with each other. The first consideration is that mediation confidentiality is seen as important in order to encourage disputing parties to negotiate with each other and achieve a settlement of their dispute. This is regarded as a matter in the public interest to avoid litigation or costly arbitration. The second consideration is one which inclines against confidentiality in mediation. It rests on the importance, in a trial before a judge or an arbitrator, of having all the relevant evidence produced so that a fair decision can be reached.

This paper will touch on the following questions:

Are communications made in a mediation confidential?

Does the obligation of confidentiality extend to the mediator and the parties lawyers parties?

1 President, Australian Centre for International Commercial Arbitration; Director Australian Commercial Disputes

Centre; Court Member, London Court of International Arbitration; Consultant, Clayton Utz, Melbourne

MELWORKDOCS\13810\992905.1

1

7.3

7.4

7.5

Does it cover documents as well as statements?

What exceptions exist to the obligation of confidentiality?

Which law governs confidentiality?

2. Is Mediation Confidential?

Mediation may be confidential by virtue of the common law, the agreement of the parties or legislation. Each will briefly be noted.

Common Law

In Australia and England and Wales oral and written statements made on a 'without prejudice' basis during negotiations towards a settlement of a dispute are inadmissible in subsequent court proceedings relating to the same subject matter 2 . The 'without prejudice' rule is a rule governing the admissibility of evidence and is founded upon the public policy of encouraging litigants to settle their differences rather than litigate them to a finish 3 . The public policy behind the rule was elaborated upon by the Court of Appeal of England and Wales as follows:

' That the rule rests, at least in part, upon public policy is clear from many authorities, and the convenient starting point of the inquiry is the nature of the underlying policy. It is that parties should be encouraged so far as possible to settle their disputes without resort to litigation and should not be discouraged by the knowledge that anything that is said in the course of such negotiations (and that includes, of course, as much the failure to reply to an offer as an actual reply) may be used to their prejudice in the course of the proceedings.

They should, as it was expressed by Clauson J. in Scott Paper Co v Drayton Paper Works

Ltd. (1927) 44 R.P.C. 151, 156, be encouraged fully and frankly to put their cards on the table .' 4

A communication may be 'without prejudice' even though it is not expressed to be so:

' The rule applies to exclude all negotiations genuinely aimed at settlement whether oral or in writing from being given in evidence. A competent solicitor will always head any negotiating correspondence "without prejudice" to make clear beyond doubt that in the event of the negotiations being unsuccessful they are not to be referred to at the subsequent trial. However, the application of the rule is not dependent upon the use of the phrase

"without prejudice" and if it is clear from the surrounding circumstances that the parties were seeking to compromise the action, evidence of the content of those negotiations will, as to general rule, not be admissible at the trial and cannot be used to establish an admission or partial admission.

' 5

In Lukies v Ripley [No. 2] 6 Young J, of the Supreme Court of New South Wales cited with approval the dicta of Rolfe J in AWA Ltd v Daniels 7 that mediation is somewhat analogous to

2 See Boulle and Nessie, Mediation (Butterworths 2001).

3 Rush & Thompkins Ltd v Greater London Council [1989] AC 1280 at 1299 (per Lord Griffiths).

4 Cutts v Head [1984] Ch 290 at p. 306 (per Oliver L J).

5 Rush & Thompkins v Greater London Council , Supra at pp 1299-1300.

6 (1994) 35 NSWLR 283.

7 Rolfe J, 18 March 1992, unreported.


2

'without prejudice' discussions. Express or implied admissions made in the course of a mediation cannot be disclosed.

Agreement

It is common for parties entering into a mediation to sign a Mediation Agreement with the mediator. Standard mediation agreements in Australia frequently contain confidentiality provisions. For example, the mediation agreement of the Australian Commercial Disputes

Centre provides:

' 10 (a) The parties agree that as a condition of being present or participating in the mediation, they will, unless otherwise compelled by law, preserve confidentiality in relation to the course of proceedings within the mediation and in relation to any exchanges that may come into their knowledge, whether oral or documentary, concerning the dispute passing between any of the parties and the mediator or between any two or more of the parties within the mediation.

This Agreement does not restrict the parties' freedom to disclose and discuss the course of proceedings and exchanges within the mediation with advisers and insurers of a party to the dispute provided that any such disclosures and discussions will only be on this same basis of confidentiality being observed by those advisers and insurers.

(b)

(c)

(d)

The parties agree not to call upon or seek to subpoena the mediator or ACDC to give evidence or to rely on or introduce as evidence in arbitral or judicial proceedings:

(i) views expressed or suggestions made by the mediator or either party with respect to a possible settlement of the dispute;

(ii) admissions made by either party;

(iii) proposals for settlement of the dispute made by the mediator or either party;

(iv) the fact that either party has indicated willingness to accept a proposal for settlement made by the mediator;

(v) documents presented at or in connection with the mediation, such as position papers, unless those documents are otherwise discoverable, or notes made within the mediation by the mediator or by any party;

(iv) any matter arising in connection with the mediation.

The parties agree not to seek to join the mediator or any officer, employee, servant or agent of ACDC in any legal proceedings brought by third parties, whether or not the proceedings relate to this dispute.

Every aspect of every communication within the mediation shall be "without prejudice" except that the mediator may communicate progress and results to

ACDC.

(e) No statements or comments, whether written or oral , made or used by the parties or their representatives in preparation for or in the course of the mediation shall be relied upon to found or maintain any action for defamation, libel, slander or any related complaint, and this document may be used to defend any such action.

'

The mediation agreement of the Law Institute of Victoria, Australia provides, inter alia:


3

' 2.3

2.4

2.5

The mediator will not disclose to any person (including a party) information disclosed by one party to the mediator alone, without the prior consent of the disclosing party.

The mediator must not disclose to any person information obtained during the mediation without the prior consent of the parties, unless compelled by law to do so.

A party must not disclose to any person other than that party's professional advisors for the purposes of the mediation information obtained during the mediation without the prior written consent of the disclosing party, unless compelled by law to do so.

2.6 The parties agree that they will not at any time before, during or after the mediation call the mediator as witness in any legal or administrative proceedings concerning the dispute .'

Sometimes the lawyers, as well as the parties and the arbitrator, are required to sign confidentiality agreements 8 .

Legislation

Many jurisdictions have enacted legislation which makes mediation confidential. Commonly this is directed at Court annexed mediation. For example, Section 24A of the Supreme Court

Act 1986 of the State of Victoria, Australia provides:

' 24A. Where the Court refers a proceeding or any part of a proceeding to mediation, unless all the parties who attended the mediation otherwise agree in writing, no evidence shall be admitted at the hearing of the proceeding of anything said or done by any person at the mediation .'

Likewise Rule 50.07 of the Rules of the Supreme Court of Victoria provide, in paragraph (1), that the Court may, with or without the consent of any party, order that a proceeding or any part of a proceeding be referred to a mediator. Paragraph (6) provides that except where all the parties who attended the mediation in writing agree, no evidence shall be admitted or anything said or done by any person at the mediation 9 .

There are similar legislative provisions in the United States. Section 1119 of the Evidence

Code of California provides:

' Except as otherwise provided in this chapter:

(a) No evidence of anything said or any admission made for the purpose of, in the course of, or pursuant to, a mediation or a mediation consultation is admissible or subject to discovery, and disclosure of the evidence shall not be compelled, in any arbitration, administrative adjudication, civil action, or other noncriminal proceeding in which, pursuant to law, testimony can be compelled to be given.

(b) No writing, as defined in Section 250, that is prepared for the purpose of, in the course of, or pursuant to, a mediation or a mediation consultation, is admissible

8 See Carter Holt Harvey Forests Ltd v Sunnex Logging Ltd [2001] 3 NZLR 343 at p. 345.

9 Similar provisions are found in the other Australian States and Territories.


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(c) or subject to discovery, and disclosure of the writing shall not be compelled, in any arbitration, administrative adjudication, civil action, or other noncriminal proceeding in which, pursuant to law, testimony can be compelled to be given.

All communications, negotiations, or settlement discussions by and between participants in the course of a mediation or a mediation consultation shall remain confidential.

'

The Uniform Mediation Act , promulgated by the National Conference of Commissioners on uniform state laws, provides for confidentiality of mediations in Section 4:

' 4. (a)

(b)

Except as otherwise provided in Section 6, a mediation communication is privileged as provided in subsection (b) and is not subject to discovery or admissible in evidence in a proceeding unless waived or precluded as provided by Section 5.

In a proceeding, the following privileges apply:

(1) A mediation party may refuse to disclose, and may prevent any other person from disclosing, a mediation communication.

(2)

(3)

A mediator may refuse to disclose a mediation communication, and may prevent any other person from disclosing a mediation communication of the mediator.

A non-party participant may refuse to disclose, and may prevent any other person from disclosing, a mediation communication of the non-party participant.

(c) Evidence or information that is otherwise admissible or subject to discovery does not become inadmissible or protected from discovery solely by reason of its disclosure or use in a mediation .'

Restrictions are imposed on a mediator by Section 7(a) as follows:

' 7(a) Except as required in subsection (b), a mediator may not make a report, assessment, evaluation, recommendation, finding, or other communication regarding a mediation to a court, administrative agency, or other authority that may make a ruling on the dispute that is the subject of the mediation.

'

(b) ...

(c)

Mention should also be made of the UNCITRAL Model Law on International Commercial

Conciliation.

Articles 9 and 10 of the Model Law provide for confidentiality as follows:

'9

A communication made in violation of subsection (a) may not be considered by a court, administrative agency or arbitrator.'

10(1)

Unless otherwise agreed by the parties, all information relating to the conciliation proceedings shall be kept confidential, except where disclosure is required under the law or for the purpose of implementation or enforcement of a settlement agreement.

A party to the conciliation proceedings, the conciliator and any third party, including those involved in the administration of the conciliation proceedings, shall not in arbitral, judicial or similar proceedings rely on, introduce as evidence or give testimony or evidence regarding any of the following:


5

3.

(a)

(b)

(c)

(d)

(e)

(f)

(2)

(3)

(4)

(5)

An invitation by a party to engage in conciliation proceedings or the fact that a party was willing to participate in conciliation proceedings.

Views expressed or suggestions made by a party in the conciliation in respect of a possible settlement of the dispute.

Statements or admissions made by a party in the course of the conciliation proceedings.

Proposals made by the conciliator.

The fact that a party had indicated its willingness to accept a proposal for settlement made by the conciliator.

A document prepared solely for purposes of the conciliation proceedings.

Paragraph (1) of this article applies irrespective of the form of the information or evidence referred to therein.

The disclosure of the information referred to in paragraph (1) of this article shall not be ordered by an arbitral tribunal, court or other competent governmental authority and, if such information is offered as evidence in contravention of paragraph (1) of this article, that evidence shall be treated as inadmissible. Nevertheless, such information may be disclosed or admitted in evidence to the extent required under the law or for the purposes of implementation or enforcement of a settlement agreement.

The provisions of paragraphs (1), (2) and (3) of this article apply whether or not the arbitral, judicial or similar proceedings relate to the dispute that is or was the subject matter of the conciliation proceedings.

Subject to the limitations of paragraph (1) of this article, evidence that is otherwise admissible in arbitral or judicial or similar proceedings does not become inadmissible as a consequence of having been used in a conciliation.

Exceptions and Limitations to Confidentiality

Australia / England

Confidentiality founded on the 'without prejudice' privilege at common law is subject to a number of exceptions. The parameters of these exceptions are not always clear. Two commentators have listed the exceptions as follows 10 . Firstly it is said that the privilege only applies to communications made when there is a dispute or there are on-going negotiations between the parties. Secondly, privilege may only be claimed by the parties to the 'without prejudice' negotiations and their solicitors. Thirdly, where the negotiations conducted without prejudice lead to a settlement, the agreement that results from a mediation is not itself privileged. Finally, an issue has arisen as to whether or not the made in the course of 'without prejudice' discussions is admissible on the issue of costs 11 .

10 Boulle & Nessie, Supra N2 at 490-491.

11 See in this regard Unilever Plc v The Procter & Gamble Co [1999] 2 All ER 691; Cutts v Head [1984] Ch 290;

Calderbank v Calderbank [1976] Fam 93.


6

In Unilever Plc v The Proctor & Gamble Co 12 Laddie J outlined some circumstances where without prejudice negotiations, which would otherwise be privileged, can be disclosed. The first is where the entitlement to rely on the privilege may be treated as waived. Secondly a court may come to the conclusion that the claim to without prejudice status is not bona fide.

Laddie J cited with approval the dicta of Hoffmann LJ in Forster v Friedland 13 that 'whatever the parties may stipulate the rule covers only those communications which are genuinely aimed at a settlement to avoid litigation'. Thirdly, Laddie J stated that there are occasions where, even though the parties treated the negotiations as being without prejudice, the Court refuses to allow the claimed privilege. In all such cases there are public policy considerations favouring disclosure which override those encouraging the settlement of disputes. The learned judge went on to observe that these are mainly cases in which the without prejudice nature of the discussions was being used to cover some form of reprehensible behaviour of one or both of the parties. In such cases, it is necessary to balance the conflicting public interests involved.

In Australia, some interesting questions have arisen as to the ambit of without prejudice privilege. They touch on the question of whether the privilege is confined to admissions or include objective facts and, in particular, whether a fact can be proven by objective evidence when the person only became aware of that fact in the course of a mediation. These questions were canvassed by two judges in New South Wales in the AWA Ltd v Daniels litigation.

Reference has already been made to the judgment of Rolfe J 14 . An interesting judgment was also delivered by Rogers, who was then the Chief Judge in the commercial division of the

Supreme Court of New South Wales 15 . AWA Limited, commenced proceedings against it auditors for allegedly failing to audit its accounts properly. The defendants cross-claimed against all of the former directors. The defendants and the former directors, as well as denying liability, sought relief from the consequences of any breach of duty pursuant to the provisions of section 535 of the Companies (NSW) Code 1981. A mediation was ordered, but it was unsuccessful. In the mediation process AWA Limited disclosed the existence of a document containing a full indemnity for its directors in respect of the legal proceedings. When the litigation resumed, following the unsuccessful mediation, the auditors sought to obtain a copy of the indemnity deed. AWA Limited refused to produce it on the ground that the mediation had been conducted on a without prejudice basis. Rolfe J decided that the indemnity deed had to be produced. He said:

' They seek to prove, by admissible evidence, a fact to which reference was made at mediation not by reference to the statement but to the factual material which sourced the statement. A finding to the contrary would mean that irrespective of relevance to issues the

12 Supra.

13 1992, Court of Appeal of England and Wales, unreported.

14 Supra.

15 AWA Ltd v Daniels (1992) 7 ACSR 463.


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statement at mediation made the factual material upon which it was based immune from subsequent consideration by the Court ..

. ' 16

When the hearing of the case resumed before Roger CJ, the auditors sought to tender the deeds of release and indemnity. AWA Limited and the former directors objected to the tender of the deeds on two grounds, first that they were protected by obligations of confidentiality and secondly that the deeds were not relevant to the issues between the parties. As to the first basis, the auditors contended that it had been dealt with in the judgment of Rolfe J.

Rogers CJ noted the opinion of Rolfe J that objective evidence would not be excluded not merely because a party learned of the relevant facts in the course of a mediation. Rogers CJ refused to go that far. He observed:

' Rolfe J was prepared to take the view (ib at 10) that objective evidence will not be excluded merely because the defendants learnt of the relevant facts in the course of the mediation.

With very great respect I would prefer to consider that question further if, and when, it arises on some future occasion. If the fact be that the other side has absolutely no inkling of some matter, which, if known about is capable of being established by objective evidence, but which would not ordinarily come to the knowledge of the other side in the normal progress of litigation and its existence is revealed only by a statement made in the course of, and for the purposes, of the mediation, I would hesitate long before concluding that the objective evidence so revealed is admissible. It is of the essence of successful mediation that parties should be able to reveal all relevant matters without an apprehension that the disclosure may subsequently be used against them. As well were the position otherwise , unscrupulous parties could use and abuse the mediation process by treating it as a gigantic, penalty free discovery process.

'

The reason Roger CJ did not find it necessary to answer the question apparently addressed by

Rolfe J was that the solicitor for the auditors was alive to the possibility of the existence of the objective material before the mediation meeting. Secondly, if relevant, the deeds should have been discovered.

While Rogers CJ did not agree with the view of Rolfe J that objective evidence would not be excluded merely because a party learned of the relevant facts in the course of the mediation, his Honour acknowledged that there were powerful arguments in favour of the approach of

Rolfe J. Firstly, as a matter of principle, it would be entirely too easy to sterilise otherwise admissible, objective evidence, simply by saying something about it in the course of the mediation, even if the subject was irrelevant to the mediation discussion. Secondly there was an argument of practicality. It would much increase costs in the length of cases if it were necessary to enquire whether or not the parties seeking to leave the evidence had some independent knowledge or inkling of it prior to the disclosure at the mediation. In most cases the relevant evidence, in the documentary form, would have to be discovered, at least in a common law trial. But there was at least one situation where the difference in views between

Rolfe J and Rogers CJ would come sharply into focus. In the words of Rogers CJ:

16 This extract of the Judgment of Rolf J is reproduced in the judgment of Judge J in Lukies v Ripley [No 2], Supra


8

' The difficult situation I have in mind is where, but for the happenstance that a statement is made, in the belief that it and everything it might lead to would remain confidential, the objective facts and evidence of them would remain unknown to the other party. That of course would be a rare case indeed. If the objective evidence were in a documentary form, in the possession of the party making a statement about a matter referred to in it, then, if the subject was relevant the document would be discoverable. It is where the evidence, if documentary, is not in the control, or possession, of the party seeking to protect its contents, or, if not documentary, the material will remain unknown to the other party but for the disclosure at the mediation that the problem may arise .'

California

In Foxgate Homeowners' Association v Bramalea California, Inc 17 the Supreme Court of

California had to consider whether there were exceptions to confidentiality in court ordered mediations in the context of clear statutory provisions. Section 1119 of the Evidence Code of

California has already been noted. It is supplemented by section 1121 which provides:

' Neither a mediator nor anyone else may submit to a court or other adjudicative body, and a court or other adjudicative body may not consider, any report, assessment, evaluation, recommendation, or finding of any kind by the mediator concerning a mediation conducted by the mediator other than a report that is mandated by court rule or other law and that states only whether an agreement was reached, unless all parties to the mediation expressly agree otherwise in writing, or orally in accordance with Section 1118.

'

In the face of these provisions, the Court of Appeal held that notwithstanding sections 1119 and 1121, a mediator may report to the Court a party's failure to comply with an order of the mediator and to participate in good faith in the mediation process. As the Supreme Court noted, the case involved the intersection between Court ordered mediation, the confidentiality of which is mandated by law, and the power of a court to control proceedings before it and other persons 'in any manner connected with a judicial proceeding before it' 18 .

In Foxgate the Court appointed a retired judge as a special master and mediator. The judge was given the power to preside over mediation conferences and to make orders governing attendance of the parties and their representatives at those sessions. One of the parties was delinquent in attending the mediation sessions and in having his expert attend, as directed. The mediator filed a report with the Court outlining the failings of the delinquent party and recommending that that party be ordered to reimburse the other parties for the expenses incurred as a result of the cancelled mediation sessions. The Court of Appeal held that this report could be filed. The Court of Appeal's opinion is summed up by the Supreme Court as follows:

' The language of sections 1119 and 1121 is clear and unambiguous but the Court of appeal reasoned that the Legislature did not intend these sections to create 'an immunity from n6, at pp 288-89.

17 25 P.3d 1117(2001).

18 Code of Civil Procedure, Section 128, Subd. (a) (5).


9

sanctions, shielding parties to court-ordered mediation who disobey valid orders governing their participation in the mediation process, thereby intentionally thwarting the process to pursue other litigation tactics.' The court therefore crafted the exception in dispute here. As stated and as applied, the exception created by the Court of Appeal permits reporting to the court not only that a party or attorney had disobeyed a court order governing the mediation process, but also that the mediator or reporting party believes that a party has done so intentionally with the apparent purpose of derailing the court-ordered mediation and the reasons for that belief.

'

The Supreme Court disagreed with the Court of Appeal and took the view that the mediator's report could not be received. The Court said:

' We do not agree with the Court of Appeal that there is any need for judicial construction of sections 1119 and 1121 or that a judicially crafted exception to the confidentiality of mediation they mandate is necessary either to carry out the purpose for which they were enacted or to avoid an absurd result. The statutes are clear. Sections 1119 prohibits any person, mediator and participants alike, from revealing any written or oral communication made during mediation. Section 1121 also prohibits the mediator, but not a party, from advising the court about conduct during mediation that *14 might warrant sanctions. It also prohibits the court from **1126 considering a report that includes information not expressly permitted to be included in a mediator's report. The submission to the court, and the court's consideration of, the report of Judge Smith violated sections 1119 and 1121.

Because the language of sections 1119 and 1121 is clear and unambiguous, judicial construction of the statutes is not permitted unless they cannot be applied according to their terms or doing so would lead to absurd results, thereby violating the presumed intent of the

Legislature. Diamond Multimedia Systems Inc v Superior Court (1999) 19 Cal.4th 1036,

1047, 80 Cal.Rptr 2d 828, 968 P.2d 539; California School Employees Assn v Governing

Board (1994) 8 Cal.4th 333, 340, 33 Cal.Rptr.2d 109, 878, P.2d 1321). Moreover, a judicially crafted exception to the confidentiality mandated by sections 1119 and 1121 is not necessary either to carry out the legislative intent or to avoid an absurd result.

'

The Supreme Court then looked at the legislative intent and remarked:

' The legislative intent underlying the mediation confidentiality provisions of the Evidence

Code is clear. The parties and all amici curiae recognise the purpose of confidentiality

***653 is to promote 'a candid and informal exchange regarding events in the past ... This frank exchange is achieved only if the participants know that what is said in the mediation will not be used to their detriment through later court proceedings and other adjudicatory processes.' (Nat Conf of Comrs on U.State Laws, U Mediation Act (May 2001) 2,

Reporter's working notes, 1; see also Note, Protecting Confidentiality in Mediation (1984)

98 Harv. L.Rev. 441, 445. ["Mediation demands ... that the parties feel free to be frank not only with the mediator but also with each other ... Agreement may be impossible if the mediator cannot overcome the parties' wariness about confiding in each other during these sessions.'])

As all parties and amici curiae recognise, confidentiality is essential to effective mediation, a form of alternative dispute resolution encouraged and, in some cases, required by, the

Legislature. Implementing alternatives to judicial dispute resolution has been a strong legislative policy since at least 1986. In that year the Legislature enacted provisions for dispute resolution programs, including but not limited to mediation, conciliation, and arbitration, as alternatives to formal court proceedings which it found to be 'unnecessarily costly time-consuming, and complex' as contrasted with noncoercive dispute resolution.

(Bus. & Prof.Code 465, 466). Thereafter, by a 1988 amendment of Evidence Code section

703.5 (Stats 1988, ch 281, 1, p. 977), the Legislature made arbitrators as well as judges incompetent to testify about proceedings over which they presided, and, as noted *15 above,

1 1993 amendment added mediators as persons incompetent to testify. (Stats. 1993, ch 114,

1, p. 1194). In 1993 the Legislature gave further impetus to the policy of encouraging mediation when it enacted Code of Civil Procedure section 1775 et seq. (Stats. 1993, ch

1261, 4, p. 7323), which created a mandatory arbitration or mediation pilot project for Los

Angeles County. Statements made by parties during mediation were expressly made subject


10

to the confidentiality provisions of the Evidence Code. (Code Civ. Proc 1775.10). The

Legislature extended the same confidentiality to statements made during mediation provided for in a recently enacted mediation pilot program .'

The Court was able to distinguish two previous Californian cases upholding admission statements made during mediation in which no statutory exception to confidentiality applied.

The first was Rinaker v Superior Court 19 which involved a civil harassment action between a victim and juvenilles who had engaged in a rock throwing incident. The minors who were the subject of the hearing claimed that the victim's statements at the mediation session differed from his testimony at the delinquency hearing. The Court of Appeal held that the statutory right on confidentiality must yield to the minor's due process rights to put on a defence and confront, cross examine and impeach the victim witness with his prior inconsistent statements.

In the present case, however, the Supreme Court noted that the plaintiff had no comparable supervening due-process-based right to use evidence on statements and events at the mediation session.

Another Californian case held that a mediator's testimony about events during mediation was admissible because the evidence was necessary to establish whether a defaulting party had been competent to enter into a settlement that another party sought to enforce 20 . In that case the plaintiff had waived confidentiality and the agreement in question fell within the exception of section 1123 for settlement agreements resulting from mediation if the agreement provided that it was enforceable. The Supreme Court distinguished the earlier decision on the basis that the parties had waived confidentiality.

The Supreme Court concluded:

' Therefore, we do not agree with the Court of Appeal that the court may fashion an exception for bad faith in mediation because failure to authorise reporting of such conduct during mediation may lead to 'an absurd result' or fail to carry out the legislative policy of encouraging mediation. The Legislature has decided that the policy of encouraging mediation by ensuring confidentiality is promoted by avoiding the threat that frank expression of viewpoints by the parties during mediation may subject a participant to a motion for imposition of sanctions by another party or the mediator who might assert that those views constitute a bad faith failure to participate in mediation. Therefore, even were the court free to ignore the plain language of the confidentiality statutes, there is no justification for doing so here.

'

The strong language of the Supreme Court in Foxgate suggests that there are few if any exceptions to the confidentiality mandated by Sections 1119 and 1121 of the California

Evidence Code. But a subsequent decision of the Court of Appeal of California, Second

Appellate District, prescribes an important exception. It concerns a situation not entirely

19 74 Cal. Rpter. 2 D 464 (1998).

20 Olam v Congress Mortgagee Company 68F.Supp. 2D 1110.


11

dissimilar from that considered by the Supreme Court of New South Wales in the AWA Ltd litigation.

A recent Californian case is Rojas v Los Angeles County Superior Court

21

. In this case the

Court had to consider whether the mediation privilege in Section 1119 and 1120 of the

Evidence Code applies to what the court described as 'raw data' or 'non-derivative' evidentiary material. The petitioners sought production and inspection of material produced by parties in connection with a mediation held in prior litigation to which the petitioners were not parties.

The material sought included 'raw data' as well as a compilation of data prepared for the mediation. The trial court held that all of the material was protected from production. The petitioners appealed to the Court of Appeal which held that mediation privilege does not apply to factual material and only provides qualified protection for amalgamated materials.

Petitioners were the tenants of an apartment complex owned by various parties (together referred to as 'Coffin'). The apartment complex was built by various contractors (collectively called 'Developers'). Coffin became the owner of the building in 1994 and in December 1996

Coffin commenced an action against the Developers alleging numerous construction defects that had resulted and water leakage, in turn causing the presence of toxic molds and other microbes on the property. The construction defects included problems with the plumbing, electrical and ventilation systems.

The parties entered into a case management order which provided that a special master would be appointed to oversee discovery, special documents would be deposited into and held at a document repository, Coffin would prepare a defect list, the developers would be permitted to conduct destructive testing, the matter would be submitted to mediation and the parties' experts would meet to discuss the scope of repair. The final defect list was required to contain the type, extent and location of defects.

In due course Coffin prepared a preliminary defect list which identified defects in the structure of the apartment complex as well as mould infestation. In April 1998 Coffin began air testing at the apartment complex. Thereafter one of the buildings of the apartment complex was closed and the tenants moved into two other buildings. Sometime thereafter the underlying litigation settled. The settlement provided that 'the terms of this agreement shall remain confidential as between the parties, their counsel, their consultants and their insurance carriers and their representatives ...'. Four months after the settlement, the petitioners, many of whom were children, commenced an action against Coffin and the Developers. The petitioners contended that faulty plumbing, roofing, sheet metal and stucco work caused free water to

21 126 Cal. Rptr. 2d 97 (2002).


12

circulate in the building, permitting microbes to infest the building. As a result the petitioners suffered numerous health problems.

The petitioners served a request for production of documents in five categories:

'In November 1999, petitioners served a request for production of documents, in which petitioners sought production of, among other things, five self-described categories that included: [***7] (1) all discovery and responses exchanged between the parties to the underlying litigation; (2) "all actual physical evidence evidencing the condition of the buildings, including, without limitation, photographs, videotapes, test samples, test reports

(such a spore and colony counts), and any physical evidence that was removed from the buildings and saved (drywall, plumbing, framing members, etc.)"; (3) writings describing the buildings, including written notes of observations made during building inspections, and witness interviews -- "this category [*1069] would also include notes describing what the witnesses did and saw while conducting [**102] inspections or repairs of the buildings;" (4) and (5) writings evidencing the opinions of expert consultants, both those communicated to the defendants and those not communicated to the defendants.'

Subsequently the petitioners brought a motion to compel production of the documents. Coffin took the position that all documents had been prepared for the mediation and were therefore protected by the mediation privilege. The Judge who heard the motion decided that the documents submitted in compilation form for the mediation were privileged.

Thereafter the petitioners moved to compel the production of physical evidence, including photographs of the project, video tapes of the project, all raw data regarding air sampling for mold spores, raw data from destructive testing and any and all results from destructive testing.

Coffin opposed the motion on the grounds that the photographs and other raw evidence were prepared for the purpose of mediation, that in the absence of mediation confidentiality they would not have produced the material, including the photographs and other raw data in the mediation binder. They relied on the case management order underlying the litigation in which any document prepared for the purpose of mediation was protected. Further they contended that the mediation privilege did not support any distinction between documents or material that were part of a compilation and those which were not.

The second motion was heard by a different Judge. He indicated he was troubled by applying the mediation privilege to raw evidence and said that you 'can't just put a piece of evidence in a mediation and make it disappear'. The matter came to the Court of Appeal. Before the Court of Appeal Coffin relied on the case management order and on the language of Section 1119 of the Evidence Code.

The Court of Appeal noted that the Evidence Code, Section 1119, provides a non-disclosure privilege for certain communications made during mediation. Of particular relevance was that part of the Section which provides that 'no writing, as defined in Section 250, that is prepared for the purpose of, in the course of, or pursuant to, a mediation or a mediation consultation, is admissible or subject to discovery ...'. However the Court of Appeal held that privilege from


13

disclosure did not apply to 'evidence'. The Court placed great reliance on Section 1120 of the

Evidence Code which provides, in part, that:

'Evidence otherwise admissible or subject to discovery outside of a mediation or a mediation consultation shall not be or become inadmissible or protected from disclosure solely by reason of its introduction or use in a mediation or a mediation consultation'.

The Court said:

'Construing these statutes, we conclude that the language of sections 1119 and 1120 is clear and unambiguous and that the plain language of the statute's privilege from disclosure does not apply to "evidence." Rather, sections 1119 and 1120 are meant to protect the substance of mediation, i.e., the negotiations, communications, admissions, and discussions designed to [*1075] reach a resolution of the dispute at hand. These statutes do not protect pure evidence.

First, Evidence Code section 140 [***23] defines "evidence" as "testimony, writings, material objects, or other things presented to the senses that are offered to prove the existence or non-existence of a fact." Section 140 thus covers both oral statements, written statements, and physical evidence. On the other hand, Section 1119 breaks the "evidence" of section 140 into two groups: it protects "evidence" of "anything said" or "admission made," which are oral or written statements, in tangible or in tangible form. Section 1119 also protects "writings," which are "defined very broadly to include all forms of tangible expression, including pictures and sound recordings." (7 Cal.L.Rev.Comm. Reports 1

(1965).) Nowhere does section 1119 say it protects hard evidence, i.e., what section 140 defines as "material objects, or other things presented to the senses that are offered to prove the existence or non-existence of a fact." If the statute were meant to protect all evidence, including raw evidence, section [**107] 1119 would not specifically define the particularized types of evidence (oral and written) it does protect. Section 1119 reiterates that "all communications, negotiations, or settlement discussions" occurring during [***24] the mediation shall remain confidential. Thus, the language of section 1119 read alone supports the conclusion that it does not protect raw evidence, but only protects statements and writings'.

The Court said that this reading of Section 1119 was supported by Section 1120:

'Furthermore, turning to section 1120, it provides that "[ e ] vidence otherwise admissible

(italics added) or subject to discovery outside of a mediation ... shall not be or become inadmissible or protected from disclosure solely by reason of its introduction or use in a mediation or a mediation consultation." This section does not cover writings, statements, or communications; it only covers "evidence". This word choice implies that because writings, statements and communications are protected, something remains that is unprotected. That thing which is unprotected is "evidence" which is "otherwise" admissible. "Otherwise admissible" evidence therefore is relevant evidence that is otherwise not covered by the mediation privilege and not subject to exclusion under some other rule or privilege set forth in the Evidence Code. (§§ 351,352).

In addition, section 1120 excludes from protection evidence which is "otherwise" "subject to discovery outside of mediation." Evidence [***25] subject to discovery is very broad, and

"any party may obtain discovery regarding any matter, not privileged, that is relevant to the subject matter involved in the pending action or to the determination of any motion made in that action, if the matter either is itself admissible in evidence or appears reasonably calculated to lead to the discovery of admissible evidence ..." ( Code Civ. Proc., §2017 , subd.

(a).) [*1076] Again, this language, which is broader than just merely admissible evidence, implies that the scope of the mediation privilege does not cover absolutely everything that might happen to be used during a mediation.

Section 1120 explicitly states that it does not protect from disclosure evidence "solely by reason of its introduction or use in a mediation or mediation consultation." This reinforces our interpretation that mediation confidentiality is meant to protect the substance of the negotiations and communications in furtherance of the mediation, not the factual basis of


14

those negotiations. Thus, even if evidence is used or introduced in the mediation, it is not protected'.

Having concluded that 'evidence' is not protected, the Court then went on to consider what guidance it could use to determine the scope of the evidence protected. The Court referred to the 'work product doctrine' which, in California, protects an attorney's work by preventing it being used by others. A distinction is drawn between unprotected factual material and protected mental processes. Three levels of protection exist. Firstly core work product, that is, material solely reflecting an attorney's impressions, conclusions, opinions or legal research of theories is entitled to absolute protection. Qualified protection exists for work product which is an amalgamation of actual information and attorney thoughts, impressions and conclusions.

The Court described this intermediate position as involving derivative material. Lastly purely factual material receives no work product protection.

The court considered that the work product doctrine provided a useful guide for determining mediation privilege. In relation to the intermediate category of qualified protection for derivative material the Court stated that a balancing test should be carried out as follows:

'Given that the framework of discoverable materials under the work-product doctrine closely mirrors the express statutory privilege exception of section 1120, which applies to "evidence otherwise admissible" or items "subject to discovery outside of a mediation," we read it to protect materials in same manner as the work product doctrine. However, in order to effectuate the purposes of the mediation privilege, with respect to derivative materials, they are discoverable only upon a showing of good cause, which requires a determination of the need for the materials balanced against the benefit to the mediation privilege obtained by protecting those materials from disclosure. Because petitioners were not parties to the underlying litigation and were not joined as parties to that litigation, they do not have access to much material that has been removed or destroyed'.

In relation to the non-derivative material the Court concluded as follows:

'Applying this framework to the instant case, we find that non-derivative material, such as raw test data, photographs, and witness statements, are not protected by section 1119. To the extent any of the materials sought are part of a [***34] "compilation" prepared for the mediation or put together in such a manner that it discloses the attorneys' or parties evaluations of the strengths and weaknesses of the case or discloses their negotiation posture, if it can be reasonably detached from the compilation, it must be produced. Thus, photographs in a book labelled "defects" would be removed from the book and given to petitioners singly. If the photographs contain arrows or captions, such arrows or captions may be removed. We point out photographs are not protected simply because no pictures were taken of unblemished or non-defective portions of the Apartment Complex, and mold and air samples are not protected merely because samples may have only been taken inside the Apartment Complex or in areas where construction defects were [*1080] located. It is axiomatic that most, if not all, of the pictures would depict defects in the instant case; it is also inescapable that mold and air sampling would have more likely been done in damaged units. Conversely, test data that is in a chart that in any fashion indicates the attorneys' or parties evaluation of the case or their negotiation posture, it is protected. However, to the extent such [***35] test data may be extrapolated from the chart and given to petitioners, it must be produced. Such determinations shall be made by the trial court after a careful in camera review of the materials'.

The Court was clearly influenced by the plight of the petitioners. If it were not possible to separate the material which was discoverable from that which was not the Court was of the


15

view that it should be produced because the petitioners had not been parties to the earlier law suit and the relevant evidence had disappeared following the remedial works carried out the apartment complex.

Rojas is not inconsistent with the earlier decision of the Supreme Court in Foxgate . The latter did not concern hard evidence but was directed to the admissibility of a report of the mediator commenting on the attitude of one of the parties to the mediation. Nor, of course, did the

Supreme Court have to consider the impact of Section 1120 of the Evidence Code.

Nevertheless in the earlier case the Supreme Court spoke in unqualified terms of the importance of confidentiality in mediation and the exception to confidentiality recognised by the Court of Appeal in Rojas certainly marks a significant inroad into the doctrine of confidentiality as recognised in California.

Uniform Mediation Act

The provisions of the Uniform Mediation Act prescribing confidentiality were previously noted. The Uniform Act also contains provisions dealing with the exclusion of privilege.

Section 5 provides that privilege may be waived but waiver must be express and cannot be implied:

(b)

(c)

'SECTION 5. WAIVER AND PRECLUSION OF PRIVILEGE.

(a) A privilege under Section 4 may be waived in a record or orally during a proceeding if it is expressly waived by all parties to the mediation and:

(1) in the case of the privilege of a mediator, it is expressly waived by the mediator; and

(2) in the case of the privilege of a non-party participant, it is expressly waived by the non-party participant.

A person that discloses or makes a representation about a mediation communication which prejudices another person in a proceeding is precluded from asserting a privilege under Section 4, but only to the extent necessary for the person prejudiced to respond to the representation or disclosure.

A person that intentionally uses a mediation to plan, attempt to commit or commit a crime, or to conceal an ongoing crime or ongoing criminal activity is precluded from asserting a privilege under Section 4'.

Section 6 describes a number of exceptions to privilege:

'SECTION 6. EXCEPTIONS TO PRIVILEGE.

(a) There is no privilege under Section 4 for a mediation communication that is:

(1) in an agreement evidenced by a record signed by all parties to the agreement;


16

(c)

(d)

(b)

(2)

(3)

(4)

(5)

(6)

(7) available to the public under [insert statutory reference to open records act] or made during a session of a mediation which is open, or is required by law to be open, to the public; a threat or statement of a plan to inflict bodily injury or commit a crime of violence; intentionally used to plan a crime, attempt to commit or commit a crime, or to conceal an ongoing crime or ongoing criminal activity; sought or offered to prove or disprove a claim or complaint of professional misconduct or malpractice filed against a mediator; except as otherwise provided in subsection (c), sought or offered to prove or disprove a claim or complaint of professional misconduct or malpractice filed against a mediation party, non-party participant, or representative of a party based on conduct occurring during a mediation; or sought or offered to prove or disprove abuse, neglect, abandonment, or exploitation in a proceeding in which a child or adult protective services agency is a party, unless the

[Alternative A: [State to insert, for example, child or adult protection] case is referred by a court to mediation and a public agency participates.]

[Alternative B: public agency participates in the [State to insert, for example, child or adult protection] mediation].

There is no privilege under Section 4 if a court, administrative agency, or arbitrator finds, after a hearing in camera, that the party seeking discovery or the proponent of the evidence has shown that the evidence is not otherwise available, that there is a need for the evidence that substantially outweighs the interest in protecting confidentiality, and that the mediation communication is sought or offered in:

(1)

(2) a court proceeding involving a felony [or misdemeanour]; or except as otherwise provided in subsection (c), a proceeding to prove a claim to rescind or reform or a defense to avoid liability on a contract arising out of the mediation.

A mediator may not be compelled to provide evidence of a mediation communication referred to in subsection (a)(6) or (b)(2).

If a mediation communication is not privileged under subsection (a) or (b), only the portion of the communication necessary for the application of the exception from nondisclosure may be admitted. Admission of evidence under subsection

(a) or (b) does not render the evidence, or any other mediation communication, discoverable or admissible for any other purpose'.

Finally Section 7(b) enables a mediator to disclose certain facts and circumstances:

'(b)


A mediator may disclose:

(1)

(2) whether the mediation occurred or has terminated, whether a settlement was reached, and attendance; a mediation communication as permitted under Section 6; or

17

4.

(3)

UNCITRAL Model Law a mediation communication evidencing abuse, neglect, abandonment, or exploitation of an individual to a public agency responsible for protecting individuals against such mistreatment.'

The provisions of article 9 and article 10 of the UNCITRAL Model Law have already been noted. Article 9 provides for 3 exceptions to confidentially namely where the parties have otherwise agreed, where disclosure is required under law or for the purposes of implementation or enforcement of a settlement agreement. Article 10(5) also provides that evidence that is otherwise admissible in arbitral or judicial or similar proceedings does not become inadmissible as the consequence of having been used in a conciliation. But this is somewhat confusingly expressed to by 'subject to the limitations of paragraph (1) of this article'.

The Mediator as Witness

Can a mediator be called to give evidence in subsequent litigation between the parties? The question arose in the Australian case of Barry v CityWest Water Ltd

22

. There proceedings were brought by the applicant against the first respondent and Brambles who was the second respondent. The proceedings against the first respondent were settled. Following a mediation

Brambles sought an order that proceedings against it be struck out with no order as to costs.

The basis of this application was that the proceedings were settled by agreement, one term of which was the proceedings be struck out with no order as to costs. In essence Brambles alleged that proceedings against it had been settled in the mediation and that the settlement was recorded in an agreement in writing or was partially recorded in an agreement in writing and was partially oral.

The applicants denied that any settlement was reached. They said a measure of consensus was reached as to a significant number of commercial aspects of a resolution of the dispute but not all matters were settled. Alternatively they contended that if an agreement was reached it was a conditional agreement. Thus the question for the Court was whether a legally binding agreement was reached at the mediation. After a careful factual analysis of what had occurred on and before the day of the mediation the Court concluded that the dispute had been settled.

The evidence before the Court included an affidavit sworn by the mediator. However the mediator was not cross examined at the hearing. The admissibility of the mediator's evidence was not in dispute because the mediation agreement provided in clause 17 as follows:

22 [2002] FCA 1214.


18

' 17. A party seeking to enforce a settlement agreement made at the mediation may call evidence of entry into the agreement, including evidence from the mediator and from any other person present at the mediation'.

The court did not have to consider whether a mediator could be called in the absence of such an express agreement. The answer would seem to depend on a number of considerations. One is whether the evidence is confidential as between the parties themselves. A second concerns the position of the mediator. Assuming that no issue of confidentiality attaches as between the parties so that the evidence is admissible, can it be contended that the mediator is in a privileged position and should nevertheless not be called? It will be noted that the

UNCITRAL Model Law expressly extends obligations of confidentiality to include the conciliator (Article 10(1)). But confidentiality does not apply where disclosure is required for the purposes of implementation or enforcement of a settlement agreement (Article 9).

5. Confidentiality and Lawyers

Questions of confidentiality have arisen not only as regards the parties to a mediation and the mediator himself or herself but also concerning the lawyers who represented the parties.

An interesting situation arose in the New Zealand case of Carter Holt Harvey Forests Ltd v

Sunnex Logging Ltd

23

. There two logging contractors, Rua and Sunnex, believed that they had claims against the appellant, CHHF arising out of the termination of certain contractual arrangements. Both contractors engaged the services of the same solicitor, Mr Thomas, who instructed a barrister, Mr Black. Rua's claim was settled after two mediations which were conducted on the basis that Rua and its legal advisers preserved total confidentiality concerning the mediations and the terms of the settlement. Some 18 months later Sunnex commenced proceedings against CHHF. CHHF objected to the involvement of Mr Black and

Mr Thomas in acting for Sunnex in its proceeding. It contended that the Sunnex claim was substantially similar to the Rua proceeding and that it would not be possible for the three lawyers to discharge their professional obligations to Sunnex without using or disclosing confidential information obtained during the Rua mediations. CHHF sought an injunction restraining the lawyers from advising, acting or appearing for Sunnex. The High Court declined the order and CHHF appealed to the New Zealand Court of Appeal.

Before being allowed to attend the mediations, the lawyers signed confidentiality agreements which provided:

' As the condition of my being present or participating in this mediation, I agree that I will, unless otherwise compelled by law, preserve total confidentiality in relation to the course of proceedings in the mediation and in relation to any exchanges that may come to my knowledge, whether oral or documentary, concerning the dispute passing between any of the

23 [2001] 3 NZLR 343.


19

parties and the mediator or between any two or more of the parties during the course of the mediation. This agreement does not restrict my freedom to disclose and discuss the course of proceedings and exchanges in the mediation within the organisation and legitimate field of intimacy of the party on whose behalf or at whose request I am present at the mediation, including the advisers and insurers of that party provided always that any such disclosures and discussions will only be on this same basis of confidentiality'.

The agreements at each mediation were recorded in separate settlement deeds and these also contained express obligations of confidentiality both as to the terms of the deeds and, in the case of the second deed, as to 'all details of negotiations that have preceded this Deed'. CHHF sought the injunction on the ground that there would be an unacceptable risk that information confidentially divulged by CHHF during the Rua mediations would be disclosed to the respondent or used by the lawyers to the advantage of the respondent. The confidentiality obligations were said to be of fundamental importance to the appellant in ensuring that its future position was not prejudiced by reason of Sunnex and others in the logging industry learning of the confidential details and outcomes of the mediations, including the negotiation positions adopted by the appellant's representative.

The Court of Appeal commenced by observing that the lawyer's ability to act for Sunnex in its claim against CHHF depended on the contractual obligations which they accepted as a condition to their participation in the Rua mediations, as confirmed by the final settlement deed. The Court noted that the terms to which the lawyers agreed were sufficiently wide to encompass everything which occurred as part of the mediation process. In the view of the

Court of Appeal this was broad enough to include not only the terms of the settlement but also the negotiating positions adopted during the mediations, the concessions offered or made, the attitude of events by the parties to the issues under discussion and to what the lawyers may have learned from their observations of CHHF's representatives during the mediation.

The Court of Appeal went on to observe that the position may well have been much the same even without an express confidentiality clause:

' The position may well have been much the same even without an express confidentiality clause. The very nature of a mediation requires that, in principle, it be conducted on a confidential basis, with the parties encouraged to "lay bar their souls" for the purpose of facilitating a conciliation and resolution of the dispute. Understandably, parties will be cautious about doing so if what they do and say can be used against them for a different purpose by lawyers who happen to be participating. It is to be understood of course that, if the mediation fails, participating lawyers are to be able to use what they have learned on behalf of the client represented in the mediation, to the extent that such use is not inhibited by the "without prejudice" character of the mediation. That was permitted by a qualification to the confidentiality clause signed by the lawyers in this case. But it seems to us that the confidential atmosphere in which a mediation is ordinarily conducted must generally preclude participating lawyers from utilising what they learn for the purposes of advising and representing someone other than their client in the mediation. The particular agreement signed by the lawyers in this case is therefore consistent with the confidentiality implicit in any mediation'.

The Court turned to the lawyers contentions that they would not make any use or disclosure, in breach of contract, of anything learned during the mediation. But the Court observed:


20

'Whether or not this is so, there is an inherent incompatibility between lawyers' participation in a confidential mediation and their desire to act for other clients in parallel litigation. The dilemma cannot satisfactorily be resolved by means of an undertaking to observe the obligation of confidentiality. As was observed in the Supreme Court of Canada in

MacDonald Estate v Martin (1990) 77 DLR (4th) 249 at p267 by Sopinka J, a lawyer cannot compartmentalise his or her mind. The lawyer cannot screen out what was gleaned from the mediation and what was acquired elsewhere'.

The Court went on to say that if the relief sought was not granted the party at risk may not receive the protection for which it stipulated. Turning to the facts of the case the Court concluded that CHHF had been readily able to show that there were areas of overlap between the Rua and Sunnex claim. Therefore while it may be accepted that the lawyers had acted in good faith and had not broken their promise to preserve confidentiality, it had not been demonstrated that there was no risk of future breach occurring accidentally or unconsciously.

The Supreme Court of Queensland, in Australia, had to consider an application for removal of a lawyer in the case of Williamson v Schmidt

24

. In 1992 - 93 nine plaintiffs commenced actions against the directors of an insolvent company, Buckley Earthmoving Pty Ltd, for allowing the company to incur debts while insolvent ('ANI action'). The plaintiffs in the ANI action were represented by the firm Feez Ruthning. Schmidt was a senior associate of that firm.

Quarry Products Pty Ltd, which had not been involved in the ANI action, also commenced proceedings against the directors for insolvent trading. Quarry Products was represented by the firm Deacon Graham & James. In the meantime Schmidt had moved from Feez Ruthning and had joined Deacon Graham & James where he became a partner. The directors, in both the ANI action and the Quarry Products action, were represented by the firm Flehr &

Associates.

In the Quarry Products action the directors sought an injunction restraining Schmidt from acting for Quarry Products. It was alleged that in the earlier proceedings Schmidt had acquired an array of knowledge going to issues in the present action. It was also said that he had attended a confidential mediation in the earlier action, which was conducted on a confidential basis, and which resulted in the action being settled.

Lee J considered the obligations of a solicitor as follows:

'There is no doubt that information of a confidential nature and documents came to the knowledge of the defendants during the mediation proceedings. There is also no doubt that the solicitors are constrained not to breach any undertaking given by their former clients in that action to the current plaintiffs without their clients' consent which their former clients cannot give by virtue of the contract.

It might be thought that a solicitor acting for one client may in any event be under a generally duty to a former client not to disclose information about their affairs to another

24 [1998] 2 Qd R 317.


21

client, without consent, which factor might impose some restraint on the defendants disclosing such information, quite apart from the express statements by Mr Frost and Mr

Schmidt and particularly the directors of Quarry Products Pty Ltd, that no such information has been given or will be given if the defendants continue to act for them as they wish.

There are also the constraints imposed by the House of Lords in Harman'.

Lee J then turned to consider the effect of the mediation proceedings and whether it imposed any other or higher duty on Mr Schmidt. He referred to the parties' submissions as follows:

'The next question is, what is the effect of the mediation proceedings, and whether it imposes any other or higher duty on the solicitors (the current defendants). I bear in mind

Mr Sweeney's submission that no evidence whatever as to what occurred can be used in subsequent proceedings without consent either directly or indirectly, unconsciously or otherwise and particularly in later proceedings against the same defendants (the current plaintiffs), and Mr Sofronoff's submission that the party or his solicitors to whom, proved otherwise than by what was aid at the mediation or confidential documents which came into existence as a result. He, of course, conceded that in later proceeding's nothing that was said or done, nor documents, could be placed before any subsequent tribunal'.

After examining the decision of Rolfe J in AWA Ltd v Daniels and expressed his view as to the law as follows:

'The Law is stated succinctly in the joint judgment of Dixon CJ, Webb, Kitto, Taylor JJ in

Field v Commissioner for Railways for New South Wales (1957) 99 CLR 285 at 291, and at

292. After stating that a party could not rely on an admission in settlement negotiations their Honours said:

'This form of privilege, however, is directed against the admission in evidence of express or implied admissions ... It is not concerned with objective facts which may be ascertained during the course of negotiations.

These may be proved by direct evidence.'

In my respectful view this represents the law for present purposes and, therefore, it is binding upon me. On the evidence the defendants are not seeking, to prove any admission or statement made at mediation. They are following, by the service of appropriate process, a line of enquiry about which they learned at mediation, the mediation process having failed.

In due course they will seek to prove the matter. Whether they succeed will depend upon the usual considerations relating to the admissibility of evidence. They will not fail, however, because of the circumstances in which they became aware of the matter. I appreciate the defendants put their case on a higher basis than this, namely that they already had the belief which was semaphored to the plaintiff in the letter of 26 February 1992, and that nothing more than confirmation was received at mediation. At whichever level one approaches the problem I do not consider that as a matter of principle the issue of the

Notices to Produce is vitiated.'

The Judge then went on to say that a party could seek to prove, by admissible evidence, a fact to which reference was made at the mediation. This could be proven not by reference to the statement but to the factual material which sourced the statement. He went on to say that a contrary finding would mean that irrespective of relevance to issues the statement of mediation made the factual material upon which it was based immune from subsequent consideration by the court. The Judge summarised his position by saying:

'In the result, I adopt with respect the approach of Rolfe J in AWA Ltd v Daniels and I accept Mr Sofronoff's submission that the plaintiff in the District Court action is entitled to prove if it can be admissible evidence, subject to any without prejudice considerations, the existence of any fact or matter disclosed at the mediation proceedings, although the plaintiff


22

6.

cannot lead in evidence, in those later proceedings, anything done or said or any admission made at the mediation proceedings. There are several substantial reasons why this should be so and these have been outlined in the above extracts of the judgments'.

The Court then went on to consider the application for an injunction to restrain Mr Schmidt from acting. It held that there was an obligation of confidentiality consequent on Mr Schmidt's presence at the mediation but this did not prevent Quarry Products from proving by admissible means any relevant fact even if learnt at the former mediation for the first time by the solicitor.

Lee J observed that there was doubt whether Mr Schmidt acquired a detailed knowledge of the merits of the case and there was no acceptable proof of a threatened or actual disclosure of information or any part of it which would breach his obligations of confidentiality. The Court therefore dismissed the application for an injunction.

Williamson v Schmidt stands in somewhat stark contrast to the decision of the New Zealand

Court of Appeal in Carter Holt . Moreover the views expressed by Lee J as to the use that could be put of information obtained in the course of the mediation are not, it is suggested, consistent with the views expressed by Rogers CJ in the AWA v Daniels case.

Article 10 of the UNCITRAL Model Law prohibits evidence being given in arbitral or judicial proceedings relating to the conciliation by 'a party to the conciliation proceedings, the conciliator and any third person'. The later term would include a lawyer representing a party.

But the Model Law does not in terms purport to affect lawyers rights to act in later judicial or arbitral proceedings in the situation pose in the New Zealand case of Carter Holt .

Choice of Law

It is possible for a mediation to be held in one jurisdiction and an arbitration in another. In these circumstances a choice of law issue will arise. At first sight it might be thought that the confidentiality of the a mediation would be governed by the law of the place of the mediation.

But, on reflection, the answer is probably otherwise. The confidentiality of a mediation will arise in the context of the admissibility of evidence in the subsequent arbitration. This is an evidential matter which, it is submitted, is governed by the procedural law governing the arbitration; namely the law of the seat of the arbitration.

Where confidentiality is said to arise on the basis of a written agreement, the law governing that written agreement will determine whether it is a valid agreement. But assuming it is, its effect, in excluding evidence in an arbitration, is governed by the procedural law of the arbitration.


23

7.

7.1

7.2

7.3

7.4

7.5

Some Concluding Thoughts

This paper purports to do little more than raise some issues and examine some cases. The latter reveal that interesting and diverse questions of mediation confidentiality can arise in the context of subsequent litigation or arbitral proceedings.

There is an inherent tension between two considerations. The first is the desirability of imposing a broad confidentiality obligation in respect of mediations so that parties can approach the settlement negotiations in a full, frank and open manner so as to increase the chances of settlement. The competing consideration is to ensure that all relevant evidence is before a judge or arbitrator when required to decide a case following an unsuccessful mediation.

Confidentiality can arise as a result of 'without prejudice' privilege at common law, by virtue of the terms of an agreement or by legislation. Essentially the same policy considerations underlie all bases of confidentiality but specific provisions in a confidentiality agreement or in legislation may prescribe a particular or unique rule.

Confidentiality obligations have arisen in the context of parties seeking to give evidence in a subsequent trial, mediators providing a report or being called and the engagement of lawyers who are parties to a mediation and previous proceedings.

•

•

The question of what exceptions to confidentiality exist is not clear and may vary. It may be necessary to distinguish between one or more of the following:

• admissions, statements and comments made in the course of the mediation;

• evidence prepared for the mediation (photos, expert reports); pre-existing evidence that is otherwise discoverable (although here a distinction may need to be drawn between arbitration and litigation particularly where there is no automatic right to broad discovery in arbitration); and pre-existing evidence that may not be discoverable and is only learnt of in the course of a mediation.


24

2. Is Mediation Confidential?

Mediation Confidentiality

1.

Introduction