1 Hong Kong Lawyer July 2010 Mediation ... - SSRN papers

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Hong Kong Lawyer. July 2010. Mediation confidentiality. A.K.C. Koo. One of the most important decisions that a prudent litigant must now consider is whether to.
Hong Kong Lawyer (July 2010) 35-39

Hong Kong Lawyer July 2010 Mediation confidentiality A.K.C. Koo

One of the most important decisions that a prudent litigant must now consider is whether to mediate a settlement without trial. Under the Rules of the High Court (Cap 4A) O 62 r 5 and Practice Directions 6.1, 18.1 and 31, a litigant runs the risk of being ordered to pay the opponent‟s costs if he or she has unreasonably rejected to embark on mediation to resolve the dispute. Fundamental to mediation is confidentiality. Rogers VP, in the recent case of S v T [2010] HKCU 932 remarked at para 4: “[T]he root of the mediation process ... is now part of the court‟s process. Unless this [confidentiality] is adhered to, the whole mediation system will come to naught and people will use mediation as a tactical advantage and then seek to introduce evidence which has come from an unsuccessful mediation and somehow bring that into court proceedings.” Generally, a mediator assures mediation participants in the opening statement that communications made in the process are confidential and without prejudice. Both the mediator and the participants often sign an agreement with express obligations of non-disclosure. However, the legal protection for mediation confidentiality is far from absolute. The without prejudice rule Just like other forms of settlement negotiations, communications made in the mediation process are without prejudice. In other words, such communications are both inadmissible in evidence and immune from disclosure in subsequent legal proceedings. The without prejudice rule covers statements made by the parties and those obtained automatically from third parties provided that they form part of a genuine attempt to arrive at an agreed resolution. So much is the settled law that is founded upon the public policy of encouraging litigants to settle their differences, rather than litigate them to a finish, and an implied agreement subsequent to agreeing to negotiate on a without prejudice basis. What has been less clear is the extent of this common law rule. Does it protect only admissions? Do its recognised exceptions apply in the context of mediation? These questions were considered in the recent House of Lords decision in Ofulue v Bossert [2009] 1 AC 990. Lord Hope of Craighead, in delivering the judgment, approved Robert Walker LJ‟s view in Unilever Plc v The Procter & Gamble Co [2001] 1 All ER 783; [2000] 1 WLR 2436 at 2448-9: 1

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Hong Kong Lawyer (July 2010) 35-39

“[T]he without prejudice rule is founded partly in public policy and partly in the agreement of the parties. They show that the protection of admissions against interest is the most important practical effect of the rule. But to dissect out identifiable admissions and withhold protection from the rest of without prejudice communications (except for a special reason) would not only create huge practical difficulties but would be contrary to the underlying objective of giving protection to the parties ... to speak freely about all issues in the litigation both factual and legal when seeking compromise and, for the purpose of establishing a basis of compromise, admitting certain facts. Parties cannot speak freely at a without prejudice meeting if they must constantly monitor every sentence, with lawyers or patent agents sitting at their shoulders as minders.” His Lordship observed at 1021 that the above analysis: “is entirely consistent with the approach ... in Rush & Tompkins [1989] AC 1280, and with that of the courts in the 19th century.” His Lordship then concluded at 1022: “[S]ave perhaps where it is wholly unconnected with the issues between the parties to the proceedings, a statement in without prejudice negotiations should not be admissible in evidence, other than in exceptional circumstances such as those mentioned in the Unilever case [2000] 1 WLR 2436, 2444d-2445g.” There are numerous exceptions to the without prejudice rule; Robert Walker LJ in Unilever summarised eight of the most important instances. Recent first instance decisions in England and Wales illustrate that these exceptions apply equally in appropriate situations involving mediation. In Brown v Rice and Patel [2007] EWHC 625 (Ch); [2008] FSR 3, Stuart Isaacs QC, sitting as a High Court judge, admitted into evidence the mediator‟s manuscript, the mediator‟s correspondence to the parties and testimonial evidence of what the parties had said and done in the mediation for the purpose of proving whether they have resulted in an agreed settlement. In Ruttle Plant Hire Ltd v Secretary of State for the Environment, Food and Rural Affairs [2007] EWHC 2870 (TCC); [2008] 2 All ER (Comm) 264 and Farm Assist Ltd (In liq) v Secretary of State for the Environment, Food and Rural Affairs [2009] EWHC 1102 (TCC), each claimant sought to set aside a mediated settlement for economic duress. Ramsey J refused to strike out the claim in Ruttle Plant and declined to set aside a witness summons for the mediator in Farm Assist. The judge held that the mediator‟s evidence was necessary for the court to determine whether what was said and done in the mediation constituted economic duress. The interests of justice required the mediator to testify despite her lack of recollection and the non-attendance and confidentiality provisions of the mediation agreement. In Venture Investment Placement Ltd v Hall [2005] All ER (D) 224 (May); [2005] EWHC 1227 (Ch), the claimant sought an interim injunction restraining the defendant from disclosing to any third parties what was said in the mediation. The defendant alleged that the claimant had threatened him and his family during the mediation. In granting the application, Deputy Judge 2

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Hong Kong Lawyer (July 2010) 35-39

Reid QC considered that without prejudice communications would be admissible at trial if their exclusion would act as a cloak for unambiguous impropriety. However, the judge held that the defendant could not rely on this exception at the interlocutory stage because there was a serious question to be tried as to whether anything said in the mediation could amount to unambiguous impropriety. In Cumbria Waste Management Ltd v Baines Wilson (a firm) [2008] EWHC 786, the defendant sought to obtain disclosure of documents of a successful mediation between each claimant and a third party because it was sued for the shortfall between the amount invoiced and the settlement monies due to professional negligence. The defendant alleged that the claimants had not acted reasonably to mitigate their losses in the conduct and conclusion of the mediations. Her Honour Judge Kirkham, sitting as a High Court judge, refused the application on the ground that a party to the mediations (other than the claimants) had objected to the disclosure and that the truth or falsity of statements made in the mediations would be at issue. Thus the exception in Muller v Linsley & Mortimer (a firm) [1996] 1 PNLR 74; (1994) Times, 8 December did not apply. In Reed Executive Plc v Reed Business Information Ltd [2004] EWCA Civ 887; [2004] 4 All ER 942, Jacob LJ held that the court had no jurisdiction to compel disclosure of without prejudice negotiations even though that might prevent it from determining the reasonableness of the defendant‟s refusal to mediate. It is therefore clear that settlement negotiations remain inadmissible and privileged from disclosure, unless the parties agreed that such communications are „without prejudice save as to costs‟ – an obvious exception to the rule. Contractual confidentiality Each of the above exceptions could lead to a loss of confidentiality in mediation. Attempts have been made to impose express obligations of confidentiality by contract. A typical mediation agreement contains, among other things, a duty not to disclose to any other person all information produced for, arising out of, or in connection with the mediation passing between any participants and between any of them and the mediator. The agreement may also provide that no party will call the mediator as a witness in any subsequent adjudication, arbitration, judicial or tribunal proceedings concerning the same dispute. However, the protection afforded by contractual confidentiality is in general no wider than the without prejudice rule. The law requires the private interest in maintaining confidential relationships and the public interest in preserving confidences to be balanced against the administration of justice, which entails disclosure of all relevant information needed for the fair disposal of the litigation. Ramsey J in Farm Assist summarised the principles in the context of mediation at para 44: “The proceedings are confidential both as between the parties and as between the parties and the mediator. As a result, even if the parties agree that matters can be referred to outside the mediation, the mediator can enforce the confidentiality provision. The court will generally uphold that confidentiality but where it is necessary in the interests of

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Hong Kong Lawyer (July 2010) 35-39

justice for evidence to be given of confidential matters, the courts will order or permit that evidence to be given or produced." Accordingly, the mediator could not excuse herself from the duty to comply with a witness summons, either by enforcing the express obligation not to divulge information in the mediation agreement or relying on an implied duty of confidentiality arising out of the nature of the mediation process. The mediator‟s right of confidentiality yielded to the interests of the administration of justice, in this case, where her testimonial evidence was essential to determine whether economic duress invalidated the mediated settlement between the parties. Legal professional privilege Legal professional privilege provides a stronger shield against disclosure obligations, albeit with a limited scope. It attaches to confidential communications between lawyers and their clients, and between either of them and non-parties, in relation to contemplated or pending legal proceedings. It also covers all legal advice given to the clients. The privilege offers an absolute level of protection, unless the client and his or her legal adviser have abused the confidential relationship to facilitate crime or fraud, or where legislation overrides the privilege. Lawyer-client communications remain privileged even if the client shares them with the mediator on a confidential basis. Ramsey J in Farm Assist said at para 44: “If another privilege [legal professional privilege] attaches to documents which are produced by a party and shown to a mediator, that party retains that privilege and it is not waived by disclosure to the mediator or by waiver of the without prejudice privilege.” Conclusion As already seen, the legal protection for mediation confidentiality is more limited than is generally perceived. Parties communicate in the mediation process on a without prejudice basis, subject to a non-exhaustive list of recognised exceptions. Their right to enforce an express or implied duty of confidentiality must yield to the interests of justice. They may refuse to disclose certain communications on the grounds of legal professional privilege, except where there is an abuse in the lawyer-client relationship or where a statutory exception applies. Now that mediation occupies a place of considerable importance in the civil justice system, lawyers and mediators have a duty to inform mediation participants of the limits of confidentiality. As the restrictions are specific and unequivocal, litigants ought not be discouraged from attempting mediation.

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