Specialized Bicycle Components Inc. v Sheppard Industries Ltd and Anor Hc Ak

JurisdictionNew Zealand
CourtHigh Court
JudgePeters J
Judgment Date19 November 2010
Neutral Citation[2010] NZHC 2080
Date19 November 2010
Docket NumberCIV 2009-404-8020

[2010] NZHC 2080


CIV 2009-404-8020


UNDER the Copyright Act 1994

IN THE MATTER OF Copyright Infringement and Breach of Contract

Specialized Bicycle Components Inc
Sheppard Industries Limited
First Defendant


Avanti Bicycle Company Limited
Second Defendant

A H Brown QC and N M Alley for Plaintiff

B D Gray QC and T J G Allan for Defendants

Application to use evidence from a mediation in support of an application for a stay or strike out of proceedings — substantive proceedings related to breach of copyright — parties entered into an oral agreement through mediation — confidentiality agreement and a clause in the meditation agreement stated that evidence and statements made during mediation could not be adduced in subsequent arbitral or judicial proceedings — whether a private agreement prevailed over s57 Evidence Act 2006 (privilege for settlement negotiations or mediation) — whether the exception under s57(3) Evidence Act 2006 (evidence necessary to prove the existence of such an agreement) could be used — consideration of s12 Evidence Act 2006 (evidential matters not provided for).

The issues were: whether the mediation agreement prevailed over to s57 EA (privilege for settlement negotiations or mediation) so that exception under s57(3) Evidence Act 2006 could not be used (evidence necessary to prove the existence of such an agreement).

Held: The meaning of clause 5 was clear; it rendered all of the various types of communications referred to as inadmissible. It had not permitted any exceptions except in the circumstances specified, being legitimate use in enforcement proceedings of any written and signed settlement agreement reached in or as a result of the mediation. The parties had not intended to invoke the general without prejudice rule; they had made a deliberate and extensive provision for inadmissibility. That construction would make it difficult and probably impossible for Sheppard Industries to prove an oral agreement to settle, however that was a necessary consequence of the terms they had agreed. Sheppard Industries had breached the terms of clause 5.

Section 57 EA and Part 2 subpart 8 EA (admissibility rules, privilege, and confidentiality) were silent as to whether the Court could recognise a party's claim to restrain disclosure of evidence where the claim was founded on an agreement rather than on s57(1) (privilege in respect of any communication made in a dispute) and s57(3) EA (section does not apply to the terms of an agreement settling the dispute or evidence necessary to prove the existence of such an agreement in a proceeding in which the conclusion of such an agreement is in issue). Section 12 EA (evidential matters not provided for) provided for the regulating of how the admission of evidence was to be made when the EA made no or only partial provision for it. The EA had not made any provision as to whether an agreement between parties prevailed over s57 EA. Section 21 EA encompassed s6(c) (promoting fairness to parties and witnesses) and s6(d) EA (protecting rights of confidentiality) which pointed towards the enforcement of the mediation agreement and excluding the evidence in dispute. Section 12 EA also provided for consistency with common law. At common law, the general without prejudice rule was that evidence of communications made by parties in the course and for the purpose of resolving a dispute were inadmissible in subsequent litigation. It was clear that at common law, evidence of without prejudice communication was admissible to prove the existence of a settlement agreement, however parties could, by agreement, determine the scope of the privilege that applied to their communications. For whatever reason, that was what the parties had done in this case.

Under s12 EA the terms of the mediation agreement prevailed over s57 EA so Sheppard Industries could not adduce the evidence in breach of clause 5 of the mediation agreement.



The issue I have to decide is whether the Defendants, in support of an application for a stay of proceedings or to strike out proceedings, may adduce evidence of communications made in the course of mediation. The Defendants' position is that they may and they rely on s 57(3) of the Evidence Act 2006 (“Act”). The Plaintiff's position is that the Defendants may not and they rely on the terms of the agreement on which the parties agreed to submit their dispute to mediation.


A determination of this issue requires consideration of:

a) the terms on which the parties agreed to mediation;

b) whether an agreement between parties prevails over s 57 of the Act.


I set out below:

a) the procedural steps taken by the parties to date, so as to put the determination of the issue in context;

b) the evidence which is relevant to the issue and the terms of the mediation agreement which the parties signed;

c) the parties' submissions;

d) the analysis I consider is required by s 12 of the Act.

Application to stay

The Plaintiff commenced this proceeding in December 2009, by filing and serving a notice of proceeding and statement of claim.


In its pleading, and the following points are admitted in the Statement of Defence, the Plaintiff says that it is based in California and that, amongst other things, it designs and sells high end, quality bicycles and bicycle components and accessories. The Plaintiff says it has distributed its products in New Zealand through the First Defendant, pursuant to an agreement dated 31 August 1999. Pursuant to that agreement the Plaintiff granted the First Defendant the exclusive right to sell and distribute the Plaintiff's products in Australia and New Zealand.


In late 2007 a dispute arose between the parties in connection with performance of obligations under the agreement and in respect of an allegation by the Plaintiff that the Defendants had copied some of the Plaintiff's products. The Defendants denied the copying allegation. In August 2009 the parties entered into a deed of settlement to record the terms of a settlement they had agreed (“August deed”).


In the present proceeding, the Plaintiff's causes of action against the Defendants largely concern allegations of copying. The statement of claim comprises 26 pages and the Plaintiff seeks various remedies in respect of various causes of action. The Defendants deny the critical aspects of the claim.


On 4 and 8 February 2010 the parties attended mediation in respect of the dispute, some of the detail of which is set out below. The parties entered into a written mediation agreement (“mediation agreement”), the terms of which are critical to the determination of this matter.


The Defendants filed their statement of defence on 17 March 2010. By way of an affirmative defence, the Defendants alleged, amongst other things, the existence and terms of an accord and satisfaction between the parties dated 8 February 2010.


Also on 17 March 2010 the Defendants applied to the Court for an order staying or otherwise restraining the Plaintiff from continuing this proceeding. This application was also made on the ground that the parties reached an accord and satisfaction on 8 February 2010.


The Defendants filed two affidavits in support of their application to stay the proceeding. One is from Mr Christopher Darlow, a solicitor of Auckland, whose firm acts for the Defendants. The other was from Mr John Struthers, the managing director of each Defendant.


On 23 March 2010 the Plaintiff filed a notice of opposition to the Defendants' application for stay. The grounds on which the Plaintiff opposed the Defendants' application are as follows:

  • a) the terms on which the parties agreed to attend mediation of their dispute preclude reliance by the Defendants on exchanges concerning the dispute, passing between the parties at the mediation;

  • b) in any event, the parties did not reach a binding and enforceable oral accord and satisfaction at the mediation.


In support of its application, the Plaintiff filed an affidavit sworn by Mr Edward Mitchell, general counsel of the Plaintiff.


On 30 April 2010 the Plaintiff applied to the Court for determination of a preliminary question under r 10.15. 1


The Defendants did not object to determination of this question and on 14 April 2010 the Court ordered that such determination should be made.


The preliminary question for determination is:

Whether, on the terms of clause 5 of the mediation agreement and the confidentiality agreement signed by the parties on 4 February 2010, and in the absence of a written and signed settlement agreement, the defendants are prevented from adducing:

  • i) The evidence in paragraphs 6 and 7 of Mr Darlow's affidavit and paragraphs 7 and 9, part of paragraph 10(b), and paragraphs 10(d) and 10(e) of Mr Struthers' affidavit; and/or

  • ii) Any evidence of exchanges and/or statements made and/or discussions held during the course of the mediation, or of any aspect

of the mediation, or any statement made or communication within the mediation.


I refer below to the contentious paragraphs of Mr Darlow's and Mr Struthers' affidavits as the “evidence in dispute”.


It does not appear from the Court's records that either party served the mediator (the Hon Barry Paterson QC) with the relevant documents. Mr Paterson's position, if any, on the matter in issue is unknown. I did consider whether steps ought to be taken to ascertain Mr Paterson's position but, given the conclusion reached, decided it was unnecessary to do so.


So far as it is relevant, the evidence...

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