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Evidence - Privilege - Solicitor-Client (4)

. 1824120 Ontario Limited v. Matich

In 1824120 Ontario Limited v. Matich (Div Court, 2023) the Divisional Court considered the law of 'implied waiver' of solicitor-client privilege, here in an appeal argued over the exercise of a 'solicitor approval clause' in an APS:
[13] On implied waiver, the appellant begins with the oft-cited case of S & K Processors Ltd. v. Campbell Ave. Herring Producers Ltd., [1983] 4 W.W.W. R. 762 (B.C.S.C.), at para. 6. It is important to consider the whole passage. McLachlin J., as she then was, held that waiver of privilege is ordinarily established where it is shown that the possessor of the privilege: (1) knows of the existence of the privilege; and (2) voluntarily evinces an intention to waive that privilege. This test is not met here – the respondents expressly communicated that they did not intend to waive their privilege. The appellant relies on the next sentence of the reasons of McLachlin J., which goes on to say that waiver may also occur where fairness and consistency so require.

[14] Since S & K, the Supreme Court of Canada has made it clear that solicitor-client privilege is a principle of fundamental justice and a cornerstone of the Canadian justice system. Solicitor-client privilege “must be as close to absolute as possible to ensure public confidence and retain relevance. As such it will yield in only certain, clearly defined circumstances and does not involve a balancing on a case-by-case basis”: R. v. McClure, 2001 SCC 14, [2001] 1 S.C.R. 445, at para.35. These principles inform the application of S & K.

[15] There has been considerable jurisprudence setting out principles relevant to this case. It is now well-established that a plaintiff cannot, through its claim of bad faith, force an implied waiver of the defendant’s privilege. In turn, a denial of alleged bad faith, and a response that there was good faith, is not enough to find an implied waiver: Leggat v. Jennings, 2015 ONSC 237, at para. 33. The appellant accepts that this is so.
. Continental Currency Exchange Canada Inc. v. Sprott

In Continental Currency Exchange Canada Inc. v. Sprott (Ont CA, 2023) the Court of Appeal considered the test for staying proceedings where (a bunch of) solicitor-client privileged information had been received by an opposing party to litigation:

[31] The test to decide the appropriate remedy where privileged information is received by an opposing party (in this case, the appellants) or its counsel is set out in Celanese Canada Inc. v. Murray Demolition Corp., 2006 SCC 36, [2006] 2 S.C.R. 189, and MacDonald Estate v. Martin, 1990 CanLII 32 (SCC), [1990] 3 S.C.R. 1235. The focus of the analysis is on trial fairness and the integrity of the adjudicative process. In Celanese, at para. 34, the Supreme Court noted that a breach of privilege “creates a serious risk to the integrity of the administration of justice” and to prevent this, the courts must act “swiftly and decisively”.

[32] There are three stages to the analysis.

The First Stage: The respondents must establish that the appellants obtained access to relevant privileged material

[33] At the first stage, the moving party (in this case, the respondents) must prove that the opposing party (in this case, the appellants) obtained access to their privileged materials

The Second Stage: The appellants must rebut the presumption of prejudice

[34] At the second stage, once the respondents establish that the appellants obtained access to privileged material, there is a rebuttable presumption of prejudice: Celanese, at paras. 42-43, 48. The respondents need not prove the risk of significant prejudice or “the nature of the confidential information” that was disclosed beyond the requirement to prove access by the appellants: Celanese, at paras. 42, 48. Instead, the appellants bear the onus to rebut the presumed prejudice flowing from receipt of the privileged information: Celanese, at para. 48.

[35] The presumption of prejudice can be rebutted by identifying to the court “with some precision” that: (i) the appellants did not review any of the privileged documents in their possession; or (ii) they reviewed some documents, but the documents reviewed were not privileged; or (iii) the privileged documents reviewed were nevertheless “not likely [to] be capable of creating prejudice”: Celanese, at para. 53.

[36] The evidence adduced must be “clear and convincing” such that “[a] reasonably informed person would be satisfied that no use of confidential information would occur”: MacDonald Estate, at pp. 1260 to 1263; see also, Celanese, at para. 42. “A fortiori undertakings and conclusory statements in affidavits without more” do not suffice: MacDonald Estate, at p. 1263.

[37] Any “[d]ifficulties of proof” in rebutting the presumption of prejudice “should fall on the heads of those responsible for the search [in this case, the appellants], not of the party being searched”: Celanese, at para. 55.

[38] In MacDonald Estate, the precise extent of solicitor-client confidences acquired over a period of years was unknown and possibly unknowable. Justice Sopinka wrote, at p. 1290, that:
“once it is shown by the client that there existed a previous relationship which is sufficiently related to the retainer from which it is sought to remove the solicitor, the court should infer that confidential information was imparted unless the solicitor satisfies the court that no information was imparted which could be relevant.”
[39] As summarized in Celanese, at paras. 49-51, there are compelling reasons for the presumption of prejudice and the reverse onus on the appellants in receipt of privileged information:
i. Requiring the respondents whose privileged information has been disclosed or accessed to prove actual prejudice would require them to disclose further confidential or privileged materials;

ii. Placing the burden on the appellants who have access to the privileged information is consonant with the usual practice that “the party best equipped to discharge a burden is generally required to do so”; and

iii. The respondents should not have to bear “the onus of clearing up the problem created by the [appellants’] carelessness”.
The Third Stage: The respondents must show that a stay is the only appropriate remedy

[40] The third stage of the analysis is to fashion an appropriate remedy.

[41] By the time the court reaches the remedy stage, the appellants have failed to rebut the presumption of prejudice. Because prejudice is a necessary precursor, the question at the remedy stage is not whether there is prejudice but how to rectify it to ensure fairness.

[42] A party seeking a stay (namely, the respondents) has the burden to show “special circumstances” to justify a stay as a stay is only granted where there is (i) prejudice to the right to a fair trial or the integrity of the justice system and (ii) no alternative remedy to cure the prejudice: Etco Financial Corp. v. Ontario, [1999] O.J. No 3658 (S.C.), at para. 3; R. v. Babos, 2014 SCC 16, 367 D.L.R (4th) 575, at para. 32.

[43] Before imposing a stay, remedies that are less serious must first be considered as a stay is an extraordinary remedy that should be reserved for the clearest of cases: Celanese, at para. 56. It is a remedy of last resort to be imposed only to prevent ongoing prejudice, unfairness to a party or harm to the administration of justice: Law Society of Saskatchewan v. Abrametz, 2022 SCC 29, 470 D.L.R. (4th) 328, at paras. 83-85.

[44] In Celanese, at para. 59, the Supreme Court set out a number of non-exhaustive factors to be considered in determining the appropriate remedy. Celanese contemplated whether to remove counsel for the appellants who gained access to the respondents’ privileged documents in executing an Anton Piller order. While in this case, the appellants, not their counsel, were in receipt of the respondents’ privileged materials, the factors from Celanese nonetheless remain helpful. Those factors include:
i. How the documents came into the possession of the appellants or their counsel;

ii. What the appellants and their counsel did upon recognition that the documents were potentially subject to solicitor-client privilege;

iii. The extent of review of the privileged material;

iv. Contents of the solicitor-client communications and the degree to which they are prejudicial;

v. The stage of the litigation; and

vi. The potential effectiveness of a firewall or other precautionary steps to avoid mischief.
[45] Where the appellants who were in receipt of privileged documents fail to identify the documents they reviewed, they put the court in an “invidious position” of being unable to determine the extent of the actual review of the material and the degree of resulting prejudice. The court will, thus, presume that the third and fourth factors weigh against the appellants: Celanese, at paras. 62-63; MacDonald Estate, at p. 1263. This adverse presumption can be drawn even though the burden at the remedy stage shifts to the respondents to show that a stay is the appropriate remedy.
. Air Passenger Rights v. Canada (Attorney General)

In Air Passenger Rights v. Canada (Attorney General) (Fed CA, 2023) the Federal Court of Appeal states succinctly the criteria for solicitor-client privilege to attach to communications:
[37] More specifically, as concerns the issue of the solicitor-client privilege, the passage from paragraph 70 in the Federal Court decision in Right to Life Association of Toronto and Area v. Canada (Employment, Workforce and Labour), [2019] F.C.J. No. 1636, 2019 CanLII 9189 (F.C.), cited by the respondent, provides a useful summary of the bounds of this privilege. It states:
The criteria for determining whether a communication qualifies for legal advice privilege are that: (1) it must have been between a client and solicitor; (2) it must be one in which legal advice is sought or offered; (3) it must have been intended to be confidential; and (4) it must not have had the purpose of furthering unlawful conduct: see R v Solosky, 1979 CanLII 9 (SCC), [1980] 1 SCR 821 at 835; Pritchard v Ontario (Human Rights Commission), [2004] 1 SCR 809, 2004 SCC 31 at para 15 [Pritchard]; Slansky at para 74. Legal advice has been held to include not only telling clients the law, but also giving advice “as to what should prudently and sensibly be done in the relevant legal context”: Slansky at para 77.
. Capital Sports v. Trinity

In Capital Sports v. Trinity (Div Court, 2022) the Divisional Court considers the status of solicitor-client privilege during and on termination of a joint retainer, here resultant from a joint venture:
Termination of the implied joint retainer

[53] The main issue on this appeal is whether the implied joint retainer terminated as a result of the events that began in May 2016. The motion judge found that the joint retainer persisted until the commencement of the lawsuit against Trinity. Capital Sports submitted then (and now) that it terminated earlier, in May of 2016, when the parties became adverse.

[54] As of the commencement of the lawsuit, the parties were adverse. No one asserts that the implied joint retainer continued after that time. Capital Sports submits that because the parties were also adverse for a period commencing in May 2016, the motion judge erred in law in not finding termination at that earlier time. The respondents disagree. They submit that the motion judge’s findings about the implied joint retainer were all factual and there was no palpable and overriding error.

[55] The appeal therefore gives rise to these questions: When does an implied joint retainer terminate? What are the applicable legal principles? 

[56] Trinity submits that an implied retainer ends when the subject matter of the engagement is complete. However, looking at the proffered authority for that submission, it makes the point that when the engagement is over, so is the retainer. It does not address the issue on this appeal regarding adversity during an engagement and early termination.

[57] As noted by Prof. Dodek in Solicitor-Client Privilege (Toronto: LexisNexis, 2014), at s. 6.26, “Canadian law on the issue is scarce. … As a result, Canadian courts may rely of the far more detailed American consideration of these issues.” Prof. Dodek noted the decision In Re Teleglobe Communications Corp., 493 F. (3d) 345 (3rd Cir. 2007), a U.S. Court of Appeals decision that discusses joint retainers in a case where the parties to an implied joint retainer became adverse, as transpired here.

[58] Teleglobe arises from corporate transactions within the Bell Canada Enterprise Inc. (“BCE”) corporate group. BCE acquired Teleglobe and the corporate group began to take steps to develop a fibreoptic network. Those steps included Teleglobe and its subsidiaries borrowing more than $2 billion to fund the project. BCE reconsidered the project and obtained legal advice from external counsel that was shared with in-house counsel. The in-house counsel also advised Teleglobe. BCE decided to cut off funding, causing Teleglobe and its subsidiaries to file for Chapter 11 protection from insolvency. The subsidiaries sought production of the legal advice given to BCE and Teleglobe before the funding was cut off.

[59] In Teleglobe, the appeal court overturned an order to produce the privileged documents. The court emphasized that while a joint retainer may arise by implication, courts must be cautious in doing so. The court described a joint retainer as requiring that there be no substantial risk of the lawyer being unable to fulfill the lawyer’s duties to all co-clients because of conflicting interests between the co-clients or otherwise.

[60] With respect to the termination of an implied joint retainer, the court said, at p. 362, that the joint retainer ends once circumstances arise that readily imply to all the joint clients that the relationship is over, including when it becomes clear to all parties that the clients’ legal interests have diverged too much to justify using common attorneys and the parties’ conduct dissolves the essential mutual confidence.

[61] As set out in Teleglobe, if a conflict arises, the proper course is to end the joint representation. The approach described by that court is consistent with the expectations on lawyers in these circumstances, as set out in the Law Society of Ontario (“LSO”) Rules of Professional Conduct. The Rules are not binding on this court but can be instructive. The Rules do allow for the lawyer to continue to advise one of the clients on the matter that has been contentious and refer the other client elsewhere where there is consent.

[62] In Teleglobe, the court further held that if the lawyer does not end the joint representation when diverging interests arise, and continues to represent both clients, “the black-letter law is that when an attorney (improperly) represents two clients whose interests are adverse, the communications are privileged against each other notwithstanding the lawyer's misconduct". This finding is also consistent with the LSO rules regarding lawyer mistakes, which generally do not destroy a client’s privilege. Here, it appears through hindsight that the advice Capital Sports was given that Gowlings acted solely for it was incorrect.

[63] Capital Sports further relies on Chang v. Lai Estate, 2014 BCSC 128, 64 B.C.L.R. (5th) 430. This was an estates case where a lawyer gave advice to the executors of an estate both with respect to the administration of the estate and an application to vary the terms of the will. Although the context is admittedly different, the court concluded that where the beneficiary is in an adversarial relationship with the executrix, solicitor-client privilege remained in place. As set out at paras. 19 and 20, their interests were clearly in conflict due to the variation of the will sought by the plaintiffs and legal advice sought and received for that purpose remained privileged.

[64] Further, in Bank of Nova Scotia v. Lennie (1996), 1996 CanLII 10353 (AB KB), 38 Alta LR (3d) 119 (Q.B.), a case where the defendant’s counsel had both acted for the defendant and also jointly for both sides, the court commented that the joint retainer would end when one side decided to take steps against the other. Again, the context is different, but the case is helpful given the lack of authorities regarding the issue.

[65] Capital Sports also puts forward United Kingdom law showing that there this issue is addressed under the framework of waiver, yet the result is the same – once there is a conflict of interest, the sharing of privileged communication comes to an end: TSB Bank Plc v. Robert Irving & Burns (1998), [2000] P.N.L.R. 384 (U.K. C. A. (Civ.), at pp. 391-393.

[66] Capital Sports also relies on the well-established legal principle that the protection of solicitor-client privilege is of fundamental importance to the administration of justice. In turn, when such a fundamental right is eroded, the principle of minimal impairment must be observed: Smith v. Jones, 1999 CanLII 674 (SCC), [1999] 1 S.C.R. 455, at para. 28. Applying these principles, Capital Sports submits that the scope of an implied joint retainer should be construed narrowly because of the consequences to the privilege rights of clients. This case is a prime example. Under the Decision, Capital Sports, wrongly believing it had its own counsel and therefore had confidentiality from Trinity, loses that confidentiality due to the continuation of an implied joint retainer with its now adversary.

[67] The respondents rely heavily on the principle that there is no confidentiality between clients in a joint retainer. That is so, but it avoids the issue here regarding whether the joint retainer terminated in or around May 2016. Prior to that time, there is no confidentiality between the joint clients.

[68] The respondents also rely heavily on the motion judge’s finding of fact. That engages two questions: were there extricable legal errors and were there palpable and overriding errors of fact. I conclude that there were extricable legal errors and the correct legal principles engage what are admitted facts in this case. 

[69] The motion judge erred in principle in not considering the legal implications of the period of adversity that began in May of 2016 and in relying on the alleged fiduciary duty. 

[70] The motion judge expressly considered the issue of the duration of the joint retainer. The motion judge rejected the termination date of May 2016 for two reasons. First, there were facts later that year that supported a finding that the parties were again using Gowlings as counsel for RLG. While those facts could have represented the resumption of an implied joint retainer, the motion judge did not find a termination and resumption. Second, the motion judge relied on her finding regarding fiduciary duty. The motion judge accepted submissions from the Albert Street respondents on that subject. She found that because Capital Sports had alleged that Trinity had breached fiduciary duties owed to Capital Sports, there was a duty to disclose that extended to its privileged communications. In turn, the motion judge found that this duty to disclose supported the continuation of the joint retainer during and after the period of adversity. 

[71] The fiduciary duty analysis is problematic. It is based on the allegations by Capital Sports that Trinity owed it fiduciary duties (not that Capital Sports was a fiduciary). Trinity denies that it owed the alleged fiduciary duties. That issue will be determined at trial. Further, Trinity pleads that if it is a fiduciary so too is Capital Sports, owing the same duties to Trinity. If the obligation to disclose was based on the prospect that each joint venture partner may owe fiduciary duties to the other, to be determined at trial, the resulting lack of confidentiality would also apply to Trinity. The pleadings do not support a finding of a fiduciary duty on one joint venturer only for the purposes of production of documents. As a result, Trinity would be obliged to turn over its lawyers’ files as well. Although those files were not produced on this motion, that motion for production would come next.

[72] Although some of the respondents’ submissions appear to suggest otherwise, there is no question that a party to a joint venture may retain its own counsel and have the benefit of solicitor-client privilege to the exclusion of the other joint venturer. The motion judge correctly stated these legal principles, at para. 32:
(1) when joint venturers jointly seek legal advice, there is no privilege between them but the privilege exists as against outsiders;

(2) this does not mean that whenever parties enter a joint venture relationship, they give up their ability to consult their own lawyers in confidence;

(3) as between joint venture parties, communications between one party and their lawyer will not be privileged if (i) there was a joint retainer of the lawyer; and (ii) the communications are in relation to the subject matter of the joint venture. [Emphasis added.]
[73] The motion judge’s discussion of fiduciary duty and duration are in conflict with these accepted legal principles. The alleged fiduciary duty does not support the production order.

[74] Returning to the issue of adversity, the undisputed facts are that the communications between the parties commencing in May 2016 show clear conflict between the parties both regarding their obligations within the joint venture and with respect to Gowlings’ role. Each party threatened to sue the other. Capital Sports put forward its position that Gowlings represented it only, and Trinity disagreed. Trinity said it would take steps to remove Gowlings. Trinity did not so. Trinity knew that Gowlings was going to continue to act for Capital Sports against Trinity and decided not to take steps to remove Gowlings.

[75] The mediation took place during this period. Trinity decided not to object to Gowlings acting for Capital Sports in the mediation. The parties had their dispute mediated, each with counsel. The mediation was unsuccessful. Yet, if the implied joint retainer continued throughout this period of conflict, Trinity claims all of the privileged documents from the opposite party in the mediation. The motion judge expressly concluded that there were no carve outs in the roughly three-month period.

[76] There was therefore the commencement of adversity in May 2016, as a result of which Trinity was on express notice that Capital Sports saw Gowlings as its lawyer only. An implied joint retainer could not persist in those circumstances. The joint retainer ended once circumstances arose that readily implied to all the joint clients that the joint retainer relationship was over. As of May 2016, it was clear to both parties that their legal interests had diverged too much to justify using common lawyers. The uncontested facts ended the implied joint retainer due to the parties’ material adversity.
. Fallis v. City of Orillia

In Fallis v. City of Orillia (Div Court, 2022) the Divisional Court dismissed a JR of a 'Recommendation Report of the Integrity Commissioner' for a municipality, which found that a councillour had breached a Code of Conduct when they disclosed municipal legal advice in the course of seeking their own advice as a single councillour [paras 30-52]. The case may be relevant for similar situations regarding any corporate body.


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