COURT FILE NO.: 354/09

DATE: 20091029

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

caputo, dambrot and SWINTON JJ.

B E T W E E N:

INTER-LEASING, INC.

Applicant (Responding Party)

• and -

ONTARIO (MINISTER OF FINANCE) AND BASHIR MOHAMMED

Respondents (Moving Parties)

Alexandra K. Brown, for the Applicant (Responding Party)

Anita C. Veiga and Sara Blake, for the Respondents (Moving Parties)

HEARD at Toronto: October 23, 2009

SWINTON J.:

Overview

1The respondents to an application for judicial review have brought a motion to a panel of the Divisional Court pursuant to s. 21(5) of the Courts of Justice Act, R.S.O. 1990, c. C.43 to vary the order of Jennings J. dated October 5, 2009. He ordered certain material struck from the applicant’s application record and factum filed for the application, but he dismissed the balance of the respondents’ motion with costs against them. On this motion to vary, they submit that he erred in failing to strike the remaining material on the ground of settlement privilege.

Background

2Subsection 84(5) of the Corporations Tax Act, R.S.O. 1990, c. C.40 (“the Act”) requires the Minister of Finance to deal with objections to tax assessments “with all due dispatch”. In the application for judicial review, Inter-Leasing seeks an order of mandamus to compel the Minister to make a decision on its Notices of Objection dated September 4, 2008. According to the applicant’s affidavit evidence, Bashir Mohammed, a Senior Manager at the Ontario Ministry of Revenue, advised the applicant in a telephone conversation in January 2009 that no final response to the objections should be expected for 18 months and possibly not until early 2011. The applicant is unable to file an appeal to the Superior Court of Justice under the Act until the Minister responds to the objections.

3Since the motion to strike, the respondents have filed responding material in which they deny that this conversation occurred.

4The applicant’s objections result from Notices of Reassessment dated March 17, 2008, in which the applicant was assessed taxes and interest totalling $55 million in respect to taxation years 2001 through 2004. The reassessments reflected the denial of a tax exemption for certain inter-company financing arrangements. The applicant paid the full amount of reassessments on March 26, 2008.

5In an affidavit filed for purposes of the application, Wane Stickland made reference to meetings held in 2006 in which representatives of interested governments, including Ontario, made an offer to settle. Attached to his affidavit was a letter from Deloitte Touche LLP, representative of the applicant and other companies, describing what had occurred at a meeting on July 14, 2006. Deloitte attached a letter from Canada Customs and Revenue Agency (“the O’Riordan letter”), which described the offer.

6The basis for the motion to strike was settlement privilege. The motions judge ordered that the O’Riordan letter be struck, because it was written “without prejudice”. He also ordered that part of a letter from the applicant’s counsel (“the Osler letter”) be struck, as well as one sentence of the Deloitte letter.

7In his reasons, the motions judge concluded there would be no harm to the Minister from disclosure of the remaining material to the panel hearing the application for judicial review, as such disclosure would not affect the issue between the parties. He characterized that issue as the liability of the applicant for corporate tax. As the material would not weaken or compromise the Minister’s case on tax liability, he determined that settlement privilege did not arise. He also stated that it would be contrary to the interests of justice to exclude the challenged material, with the exception of the O’Riordan letter and parts of the Deloitte and Osler letters.

8The respondents then brought this motion to vary, arguing that the remaining material is privileged.

The Issue

9The only issue on this motion to vary is whether the motions judge erred in refusing to strike out the remaining material set out in the respondents’ Notice of Motion.

Analysis

10Communications, whether oral or written, made in furtherance of the settlement of a litigious dispute are subject to privilege. According to Bryant, Lederman and Fuerst, The Law of Evidence in Canada (at para. 14.322), three conditions must be present for settlement privilege to apply:

1. A litigious dispute must be in existence or within contemplation.

2. The communication must be made with the express or implied intention it would not be disclosed in a legal proceeding in the event negotiations failed.

3. The purpose of the communication must be to attempt to effect a settlement.

11A party seeking to introduce in evidence material subject to settlement privilege must show that the communication is relevant and the disclosure is necessary, either to show the agreement of the parties or to address a compelling or overriding interest of justice (Dos Santos (Committee of) v. Sun Life Assurance Co. of Canada, 2005 BCCA 4, [2005] B.C.J. No. 5 (B.C.C.A.) at para. 20). Exceptions to the privilege have arisen where there has been fraud, where production is necessary to meet a defence of laches, lack of notice or the passage of a limitation period, or where parties have made an agreement respecting evidence in the litigation (Middlekamp v. Fraser Valley Real Estate Board (1992), 1992 4039 (BC CA), 96 D.L.R. (4th) 227 (B.C.C.A.) at 223).

12The motions judge ordered the O’Riordan letter struck. Clearly, that letter meets the three conditions necessary for settlement privilege to be recognized.

13First, there was a litigious dispute in existence or contemplation before the letter was written in July 2006. In June 2006, the Minister had determined that there was a basis under the Act to issue a reassessment proposal to the applicant for tax avoidance transactions.

14Second, the communications were made with the intention of non-disclosure. The O’Riordan letter was written “without prejudice” and it describes a meeting where a settlement offer was made.

15Third, the purpose of the communication was to attempt to effect a settlement of the tax consequences related to the transactions of the applicant and other companies then under audit.

16The Deloitte letter included a summary of the O’Riordan letter. Given that the O’Riordan letter is subject to settlement privilege, it logically follows that the summary of the offer in the Deloitte letter should also be struck because of settlement privilege. Otherwise, the contents of the “without prejudice” letter will be disclosed. Similarly, the second sentence of paragraph 16 of the Stickland affidavit must be struck, as it quotes from the O’Riordan letter.

17In my view, the motions judge erred in failing to find that most of the remaining material was also subject to settlement privilege. Paragraph 15(c) of the Stickland affidavit makes reference to settlement discussions, as do paragraphs 3, 4, 5, 6 and 9 and part of paragraph 12 of the Deloitte letter. Similarly, paragraph 3 and bullet three of the Osler letter refer to settlement discussions. Part of paragraph 12 and paragraph 13 of the applicant’s factum are based on the content of settlement discussions.

18The motions judge held that the material was not subject to settlement privilege because its disclosure would not harm the Minister in relation to the issue of tax liability. He erred in so holding, as that is not the test to determine whether settlement privilege applies.

19The applicant argues that the remaining material is, nevertheless, admissible in evidence under an exception to the settlement privilege exclusion. However, the material does not appear to be relevant to the issues to be determined in the application for judicial review.

20The applicant seeks an order of mandamus to compel the Minister to act with due dispatch to respond to its notices of objection. The material in dispute deals with an offer to settle that was made in July 2006, prior to the issuance of the notices of reassessment in March 2008. Apparently, the applicant wishes to use the evidence of the offer of settlement to show that the Minister has a fixed position on liability, and, therefore, there is no justification for further delay in the reconsideration process. However, the issue of the applicant’s liability for the tax in dispute is now before the Tax Appeals Branch. Even if a conclusion about liability was expressed during the settlement negotiations, before the notices of reassessment, that conclusion would not bind the Tax Appeals Branch in the reconsideration process.

21Moreover, the applicant has not satisfied the necessity test. To satisfy this test, the applicant must demonstrate a compelling or overriding interest of justice that outweighs the public interest in protecting settlement discussions from disclosure. While the applicant argues that disclosure of this information will not affect the issue of its tax liability, settlement privilege exists not only to protect a party against disclosure of information that may affect its position on liability. It extends, as well, to protect other statements against interest made in the course of settlement negotiations that a party may wish to remain confidential.

22The settlement offer in issue was made in the course of a dispute between the parties about the applicant’s tax liability. To allow the applicant to use this type of information would place a chill on settlement negotiations and undermine the public interest in promoting settlement discussions. The applicant has not identified an overriding public interest in justice that outweighs the public interest in encouraging settlement (Dos Santos, supra at para. 20).

23This is not a case like Dos Santos, where the settlement discussions were disclosed in order to protect a third party against paying excessive compensation. Nor is this a case like Histed, where the content of settlement discussions was disclosed in disciplinary proceedings against a solicitor who was alleged to have engaged in unprofessional communications (Histed v. Law Society (Manitoba), 2007 MBCA 150, [2008] 2 W.W.R. 189 (Man. C.A.) at para. 38). In the present case, there is no third party who would be detrimentally affected by non-disclosure.

Conclusion

24Therefore, the motion to vary is granted. The following material will be struck: paragraph 15(c) of the Stickland affidavit and the second last sentence of paragraph 16 where the O’Riordan letter is quoted; paragraphs 3, 4, 5, 6, and 9 and the last two sentences of paragraph 12 of the Deloitte letter; the third paragraph starting on p. 2 of the Osler letter, including all of bullet points one and three; and the last sentence of paragraph 12 and all of paragraph 13 of the applicant’s factum. The applicant is given leave to file an amended application record and factum.

25As the moving parties have largely been successful in this motion, the costs order of the motions judge made against them is set aside. Costs of the motion to vary are fixed at $5,000.00 payable by the applicant in thirty days.

Swinton J.

Caputo J.

Dambrot J.