Roynat Capital Inc. et al. v. Repeatseat Ltd. et al.

[Indexed as: Roynat Capital Inc. v. Repeatseat Ltd.]

Ontario Reports

Ontario Superior Court of Justice,

Divisional Court,

J. Wilson, Harvison Young and Tzimas JJ.

April 8, 2015

125 O.R. (3d) 596 | 2015 ONSC 1108

Case Summary

Civil procedure — Discovery — Privilege — Waiver — Defendant lawyers acting for corporate defendant in financing transaction — Plaintiffs suing defendant lawyers for damages for negligent misrepresentation — Plaintiffs pleading that defendant lawyers confirmed that condition of financing had been met and that plaintiffs relied on that confirmation — Plaintiffs placing their state of mind in issue and waiving solicitor-client privilege by claiming that they relied upon [page597] confirmation — Deemed waiver of privilege not restricted to cases where party with privilege places legal advice it received in issue — Plaintiffs' representative required to answer questions concerning advice plaintiffs received from their own lawyers about alleged confirmation.

The plaintiffs agreed to lend money to the corporate defendant on certain conditions, including a condition that the defendant raise additional equity funds. The defendant lawyers acted for the corporate defendant in the financing transaction. The plaintiffs alleged that an associate lawyer with the defendant lawyers confirmed that the equity fund condition had been met, and that the plaintiffs relied upon that confirmation. They sued the defendant lawyers for damages for negligent misrepresentation. At his examination for discovery, the plaintiffs' representative refused to answer questions concerning the advice the plaintiffs received from their own lawyers about the alleged confirmation. The master held that the questions did not have to be answered as the plaintiffs had not waived solicitor-client privilege. That decision was reversed on appeal. The plaintiffs appealed.

Held, the appeal should be dismissed.

The plaintiffs had placed their state of mind in issue and waived solicitor-client privilege by claiming that they relied upon the alleged confirmation. Deemed waiver of privilege is not restricted to cases where the party with privilege places the legal advice it received in issue. If the plaintiffs' own lawyers provided the plaintiffs with legal advice on the issue of the alleged confirmation that was contrary to the position alleged in the claim, the plaintiffs' reliance on the alleged confirmation would not be reasonable. The advice received by the plaintiffs from their own lawyers was extraordinarily relevant and might be dispositive of the action. Fairness and consistency therefore allowed inquiry into what was said, if anything, between the plaintiffs and their own lawyers at the relevant time.

Bechthold v. Wendell Motor Sales Ltd., [2007] O.J. No. 4886, 162 A.C.W.S. (3d) 585 (S.C.J.); Creative Career Systems Inc. v. Ontario, [2012] O.J. No. 262, 2012 ONSC 649, 27 C.P.C. (7th) 172, 213 A.C.W.S. (3d) 590 (S.C.J.); Guelph (City) v. Super Blue Box Recycling Corp., 2004 34954 (ON SC), [2004] O.J. No. 4468, [2004] O.T.C. 961, 2 C.P.C. (6th) 276, 134 A.C.W.S. (3d) 787 (S.C.J.), consd

Kirkbi AG v. Ritvik Holdings Inc., [2000] F.C.J. No. 768, 97 A.C.W.S. (3d) 1094 (T.D.), distd

Other cases referred to

Allarcom Ltd. v. Canwest Broadcasting Corp., 1987 2484 (BC SC), [1987] B.C.J. No. 1977, 19 B.C.L.R. (2d) 167, 6 A.C.W.S. (3d) 421 (S.C.); Bank Leu AG v. Gaming Lottery Corp., [2000] O.J. No. 1137, 132 O.A.C. 127, 95 A.C.W.S. (3d) 826 (Div. Ct.), affg [1999] O.J. No. 3949, 100 O.T.C. 106, 43 C.P.C. (4th) 73, 92 A.C.W.S. (3d) 270 (S.C.J.); Canada v. Solosky, 1979 9 (SCC), [1980] 1 S.C.R. 821, [1979] S.C.J. No. 130, 105 D.L.R. (3d) 745, 30 N.R. 380, 50 C.C.C. (2d) 495, 16 C.R. (3d) 294, 4 W.C.B. 177; Housen v. Nikolaisen, [2002] 2 S.C.R. 235, [2002] S.C.J. No. 31, 2002 SCC 33, 211 D.L.R. (4th) 577, 286 N.R. 1, [2002] 7 W.W.R. 1, J.E. 2002-617, 219 Sask. R. 1, 10 C.C.L.T. (3d) 157, 30 M.P.L.R. (3d) 1, 112 A.C.W.S. (3d) 991; International Minerals & Chemical Corp. v. Commonwealth Insurance Co., 1992 8153 (SK QB), [1992] S.J. No. 451, 104 Sask. R. 216, 11 C.C.L.I. (2d) 26, 35 A.C.W.S. (3d) 525 (Q.B.); Kennedy v. McKenzie, [2005] O.J. No. 2060, [2005] O.T.C. 385, 17 C.P.C. (6th) 229, 139 A.C.W.S. (3d) 843 (S.C.J.); L'Abbé v. Allen-Vanguard Corp., [2011] O.J. No. 5982, 2011 ONSC 7575 (S.C.J.); [page598] Lavallee, Rackel & Heintz v. Canada (Attorney General), [2002] 3 S.C.R. 209, [2002] S.C.J. No. 61, 2002 SCC 61, 216 D.L.R. (4th) 257, 292 N.R. 296, [2002] 11 W.W.R. 191, J.E. 2002-1713, 4 Alta. L.R. (4th) 1, 312 A.R. 201, 217 Nfld. & P.E.I.R. 183, 164 O.A.C. 280, 167 C.C.C. (3d) 1, 3 C.R. (6th) 209, 96 C.R.R. (2d) 189, [2002] 4 C.T.C. 143, 2002 D.T.C. 7267, 54 W.C.B. (2d) 401; Leadbeater v. Ontario (2004), 2004 14107 (ON SC), 70 O.R. (3d) 224, [2004] O.J. No. 1228, [2004] O.T.C. 282, 129 A.C.W.S. (3d) 1097 (S.C.J.); Lloyds Bank Canada v. Canada Life Assurance Co., [1991] O.J. No. 135, 47 C.P.C. (2d) 157, 25 A.C.W.S. (3d) 25 (Gen. Div.); R. v. McClure, [2001] 1 S.C.R. 445, [2001] S.C.J. No. 13, 2001 SCC 14, 195 D.L.R. (4th) 513, 266 N.R. 275, J.E. 2001-564, 142 O.A.C. 201, 151 C.C.C. (3d) 321, 40 C.R. (5th) 1, 80 C.R.R. (2d) 217, REJB 2001-22807, 48 W.C.B. (2d) 514; Rogers v. Bank of Montreal, 1985 141 (BC CA), [1985] B.C.J. No. 2116, [1985] 4 W.W.R. 508, 62 B.C.L.R. 387, 57 C.B.R. (N.S.) 256, 31 A.C.W.S. (2d) 376 (C.A.), varg 1985 397 (BC SC), [1985] B.C.J. No. 2716, [1985] 4 W.W.R. 503, 61 B.C.L.R. 239, 57 C.B.R. (N.S.) 251, 31 A.C.W.S. (2d) 486 (S.C.); Roynat Capital Inc. v. Repeatseat Ltd., [2014] O.J. No. 1510, 2014 ONSC 653 (S.C.J.), revg [2012] O.J. No. 5371, 2012 ONSC 6258 (S.C.J.) [Leave to appeal granted [2014] O.J. No. 3501, 2014 ONSC 4249 (Div. Ct.)]; S. & K. Processors Ltd. v. Campbell Ave. Herring Producers Ltd., 1983 407 (BC SC), [1983] B.C.J. No. 1499, [1983] 4 W.W.R. 762, 45 B.C.L.R. 218, 35 C.P.C. 146, 20 A.C.W.S. (2d) 183 (S.C.); Sovereign General Insurance Co. v. Tanar Industries Ltd., [2002] A.J. No. 107, 2002 ABQB 101, [2002] 3 W.W.R. 340, 98 Alta. L.R. (3d) 88, 316 A.R. 212, 36 C.C.L.I. (3d) 225, 111 A.C.W.S. (3d) 700; Toronto-Dominion Bank v. Leigh Instruments Ltd. (Trustee of) (1997), 1997 12113 (ON SC), 32 O.R. (3d) 575, [1997] O.J. No. 1177, 31 O.T.C. 267, 69 A.C.W.S. (3d) 1023 (Gen. Div.); Zeitoun v. Economical Insurance Group (2009), 96 O.R. (3d) 639, [2009] O.J. No. 2003, 2009 ONCA 415, 73 C.P.C. (6th) 8, 307 D.L.R. (4th) 218, 73 C.C.L.I. (4th) 255, 257 O.A.C. 29, affg (2008), 2008 20996 (ON SCDC), 91 O.R. (3d) 131, [2008] O.J. No. 1771, 292 D.L.R. (4th) 313, 53 C.P.C. (6th) 308, 236 O.A.C. 76, 64 C.C.L.I. (4th) 52, 165 A.C.W.S. (3d) 770 (Div. Ct.)

Authorities referred to

Lederman, Sidney N., Alan W. Bryant and Michelle K. Fuerst, The Law of Evidence of Canada, 4th ed. (Markham, Ont.: LexisNexis, 2014)

APPEAL from an order reversing a ruling on a refusals motion.

Nancy Tourgis and Simon Zucker, for plaintiffs/ appellants.

James Renihan, for defendants/respondents.

The judgment of the court was delivered by

J. WILSON J.: —

The Appeal

[1] Solicitor-client privilege is a cornerstone of our justice system. It is a substantial civil and legal right that has been elevated to a class privilege and a principle of fundamental justice: Canada v. Solosky, 1979 9 (SCC), [1980] 1 S.C.R. 821, [1979] S.C.J. No. 130; R. v. McClure, [2001] 1 S.C.R. 445, [2001] S.C.J. No. 13, 2001 SCC 14; Lavallee, Rackel & Heintz v. Canada (Attorney General), [2002] 3 S.C.R. 209, [2002] S.C.J. No. 61, 2002 SCC 61. However, solicitor-client privilege is not absolute and is subject to exceptions when it is deemed to have been waived. [page599]

[2] The issue in this appeal is whether Greer J. correctly interpreted and applied the law of waiver of privilege in this case of negligent misrepresentation, which includes the element of reasonable reliance to a party's detriment [ [2004] O.J. No. 1510, 2014 ONSC 653 (S.C.J.)].

[3] The plaintiffs advance a claim in negligent misrepresentation against Blake Cassels and Graydon LLP ("Blakes") and the associate lawyer from Blakes (the "associate") who acted for the defendants in a financing transaction gone wrong.

[4] The defendants plead that Blakes made no representation. They assert that in all probability the plaintiffs received legal advice from their own counsel, Cassels Brock & Blackwell LLP ("Cassels"), that would refute the plaintiffs' claim of reliance.

[5] Reversing the decision of Master Brott, Greer J. ordered the plaintiffs to answer the refused questions concerning the legal advice they received concerning the alleged misrepresentation [[2012] O.J. No. 5371, 2012 ONSC 6258 (S.C.J.)]. She concluded that the plaintiffs placed their state of mind in issue by claiming that they relied upon a representation made by Blakes. The plaintiffs were deemed to have waived solicitor-client privilege for the legal advice that they received, as the principles of fairness and consistency required that the questions be answered to allow Blakes and the associate to adequately defend against the plaintiffs' reliance claim.

[6] Corbett J. granted leave to appeal, questioning the legal analysis of the motion judge and raising concerns about inconsistent legal precedents [[2014] O.J. No. 3501, 2014 ONSC 4249 (Div. Ct.)].

Arguments Raised by the Plaintiffs/Appellants

[7] The plaintiffs/appellants raise several issues:

(1) The motion judge has misinterpreted the law of waiver of privilege, particularly Perell J.'s recent decision in Creative Career Systems Inc. v. Ontario, [2012] O.J. No. 262, 2012 ONSC 649 (S.C.J.) ("Creative Career Systems"), which canvassed the law of waiver of privilege in the context of a party alleging good faith. She should have concluded that Kirkbi AG v. Ritvik Holdings Inc., [2000] F.C.J. No. 768, 97 A.C.W.S. (3d) 1094 (T.D.) ("Kirkbi") applied and determined the issues in this case.

(2) For disclosure to be required, the party receiving legal advice must have put that advice in issue in a claim or defence. Deemed waiver of privilege does not arise when [page600] the opposing party needs the information as to legal advice given to defend an allegation of reliance.

(3) The motion judge erred in substituting her findings of fact as the master's findings of fact contained no palpable or overriding error.

(4) The interpretation of the law by the motion judge is new, erroneous and erodes the substantive right to claim solicitor-client privilege by equating the test of waiver to relevance and thereby opening the door to a flood of cases.

(5) Finally, the plaintiffs argue that the defendants did not plead that the plaintiffs received advice from Cassels, and therefore the disclosure of the advice received is not required.

Blake's Response to the Arguments Raised

[8] Blakes responds to the arguments raised as follows:

(1) The motion court judge correctly outlined and applied the law. The case law defining waiver of solicitor-client privilege when good faith is alleged, as considered in Creative Career Systems, is distinguishable from this case. The motion judge appropriately applied existing principles confirmed in Canadian case law.

(2) The appellants have erroneously restricted the application of deemed waiver of solicitor-client privilege. The appellants have ignored the established line of cases where solicitor-client privilege may be deemed to be waived to allow an opposing party to adequately defend against an allegation of reliance.

(3) The defendants confirm the findings of fact of the motion judge and challenge the factual findings of the master.

(4) There is no floodgate problem, as is clear from the paucity of cases on this issue. The court plays a gatekeeper function in assessing each case on its facts and applying the principles of fairness and consistency to determine the question of waiver of privilege.

(5) The defendants argue that it is not necessary to specifically plead that the plaintiffs could not have relied on a representation made by Blakes to raise the issue of deemed waiver of privilege. [page601]

Standard of Review

[9] The standard of review on a question of law is correctness. On a question of fact, the appellate court must find a palpable and overriding error to intervene (Housen v. Nikolaisen, [2002] 2 S.C.R. 235, [2002] S.C.J. No. 31, 2002 SCC 33, at para. 8).

[10] As confirmed by Perell J., at paras. 20-21 in Creative Career Systems, a master's decision should not be interfered with unless she made an error of law, exercised her discretion on the wrong principles, or misapprehended the evidence such that there was a palpable or overriding error: Zeitoun v. Economical Insurance Group (2008), 2008 20996 (ON SCDC), 91 O.R. (3d) 131, [2008] O.J. No. 1771 (Div. Ct.), affd (2009), 2009 ONCA 415, 96 O.R. (3d) 639, [2009] O.J. No. 2003 (C.A.). When the master has decided a matter of law, which includes determinations of whether a question is relevant or whether evidence is privileged, the standard of review is correctness: Leadbeater v. Ontario (2004), 2004 14107 (ON SC), 70 O.R. (3d) 224, [2004] O.J. No. 1228 (S.C.J.), at para. 29; Kennedy v. McKenzie, [2005] O.J. No. 2060, 139 A.C.W.S. (3d) 843 (S.C.J.), at para. 15.

Overview

[11] The plaintiffs plead that RPS Capital LP, by its general partner Knight's Bridge Capital Partners Inc. ("Knight's Bridge"), and Roynat Capital Inc. ("Roynat") agreed to lend $7 million to the defendant Repeatseat Ltd. ("Repeatseat") on certain conditions (the "loan agreement").

[12] Cassels represented the plaintiffs, and Blakes represented the defendant Repeatseat.

[13] The corporate and individual defendants were required to raise additional funds of $3,500,000 as a condition of the loan being advanced (the "equity funds").

[14] The claim against Blakes and the associate is with respect to a misrepresentation as to this condition. The issue in this lawsuit is whether Blakes and the associate independently confirmed that the equity funds had been raised, and whether the plaintiffs relied upon this confirmation.

[15] In September 2007, a shortfall in the equity funds in the amount of $587,602 was discovered. The plaintiffs have sued the corporate defendants as well as various individual defendants for $6 million with respect to the loan agreement that is in default, alleging negligent misrepresentation as well as other breaches of duties owed. The plaintiffs also sued Blakes and the associate for negligent misrepresentation alleging that the plaintiffs relied on the representation made by the associate that the equity funds had been raised. [page602]

[16] To place this appeal in context, it is helpful to outline the e-mail exchanges between the parties with respect to the issue of certification or confirmation that the equity funds had been raised.

The exchange between the parties concerning the equity funds

[17] The issue in the plaintiffs' claim of misrepresentation against Blakes and the associate is whether, in the context of the transaction, the plaintiffs in fact relied on the e-mail from the associate on the date of the closing.

[18] Cassels and Blakes worked together to determine what documentation was required to close the transaction, including canvassing how the equity funds would be confirmed.

[19] The full exchange between the parties relevant to the equity funds is as follows:

On June 19, 2007, Blakes forwarded a draft certificate to Cassels (the Certificate). The purpose of the Certificate was to certify that Repeatseat had the Equity Funds. It was to be signed by George Davidson, President and Chief Executive Officer of Repeatseat. Blakes noted in the e-mail attaching the Certificate that Blakes would not be confirming the receipt of the Equity Funds:

Please advise if this will be satisfactory or if you have any comments. I would note that BCG [Blakes] will not be providing confirmation that the $3.5M has been received because the subscriptions are not flowing through our office, As such, the certificate alone will need to be sufficient.

(Emphasis added)

At Question 92 of the transcript for discovery, Ira Traves (Traves), a Managing Director of Knight's Bridge Capital Partners and a lawyer, refers to an email dated June 20, 2007 sent by the plaintiffs that was not contained in the materials and was not before the court.

On June 25, 2007 Cassels sent the Associate an email confirming Cassels' understanding of various outstanding matters based upon discussions between counsel. Item 6 is entitled Equity Injection and refers to the Equity Funds:

6. Equity Injection: (a) Certificate re: equity injection has been received. We will review and provide comments today. (b) Written certification from Blakes that requisite funds have been received and deposited into the treasury account is outstanding. Blakes advises that they will not be providing same as the subscriptions are not flowing through their office. To be discussed.

(Emphasis added)

On June 26, 2007, Cassels sent an email to Blakes with a list of outstanding matters that needed to be addressed before closing. There is no mention in this list whether Blakes will be separately confirming or certifying the Equity Funds. The only matter relevant to this claim, raised [page603] at point 7 of Cassels' June 26, 2007, email, was the Certificate concerning the Equity Funds.

7. Certificate re Equity Injection: Outstanding/Please confirm this will follow under separate cover.

Blakes responded in the early morning of June 27, 2007, to the various matters outlined in the Cassels email of June 26 by putting Blakes' response to the various issues raised in capital letters. On the issue concerning the Equity Funds and the Certificate the Associate provided:

7. Certificate re Equity Injection: Outstanding/Please confirm this will follow under separate cover. I HAVE THIS AND CONFIRM THAT IT IS READY TO RELEASE -- ALONG WITH THE BNS RELEASE. I WILL HAVE BOTH SCANNED AND EMAILED WITH ORIGINAL TO FOLLOW BY COURIER IN THE MORNING.

Later that morning of June 27, 2007, Traves e-mailed the Associate acting for the defendants directly and inquired about the Equity Funds:

Michelle, Kenny is in meetings out of the office today, and he has asked me to follow up on this with you. Please confirm that the last RPS investors who were waiting for confirmation that everyone else has released their funds and have now been properly satisfied and that the full monies have been received and the $3.5MM Concurrent Equity Raise is now complete. We would like to close today, so this information is obviously time critical.

(Emphasis added)

The Associate's response was sent to Cassels, with a copy to Traves. This communication is the alleged misrepresentation as to the Equity Funds that underpins the lawsuit:

Tilly, Charles,

I feel it is more appropriate for requests for information from and email of information to your client to flow through your office.

(i) As per my email earlier this morning, the equity raise has been completed. No conditions remain on any of those funds. The certificate reflecting this will be sent shortly.

(Emphasis added)

[20] The plaintiffs allege that in sending the above e-mail on June 27, 2007, Blakes provided independent confirmation that Repeatseat had raised the equity funds. The plaintiffs allege that they decided to close the transaction that same day in reliance on this e-mail in which Blakes allegedly confirmed the equity funds, as well as the certificate signed by the president of Repeatseat.

[21] Blakes submits that this e-mail was neither a confirmation nor certification by Blakes that the equity funds had been raised. The associate was simply advising that the certificate confirming the equity funds was signed and ready for release. [page604]

[22] Further, Blakes submits that the plaintiffs, and particularly Traves, were likely told by their own counsel, Cassels, that no reliance could be placed upon the e-mail sent by the associate on the day of closing about the equity funds in light of the prior exchanges in the transaction between Cassels and Blakes.

Plaintiffs' refusals at the discovery

[23] Traves sent the e-mail directly to the associate at Blakes on the date of closing, June 27, 2007, and purports to rely upon the associate's response. However, during his examination for discovery, Traves refused to answer any questions concerning his communications with Cassels about Blakes' alleged "confirmation" of the completion of the equity funds.

[24] Traves chose to answer some questions in discovery as to his discussions with Cassels, yet refused to answer the questions relevant to the issue of the advice obtained from Cassels and reliance on Blakes.

[25] The following is an excerpt from the discovery transcript confirming the claim of privilege:

Q. 55 And just so that -- what I want to know is, did you receive from your lawyers, a copy of this email [June 19, 2007] at the time, indicating that Blakes would not be providing its own independent confirmation?

A. Yes I believe I was copied on that.

Q. 56 All right, and did you have any discussions with your own lawyers as to what the meaning of the paragraph was, or did you understand it?

Mr. Zucker: I don't think the discussion -- you can ask him whether he had discussions. You can't ask him what those discussions were.

Mr. Lax: Well. just with great respect, because there's a claim here for detrimental reliance on the misrepresentation, to the extent that he says he relies on anything, I am entitled to know what else he relied on, and so that --

Mr. Zucker: Well, you can ask him whether he had any discussions, but the substance of those discussions or the advice that he received would be privileged.

Mr. Lax: There's going to be a motion --

Mr. Zucker: Okay.

Mr. Lax: -- just so there's no question about this.

[26] The transcript of the examination of Traves provides evidence that there were discussions with Cassels relevant to the alleged misrepresentation, and that the chain of e-mails alone does not reflect the events that were taking place. For example: [page605]

Q. 57 Did you have any discussions with your lawyer about this email. [Referring to email dated June 19, 2009]

R. I had discussions with our lawyers 10, 20 times a day during the period of time on this transaction.

S. 58 Yes, but this particular issue, because Blakes is very clear that "we are not providing any confirmation, so if you've got any issues about the wording of the confirmation, let me know." Was that a specific discussion between you and your lawyer?

T. You actually need to understand the dynamics of what's going on here because this e-mail doesn't really speak to the events that were taking place.

Q: 89 On June the --19th Blakes said this is the only certificate you are going to get. You're not going to get another one. . . .

You told your lawyers that was not satisfactory.

(Nodding head)

Q. 91 And that was a discussion that you had with Cassels Brock. Do you recall if it was with Meg, with Tilly Gray or with Charles? . . .

R. I don't recall. They -- well I think they were always on every phone call.

S. 92 All right. And you instructed them to write to Blakes and indicate to Blakes that the confirmation of Repeatseat and George Davidson alone was not enough?

A. That's what the June 20th email says.

Q.249 How come Mr. Traves, when your lawyers went back to Ms. Cooze on June 26th, the second time, there was no request for a confirmation such as the one you're now telling me about?

A. I told them I was going to ask for it. I was going to ask for confirmation.

B. 250 How come you didn't tell your lawyers, instruct your lawyers to seek confirmation on your behalf?

C. I did it myself. And my lawyers knew about it. Told my lawyers we were doing it.

Q. 252 And was the reason that you were going to seek the confirmation yourself was that you thought that you might be able to get confirmation that your lawyers had been unable to . . .

A. No sir. That . . .

Q. 253 Obtain on your behalf? [page606]

A. --Never crossed my mind, at all. This was genuine on my part. There was no trickery going on here.

Q. 345 He [Kenny Finkelstein, principal of the plaintiffs] knew that you had asked for [the confirmation] twice and you had been turned down twice in writing before?

R. Everybody was scrambling at the time to try and get this deal closed. That's--

Q. And.

A. No. That's--you have to understand the dynamics, Counsel. This was a hectic period. Everybody was trying to close this transaction.

[27] The list of refusals that the motion judge required the plaintiffs to answer include the following:

Q. 56, P. 20: All right. And did you have any discussions with your own lawyers as to what the meaning of this paragraph was or did you understand it? [Referring to June 19th email]

Q.76, P. 27: All right, And did you advise your lawyers that this was not satisfactory and that your lawyers should indicate to Blakes that that was not acceptable?

Q. 100, P. 34: Okay. Was there a discussion at the time -- and your lawyer can object -- was there a discussion at the same time where Mr. Newman said, "Look. I don't just want this. I want Blakes' confirmation that the three-and-a-half million dollars has been raised"?

[28] Blakes and the associate argue that the refused questions are highly relevant and vital to their defence. Blakes and the associate cannot adequately challenge the allegation of reliance and defend the action unless the plaintiffs are required respond to questions concerning the legal advice that they received from their own counsel on the issue of reliance upon the e-mail sent by Blakes on June 27, 2007.

Subsequent events

[29] As outlined in the statement of claim, the plaintiffs allege that on or about September 28, 2007, they discovered that the defendants had not raised the required $3.5 million equity funds but were $587,602 short.

[30] The plaintiffs and Repeatseat immediately began discussing this shortfall and tried to resolve their dispute. Blakes was not involved in or aware of those discussions.

[31] On August 17, 2009, almost two years later, the plaintiffs commenced this action. Blakes did not know and had not been advised by the parties that Repeatseat was alleged to have failed to raise the equity funds until it received the plaintiffs' notice of action. [page607]

The case law on deemed waiver of solicitor-client privilege

[32] To place the question in this appeal in context, there is a summary in The Law of Evidence of Canada, 4th ed. (Markham, Ont.: LexisNexis, 2014), by Sidney N. Lederman, Alan W. Bryant and Michelle K. Fuerst, that provides a helpful overview of the issue of deemed waiver of privilege in cases of alleged reliance. Sections 14.147 and 14.148 of that text state:

14.147 In assessing the question of waiver, the court must consider whether the party asserting privilege voluntarily injected the issue of its state of mind into the litigation. A mere allegation as to a statement of affairs on which a party may have received legal advice does not justify setting aside solicitor-client privilege.

14.148 The extent and nature of legal advice received by a party can be put in issue when that party alleges that he or she possessed a particular state of mind as, for example, reliance upon the defendant's representations. If the defence is that the plaintiff had relied upon his or her own legal advice on the question, then such legal advice must be disclosed. In Lloyds Bank of Canada v. Canada Life Assurance Co., the plaintiff pleaded in its statement of claim that it was induced by the defendants to make a loan and that it relied upon the defendant's representations in deciding to advance the funds. The defendants alleged that such reliance was unreasonable and that the plaintiff had received its own legal advice before committing to loan the funds. Justice Van Camp held that because the plaintiff had pleaded reliance upon the defendant's representations, it had waived the privilege insofar as it had to divulge whether it had obtained legal advice as to the value of the representation before authorizing the loan. She quoted the Wigmore passage above and drew upon the words of McLachlin J., then a member of the British Columbia Supreme Court, in S. & K. Processors Ltd. v. Campbell Avenue Herring Producers Ltd.

In the cases where fairness has been held to require implied waiver, there is always some manifestation of a voluntary intention to waive the privilege at least to a limited extent. The law then says that in fairness and consistency, it must be entirely waived.

Issue 1. When does deemed waiver of privilege apply in cases of alleged reliance and did the motion judge correctly apply the law in this case?

[33] The plaintiffs and the defendants argue very different versions of the law of deemed waiver of solicitor-client privilege in cases of alleged reliance.

[34] Greer J. considers Creative Career Systems, and adopts the general principles canvassed therein, but distinguishes its application to this case. She also considers the line of Canadian cases where solicitor-client privilege may be implicitly deemed waived when reliance is alleged and the legal advice obtained must be disclosed over the objection of the party claiming reliance, when it is in the interests of fairness and consistency to allow the opposite party to defend. [page608]

[35] I turn now to consider the issues raised by the plaintiffs in this appeal, in their argument and in their factum.

(1) When does deemed waiver of privilege apply in cases of reliance, and did the motion judge correctly apply the law in this case, particularly in light of Creative Career Systems?

(2) Was the motion judge correct in her conclusion that the decision of Kirkbi AG, was not determinative of matters in issue?

(3) Did the motion judge err in her challenge of the master's findings of fact?

(4) Did the motion judge appropriately balance the principles of fairness and consistency in ordering the questions to be answered?

(5) Does the interpretation by the motion judge erode solicitor-client privilege and open the door to a flood of cases?

(6) Finally, did the motion judge err by concluding that in order for disclosure of the advice from Cassels to be required, it was not necessary for the defendants to plead that the plaintiffs received that advice?

[36] I will review in some detail the recent decision in Creative Career Systems and the case law relied upon by the plaintiffs. I follow this with a review of the case law relied upon by the defendants. I will then confirm my conclusions as to the applicable law, and a review of the decision of the motion judge.

Case law and arguments of the plaintiffs

[37] The plaintiffs submit that the motion judge misinterpreted the law of waiver of privilege, and particularly the recent decision of Perell J. in Creative Career Systems. It is only the party who receives legal advice who can, by choosing to put that advice in issue, necessitate disclosure of that advice.

[38] In essence, the plaintiffs argue that the earlier line of Canadian cases relied upon by Blakes is trumped in light of the recent analysis in Creative Career Systems coupled with the recognition of the enhanced importance of solicitor-client privilege.

[39] Perell J. reviewed Guelph (City) v. Super Blue Box Recycling Corp., 2004 34954 (ON SC), [2004] O.J. No. 4468, 134 A.C.W.S. (3d) 787 (S.C.J.) ("Super Blue Box") in some detail. It too is a case considering the principles of waiver of privilege in the context of an allegation of good faith. [page609]

[40] Perell J. provided the following comprehensive and useful summary of the law on deemed waiver of solicitor-client privilege in a case involving good faith [at paras. 26, 27 and 29 of Creative Career]:

Thus, if a party places its state of mind in issue with respect to its claim or defence and has received legal advice to help form the state of mind, privilege will be deemed to be waived with respect to such legal advice: Bank of Leu AG v. Gaming Lottery Corp. [1999] O.J. No. 3949 (S.C.J.) at paras. 5-11; Toronto Dominion Bank v. Leigh Instruments Ltd. (1997), 1997 12113 (ON SC), 32 O.R. (3d) 575 (Gen. Div.); Woodglen & Co. v. Owens (1995), 1995 7070 (ON SC), 24 O.R. (3d) 261 (Gen. Div.); Lloyd's Bank of Canada v. Canada Life Assurance Co. (1991), 47 C.P.C. (2d) 157 (Ont. Gen. Div.)

There, is however, a subtle and profound point here about when a party must answer questions about the occurrence of legal advice in the factual narrative of a case. The subtle and profound point is that there is no waiver of the privilege associated with lawyer and client communications from the mere fact that during the events giving rise to the claim or defence, the party received legal advice, even if the party relied on the legal advice during the events giving rise to the claim or defence. For a party to have to disclose the legal advice more is required.

But the materiality of the legal advice, while necessary to make questions about it relevant, is still not sufficient to justify the compelled disclosure of the legal advice. To justify a party being required to answer questions about the content of privilege communications, the party must utilize the presence or absence of legal advice as a material element of his or her claim or defence. The waiver of the privilege occurs when the party uses the receipt of legal advice as a material fact in his or her claim or defence. While the waiver is a deemed waiver, it requires the intentional act that the party makes legal advice an aspect of his or her case. In Simcoff v. Simcoff, 2009 MBCA 80, Justice Steel made the point neatly at para. 27, where he stated:

However, mere reference to the receipt of legal advice does not constitute waiver. Waiver must involve something more. It requires not simply disclosing that legal advice was obtained, but pleading reliance on that advice for the resolution of an issue.

[Emphasis in original]

[41] Applying these legal principles, Perell J. articulates a two-step test. The applicability of the second step is in issue in this appeal [at para. 30]:

Thus, a deemed waiver and an obligation to disclose a privileged communication requires two elements; namely: (1) the presence or absence of legal advice is relevant to the existence or non-existence of a claim or defence; which is to say that the presence or absence of legal advice is material to the lawsuit; and (2) the party who received the legal advice must make the receipt of it an issue in the claim or defence.

(Emphasis added) [page610]

[42] The plaintiffs argue that the motion judge failed to apply the second requirement enunciated by Perell J. that is "the party who received the legal advice [in this case the plaintiffs] must make the receipt of it an issue in the claim or defence". The plaintiffs argue that they have not made receipt of legal advice from Cassels in issue, and therefore the legal advice they received continues to be privileged.

[43] The master accepted this argument advanced by the plaintiffs and the motion judge did not. This difference is at the heart of this appeal.

Case law and arguments of the defendants

[44] The defendants submit that both Creative Career Systems and Super Blue Box deal with the case of whether solicitor-client privilege is waived in the context of a question of good faith. In a good faith claim, clearly the party who received the legal advice must place the relevance of that advice in issue for deemed waiver of privilege to apply and for disclosure to be required. The defendants argue that the second requirement suggested by Perell J., that the party who received the legal advice must make the receipt of it an issue in the claim or defence, applies in the context of the question of good faith. However, it does not apply, or it must be applied differently, in cases of reliance.

[45] The defendants have outlined in their factum the evolution of case law in Canada over the last 30 years dealing with waiver of solicitor-client privilege in claims of detrimental reliance, when disclosure of legal advice received has been required to allow a party to defend.

[46] In Rogers v. Bank of Montreal, 1985 397 (BC SC), [1985] B.C.J. No. 2716, 61 B.C.LR. 239 (S.C.), the British Columbia Supreme Court considered for the first time in Canada the issue of whether a claim for negligent misrepresentation, which includes the element of reliance, engaged the principles of waiver of solicitor-client privilege. In that case, the motion judge concluded that by claiming reliance on the advice received from the receiver, the bank had invited inquiry as to the advice it had received from its own solicitors. The scope of the waiver was appropriately narrow to focus on the documents, communication or advice relevant to the matter in issue.

[47] This case was appealed to the British Columbia Court of Appeal in Rogers v. Bank of Montreal, 1985 141 (BC CA), [1985] B.C.J. No. 2116, 62 B.C.L.R. 387 (C.A.) ("Rogers"). The Court of Appeal noted that there did not seem to be any Canadian precedent on this issue, and upheld the motion judge's decision relying on a decision of [page611] the United States District Federal Court. At para. 19, the Court of Appeal held that what

underlines . . . the defense in this case is that the party claiming the privilege relied upon the advice . . . of the Receiver, and acting on that reliance took certain steps. That necessarily involves an enquiry into the corporate state of mind of the Bank when it was induced and decided to act.

[48] The Rogers case was applied two years later by the British Columbia Supreme Court in Allarcom Ltd. v. Canwest Broadcasting Corp., 1987 2484 (BC SC), [1987] B.C.J. No. 1977, 19 B.C.L.R. 167 (S.C.) ("Allarcom"). In Allarcom, the defendant had pleaded estoppel and claimed to have relied on the plaintiff. The court found that by alleging reliance on the plaintiff, the defendant had put its state of mind in issue. The court ordered the defendant to answer questions as to the legal advice and opinions it received:

The plaintiff contends that, having put their state of mind in issue by pleading that they relied upon the plaintiff's conduct to their detriment, the defendants cannot now raise the barrier of solicitor/client privilege to prevent the plaintiff from showing that the defendants had advice and opinions which effectively negate the allegations of reliance upon the plaintiff's conduct. On the authority of the Court of Appeal in Rogers, Rogers and Cornwall v. Bank of Montreal (supra), the plaintiff is on sound ground.

[49] These two cases were considered at length and adopted in Ontario in 1991 by Van Camp J., in Lloyds Bank Canada v. Canada Life Assurance Co., [1991] O.J. No. 135, 25 A.C.W.S. (3d) 25 (Gen. Div.) ("Lloyds Bank"). In Lloyds Bank, the bank loaned funds and alleged that it had made the loan in reliance on various representations from shareholders of the company. After default, the bank sued the shareholders over the alleged representations. The plaintiff brought a motion to compel the bank to answer questions as to the legal advice obtained to challenge the claim of reliance. Van Camp J. concluded, at p. 8 (QL), that when a party puts its state of mind in issue by pleading reliance, there is deemed waiver of solicitor client privilege and the questions must be answered:

In the circumstances herein when the Bank has pleaded reliance upon the comfort letters it has waived the privilege insofar as it must divulge whether it had obtained legal advice before authorizing the loan as to the security of the comfort letters.

[50] The Lloyds Bank decision was considered and adopted in 1997 by Winkler J. in Toronto-Dominion Bank v. Leigh Instruments Ltd. (Trustee of) (1997), 1997 12113 (ON SC), 32 O.R. (3d) 575, [1997] O.J. No. 1177 (Gen. Div.) ("Leigh Instruments"). In Leigh Instruments, the plaintiff bank made a loan to a subsidiary of the defendant. The loan was not repaid and the bank sued the defendant, alleging [page612] that it had relied on the comfort letters provided. The defendant sought production of legal advice relevant to the bank's knowledge regarding the enforceability of comfort letters. Winkler J. reviewed Lloyds Bank and concluded, at p. 589 O.R., that that by claiming reliance the bank had by implication waived privilege:

The plaintiff, they assert, has pleaded reliance on the conduct of the defendants, when they knew, or ought reasonably to have known, through the advice of their legal department, that comfort letters were not binding. The consequence, they assert, is that the plaintiff has waived by implication any solicitor-client privilege it may have held over the legal advice or knowledge which gave rise to that state of mind. I agree with those submissions.

[51] Lloyds Bank and Leigh Instruments were considered and applied in 1999 by Ground J. in Bank Leu AG v. Gaming Lottery Corp., [1999] O.J. No. 3949, 92 A.C.W.S. (3d) 270 (S.C.J.). Gaming Lottery Corp. ("GLC") retained Cassels for legal advice for a transaction involving the issuance of a certificate of shares. It turned out that the certificate was neither issued nor paid for. Bank Leu sued GLC, which brought a third-party claim against Cassels alleging that Cassels had failed to warn it of the risks involved in the transaction. Cassels, in turn, sought production of documents reflecting communications between GLC and both its U.S. counsel and in-house counsel relating to the transaction. Cassels sought to show that GLC had been aware of the risks, and had not relied on Cassels. Ground J., relying on Lloyds Bank, granted the motion, holding, at para. 11:

Accordingly, I find that by alleging breach of duty by Cassels Brock/Stein in failing to warn of the risks involved in the subject transaction . . . GLC is deemed to have waived privilege with respect to all documents relating to advice or information provided to GLC with respect to the risks inherent in entering into the subject transaction[.]

[52] The Bank Leu decision was appealed to the Divisional Court (see Bank Leu AG v. Gaming Lottery Corp., [2000] O.J. No. 1137, 95 A.C.W.S. (3d) 826 (Div. Ct.)). The appeal was dismissed, with the court holding, at para. 10, that they agreed with the motion judge's reasons and with the conclusions that he reached.

[53] This principle of waiver of privilege in the context of a claim of reliance was applied again recently in Ontario in L'Abbé v. Allen-Vanguard Corp., [2011] O.J. No. 5982, 2011 ONSC 7575 (S.C.J.). Allen-Vanguard alleged that, in reliance on negligent or fraudulent misrepresentations from senior managers of Med-Eng Systems, it had purchased shares in that company at inflated prices. In finding that the nature of the claim resulted in a waiver of privilege, Master MacLeod held [at paras. 13 and 49]: [page613]

Because Allen-Vanguard is asserting claims of negligent and fraudulent misrepresentation in the formation of the contract and setting of the price, knowledge and reliance are critical issues.

It cannot be open to Allen-Vanguard to take the position that it was misled by representations which it now says were false and then refuse to disclose what due diligence was carried out and what information was available to it through the due diligence process.

[54] The rule that a pleading of reliance may invite waiver has been considered and applied not only in British Colombia and Ontario, but also in Saskatchewan and Alberta. In International Minerals & Chemical Corp. v. Commonwealth Ins. Co., 1992 8153 (SK QB), [1992] S.J. No. 451, 104 Sask. R. 216 (Q.B.), the Saskatchewan Court of Queen's Bench adopted the rulings in Rogers and Allarcom and held that when the pleading places in issue reliance, "[t]he sanctity of solicitor client privilege must yield to full disclosure in this situation". Similarly, in Sovereign General Insurance Co. v. Tanar Industries Ltd., [2002] A.J. No. 107, 2002 ABQB 101, the Alberta Court of Queen's Bench reviewed and adopted the principles outlined in Leigh Instruments and other cases. The court confirmed that potential instructions provided to counsel in the context of a claim of reliance were highly relevant and should be disclosed to the opposing party.

Conclusions as to the law

[55] The cases relied upon by the defendants demonstrate a lengthy, clear and consistent line of authority upon which the motion judge appropriately relied.

[56] In both Creative Career Systems and Super Blue Box, the court confirms that in the context of a claim involving potential bad faith, or a challenge to good faith, a person cannot rely on legal advice to bolster his or her claim of good faith, or to refute a claim of bad faith, without disclosing the contents of the advice received. This makes perfect sense. However, where a party does not rely on the receipt of legal advice to support his or her claim to have acted in good faith, there is no implied waiver of solicitor client privilege. The adverse party is not entitled to disclosure of the content of the legal advice received if the party has not put that advice in issue.

[57] In the circumstances of both Creative Career Systems and Super Blue Box, the parties placed no reliance on the legal advice received to support their claim of good faith. Therefore, implied waiver did not apply and the opposing party was not entitled to disclosure of the legal advice given. Further, in [page614] Creative Career Systems, Perell J. concluded that the legal advice sought was not relevant to the matters in issue.

[58] I am of the view that the principles, at para. 30 of Creative Career Systems, can be adapted to appropriately apply to this negligent misrepresentation claim and the question of reliance. Applying the two-step test, this negligent misrepresentation claim advanced by the plaintiffs makes (1) the presence of legal advice relevant to the plaintiffs' allegation of reliance; and (2) the party who received the legal advice (in this case the plaintiffs) made the receipt of the legal advice an issue in this claim as the plaintiff must prove that relying on the defendants' alleged representations was reasonable. If Cassels provided the plaintiffs with legal advice on this issue to the contrary to the position alleged in this claim, the plaintiffs' reliance would not be reasonable.

[59] The line of cases relied upon by the defendants confirms that there are limited circumstances where waiver of solicitor-client privilege may apply: if a party places its state of mind in issue, alleges reliance on representations made by the adverse party and obtained legal advice with respect to that representation. I do not read Creative Career Systems as inconsistent with this analysis. Alternatively, I agree with the defendants' argument that Creative Career Systems was dealing with a different issue, and therefore the two-step test outlined in para. 30 of that decision needs to be interpreted to be consistent with established law.

Did the motion judge correctly apply the case law to the facts and circumstances of this case?

[60] The motion judges correctly adopted the principles outlined in Creative Career Systems, and appropriately crafted its applicability to a case of alleged reliance.

[61] Further, the motion judge was correct in concluding that the master had misinterpreted the applicability of Creative Career Systems and Super Blue Box in this case. Deemed waiver of privilege does not apply only where the party with privilege places the legal advice it received in issue. It was not necessary, as the master suggested, for the defendants to provide evidence demonstrating that "the plaintiffs actions were taken as a result of their solicitor's advice".

[62] I conclude that the motion judge carefully considered the line of cases involving the tort of misrepresentation and reliance submitted by the defendants, and appropriately applied the principles to the facts and circumstances of this case. [page615]

[63] The motion judge was correct in her legal analysis and her conclusion that deemed waiver of solicitor-client privilege may apply when a party alleges reliance and may have received legal advice challenging the assertion of reliance.

[64] The privilege is not automatically waived, but is subject to the analysis of fairness and consistency.

Issue 2: Was the motion court judge correct in concluding that the decision of Kirkbi AG was not determinative of matters in issue?

[65] The plaintiffs rely on Kirkbi AG as being determinative of this case. This Federal Court decision from 2000 is a case of detrimental reliance. The master relied upon this decision in reaching her conclusions. The motion court judge found that master erred and that Kirkbi AG could be distinguished and was not determinative.

[66] The plaintiffs argue that the master was correct in concluding that Kirkbi AG was applicable and determined the outcome of this case.

[67] In Kirkbi AG, the motion judge concluded that any legal advice given was irrelevant to the exchange of correspondence underpinning the claim of detrimental reliance. The judge in Kirkbi AG did not outline in the decision the facts of the case to assess the question of deemed waiver of privilege. Nor did he outline the line of cases dealing with cases of reliance and waiver of privilege.

[68] I conclude that the decision is of limited utility in the analysis of this case. The motion court judge was correct that Kirkbi AG is distinguishable and is not applicable to the facts of this case, and is certainly not determinative of the issues raised in this appeal.

Issue 3: Did the motion court judge err by failing to respect the finding of fact made by the master?

[69] The plaintiffs challenge the findings of fact made by the motion judge and argue that there was no palpable and overriding error in the findings of fact made by the master. Hence the findings master's findings of fact should have been respected and the motion judge erred in substituting her findings.

[70] I do agree with the plaintiff's argument that the statement in para. 34 of the motion judge's reasons goes beyond the scope of the questions sought to be answered. (The motion judge refers to discussions that must have taken place between the plaintiffs and Cassels after the shortfall in the equity funds [page616] was discovered some months after the transaction closed and before the lawsuit began.)

[71] The issue of deemed waiver of privilege and disclosure raised by the defendants is limited to discussions between the plaintiffs and their counsel at the time the alleged misrepresentation was made by Blakes relevant to the issue of reliance.

[72] It is clear that the master applied the incorrect legal test to determine whether the questions must be answered. Her findings of fact reflect this misunderstanding. At para. 16 of her endorsement, she found that solicitor and client privilege had not been waived since there was "insufficient evidence to demonstrate that the Plaintiffs' actions were taken as a result of their solicitor's advice".

[73] The master found, as a matter of fact, that there was no evidence that the plaintiff relied on legal advice received from Cassels. Therefore, she concluded, there is no express or implied waiver of solicitor-client privilege.

[74] The plaintiffs argued that the finding of the master that there was no evidence relevant to reliance on legal advice cannot be challenged.

[75] I disagree.

[76] The transcript of the examination of Traves, referred to in para. 26 of this decision, provides cogent evidence that there were multiple discussions with Cassels relevant to the transaction at the time of the alleged misrepresentation.

[77] When the contents of the transcript were brought to the attention of plaintiffs' counsel during argument in this hearing, her response was that the transcript was not relied upon by the defendants in their submissions. It forms part of the record before this court, before the motion judge and master, and may properly be considered.

[78] I conclude that the master's findings of fact [at para. 16] miss the mark as she was applying the wrong test in law. The defendant is not required to provide evidence to demonstrate that "the Plaintiffs actions were taken as a result of their solicitor's advice". Rather, the defendants must demonstrate that in all likelihood, at the time of the transaction, the plaintiffs received legal advice from their counsel about whether reliance could be placed on the e-mail sent by the associate. The defendants must prove that this evidence is relevant and necessary for their defence and the court, in exercising its gatekeeper function, must conclude that the principles of fairness and consistency require that this evidence be disclosed.

[79] I conclude that the motion judge appropriately challenged the findings of fact of the master given that the master's [page617] findings of fact where made in the context of applying the incorrect legal test. There can be no deference to the master's factual findings in these circumstances.

Issue 4: Did the motion judge appropriately balance principles of fairness and consistency in ordering the questions to be answered?

[80] The motion court judge relied upon the decision of Winkler J. in Leigh Instruments for the proposition that the guiding principles must be fairness and consistency when determining whether there has been a deemed waiver of solicitor client privilege. She concluded that the master erred in law by not balancing the principles of fairness and consistency to require the questions to be answered.

[81] The plaintiffs argue that the motion judge erred in law by placing too much weight on a consideration of "fairness and consistency".

[82] Winkler J. in Leigh Instruments, at para. 46, quoted with approval from the decision by McLachlin J. (as she then was) in S. & K. Processors Ltd. v. Campbell Ave. Herring Producers Ltd., 1983 407 (BC SC), [1983] B.C.J. No. 1499, 45 B.C.L.R. 218 (S.C.):

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 the privilege. However, waiver may also occur in the absence of an intention to waive, where fairness and consistency so require. Thus waiver of privilege as to part of a communication, will be held to be waiver as to the entire communication. Similarly, where a litigant relies on legal advice as an element of his claim or defence, the privilege which would otherwise attach to that advice is lost.

As pointed out in Wigmore on Evidence (McNaughton rev., 1961), vol. 8 . . . double elements are predicated in every waiver -- implied intention and the element of fairness and consistency. In the cases where fairness has been held to require implied waiver, there is always some manifestation of a voluntary intention to waive the privilege at least to a limited extent. The law then says that in fairness and consistency, it must be entirely waived.

[83] Deemed waiver of privilege to allow a party to defend is not a waiver of all privileged communications, but only those communications relevant to the issue of reliance.

[84] The principles of fairness and consistency temper and guide when waiver of privilege is deemed to occur. Whether fairness and consistency require implied waiver of privilege is case specific and factually dependent. The court provides an important gatekeeper function to avoid inappropriate requests for disclosure, balancing fairness with the importance [page618] of solicitor-client privilege. Deemed waiver and disclosure will be limited to circumstances where the relevance of the evidence in question is high, and the principles of fairness and consistency require disclosure to allow a party to adequately defend.

[85] Turning to the facts of this case, the evidence confirms the solicitors for both parties were actively involved with each other for the purpose of closing the transaction. The examination of Traves confirms multiple discussions between the plaintiffs and Cassels during this hectic period, "10 to 20 times per day". The plaintiffs purport to rely on one e-mail from the associate on the day of closing that is, in the context of the transaction, capable of different interpretations. Blakes had made it clear in writing on two occasions that it would not be certifying or confirming the raising of the equity funds. Traves chose to contact the associate directly on the date of closing concerning the equity funds, apparently after speaking to his counsel.

[86] It can be readily inferred from these unusual factual circumstances that the alleged representation by Blakes in the e-mail from the associate on the date of closing would have been considered by the plaintiffs lawyers, Cassels, and would have been the subject of discussion between Cassels and their clients. These factual circumstances demonstrate some nexus between Cassel's advice and the plaintiffs' alleged state of mind of detrimental reliance on Blakes' statement.

[87] In these circumstances, I accept the defendants' submission that the relevance of the legal advice received by the plaintiffs on the question of reliance reaches the threshold of "extraordinarily relevant" and may be dispositive of the action. Fairness and consistency would therefore allow inquiry into what was said, if anything, between Cassels and the plaintiffs about Blakes' statement at the time of closing the transaction.

[88] The motion judge correctly performed the gatekeeper function and appropriately concluded that the interests of fairness and consistency required the limited questions in issue to be answered.

Issue 5: Does the interpretation by the motion judge erode solicitor-client privilege and open the door to a flood of cases?

[89] The plaintiffs suggest there will be a flood of cases on this issue. The paucity of cases over the years refutes this suggestion. The gatekeeper function of the court applying the principles of fairness and consistency will balance the interests of the search for truth against the important rights associated with solicitor-client privilege. [page619]

Issue 6: Does the party seeking disclosure have to plead the issue of reliance on legal advice?

[90] The motion judge was also correct in her conclusion that it was not necessary for the defendants to plead reliance on the legal advice received.

[91] I do not agree with the plaintiffs submission that Bechthold v. Wendell Motor Sales Ltd., [2007] O.J. No. 4886, 162 A.C.W.S. (3d) 585 (S.C.J.) stands for the proposition that waiver of solicitor-client privilege must be pleaded.

[92] The defendants do not know what legal advice the plaintiffs received, but believe that the legal advice refutes the reliance allegation. The allegation of deemed waiver of solicitor-client privilege was made an issue at discovery and in correspondence from the defendants' counsel.

[93] The motion judge appropriately adopted Winkler J.'s reasoning in Leigh Instruments, concluding, at para. 32 of her reasons, that reliance on legal advice does not have to be specifically pleaded in order for state of mind to be in issue to create a waiver of privilege. She correctly adopted the principle confirmed by Winkler J. that [at para. 50] "[t]he guiding principles must be fairness and consistency".

[94] There is no merit to this ground of appeal.

Conclusions

[95] For these reasons, I conclude that this appeal should be dismissed. The motion judge was correct to require the plaintiffs to re-attend at the discovery to respond to the questions refused. In the circumstances of this case, deemed waiver of privilege clearly applies.

[96] The parties at the conclusion of argument advised the court that they have come to an agreement as to costs.

Appeal dismissed.

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